Q1FY24 Review: Archean Chemical: Domestic bromine demand holds up

16 Aug 2023 , 01:33 PM

Archean Chemicals Q1’24 performance was weighed down by weak bromine sales in the Exports market. Destocking and a weak demand in China resulted in subdued exports, while domestic demand remained resilient. Industrial salt volumes were steady, on the back of higher capacities in chlorine value chain in Asian markets. While the Q1-disappointment led to a ~16% cut for FY24 EPS, FY25-26 EPS cuts are limited as analysts of IIFL Capital Services factor in gradual improvement in realisations and ramp-up in bromine derivatives. With flame retardant coming on-stream from Q1FY25, revenue from bromine derivatives will start contributing meaningfully from FY25. Analysts of IIFL Capital Services roll over their TP to Sep’24 (from Jun’24); their revised TP now stands at Rs685 (earlier Rs705). Maintain BUY. 

Weak bromine exports weigh down Q1 performance: 

ACIL’s reported below-than-expected performance mainly due to lower volume offtake in the Bromine segment. Bromine realisations too declined, on the back of inventory destocking in exports. Industrial salt volumes were steady, on higher capacities in chlorine value chain. The performance was further impacted by a week-long shutdown due to cyclone Biparjoy. 

Domestic demand holds up well: 

Though Bromine volumes were down 25% YoY and 3% sequentially to 4,272tn, domestic volumes were up 6% as the demand from end-user industry was healthy. Exports sales were significantly impacted, due to destocking across segments and reduced demand from China. However, management indicated witnessing green shoots as customers have started uplifting contractual volumes gradually. 

Flame retardant facility by Q1’25: 

Management highlighted that Bromine derivatives plant will be commissioned in 2 phases. Phase-1 will include PTA catalyst and clear brine fluids; to be commissioned in FY24. Containing flame retardant, Phase 2 is expected to come onstream by Q1FY25. Thus, bromine derivatives will start contributing meaningfully from FY25 onwards.