Archean Chemical’s Q3FY23 EBITDA grew 36% YoY to Rs1.6bn, a tad lower than our expectation due to lower bromine volumes, which indeed were hurt from lower off-take by Chinese. It was compensated by higher industrial salt volumes and improved realisations for both bromine and industrial salts. Company expects Q4FY23 to be strong, driven by sale of 9kte SOP where it is negotiating prices, and higher volumes for bromine as China bounces back. EBITDA margin benefited from better realisations.

The company expects bromine derivative plant (28ktpa capacity) to commission by end-FY24. Land renewal discussion with government is progressing with industry making representation to Gujarat government.

Bromine volumes dip 23% YoY, while price rises 22.9%. Archean Chemical’s revenue grew 18.7% YoY to Rs3.7bn driven by industrial salt revenue growth of 58% YoY to Rs2bn, while bromine and SOP revenues dipped 5.4% and 70% YoY to Rs1.6bn and Rs36mn, respectively. Bromine volumes dipped 23% YoY to 4kte on lower off-take from China which was impacted by rise in covid cases and Chinese New Year. Company expects volumes to bounce back in Q4FY23 as Chinese resume purchases. Domestic sales volume remains strong driven by demand from agro-chemicals segment. Bromine realisation has

improved to Rs392/kg on higher priced contracts and INR depreciation. The new contracts are signed at higher prices, and as they commence, realisations will benefit. Industrial salt volume was higher at 1.1mn te (up 22% YoY) and realisation improved to Rs1.86/kg (up 29.5%) on higher contracted prices. These contracts are valid for the next two years.

EBITDA rose 36% YoY to Rs1.6bn. Employee cost was higher at 2.7x YoY due to recognition of cost towards ESOPs (Rs70mn) and one-time commission for promoters. The steady state number is Rs400mn pa. Other expenses were higher at 9.2% YoY due to higher mix of CIF contracts in industrial salt. EBITDA rose 36% YoY to Rs1.6bn and EBITDA margin was 43.8% (vs 38.1% in Q3FY22) despite higher mix of lower margin industrial salt. EBITDA margin benefited from higher realisations in both industrial salt and bromine. Net profit rose 100% to Rs981mn on lower finance cost which dipped 52% YoY on repayment of NCDs from IPO proceeds.

Other highlights. 1) Bromine: a) Company expects utilisation to be 75% (capacity: 28ktpa) in FY24, implying 6-7ktpa volume sales in Q4FY24, provided Chinese off-take resumes; b) realisation will improve as realisations of new contracts kick-in; and c) company’s bromine realisation has lower correlation to Chinese spot prices and it expects bromine prices to remain stable. 2) Bromine derivative: a) It has commenced construction work and expects both the phases to commence simultaneously by end-FY24; b) it will require 12-13ktpa bromine for compound manufacturing; and 3) land renewal: It is progressing well and association has made representation to the government.