Q4FY23 Review: Archean Chemical: Bromine exports in a ‘wait-&-watch’ mode

30 May 2023 , 12:35 PM

While H1FY23 saw significant pricing tailwinds in bromine, the latter part of FY23 witnessed sluggish offtake of contracted bromine volumes with substantial price correction in spot market. Nevertheless, industrial salt delivered a strong performance; pricing likely to hold steady during FY24. Bromine derivatives is an FY25 story, as the commissioning would take place by FY24-end. Analysts of IIFL Capital Services trim FY24-25 EPS by ~7- 15% to factor slower volume offtake and pricing pressure on bromine volumes. They roll over their TP to Jun’24 (from Mar’24) and their revised TP stands at Rs705 (earlier Rs750).

Q4 Ebitda comes in line with estimates: 

ACIL’s Ebitda came in line with expectations, despite a large miss on revenues. This is largely on account of lower-than-expected offtake for bromine exports due to downward price trend. Industrial salt volumes were strong, backed by customer demand and positive end-user industry trends. Employee benefit expenses were at elevated levels on provisioning of ESOPs and MD commissions. Finance costs reduced QoQ with redemption of NCDs from IPO proceeds.

Bromine price correction keeps customers at bay: 

Bromine spot realisations have corrected substantially over past couple of months and are now trending at pre-Covid levels. While ACIL has price-fixed annual contracts with customers, volume offtake will be sensitive to spot prices and destocking trends in the export market. Management expects the above anomaly to normalise in 4-5 months. In contrast, domestic market demand is strong and accounts for a large portion of short-duration contracts entered by ACIL.

Volume growth to offset pricing jitters: 

For bromine, management expects volume growth exceeding high-single digit for FY24 (skewed towards H2FY24). Industrial salt should also grow higher than ‘single-digit’, with average pricing sustaining at FY23 levels. ACIL aims to liquidate ~8k of SOP inventory during FY24, by beginning customer engagement and commercial supplies.