Around 40% upside potential! Here's why Axis Securities is betting on this specialty chemical stock

Market experts believe that specialty chemical sector may face some short-term challenges, but this sector is poised for long-term growth. Archean Chemical Industries, a small-cap specialty chemical stock, is in focus after the company announced its earnings for the first quarter of this financial year (FY24).

Axis Securities has maintained its bullish stance on the stock primarily because of its bromine business.  It believes that the company's bromine derivatives are of high purity due to production from virgin bromine compared to peers’ products that are made from reused bromine.

About the company

Archean Chemical Industries is a leading manufacturer of specialty marine chemicals in India. The company is the largest exporter of bromine and industrial salt in India. It is also the only manufacturer of sulphate of potash (SOP) from natural sea brine, in India.

Q1 Performance and the road ahead

In the first quarter of FY24, the company’s revenue dipped 14.3 per cent on a year-on-year basis to Rs 340 crore due to a drop in bromine business by 32.8 per cent to Rs 140 crore; industrial salt revenue was up 3.2 per cent to Rs 200 crore. Bromine volumes were down 25% YoY to 4.3kte due to weak demand from exports - China (largest geography) is undergoing destocking and weak demand; India bromine business was steady. Bromine prices also dipped 10 per cent to Rs 321/kg.

Archean Chemical Industries believes the worst for bromine is behind, and it has seen early signs of green shoots. It expects recovery in volumes immediately, followed by improvement in prices. "SOP exports have been pushed to future quarters, and we anticipate to liquidate the entire 8.8kte in FY24E," said Axis Securities.

The brokerage has maintained a 'Buy' rating on the stock with a target price of Rs 750, suggesting an upside potential of around 40 per cent from Monday's closing price of Rs 539.

The company, in its investor presentation, said it has recently expanded capacity through debottlenecking of bromine and industrial salt and will play vital role in growth trajectory. New bromine derivatives capacity is expected to be commercialized by FY24 at Jhagadia, GIDC which will improve product offerings. 

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It added an additional 14,500 MT per annum capacity in FY23 which will be used for producing bromine derivatives in the upcoming greenfield project. Archean Chemical Industries will also set up a new facility at Jhagadia, GIDC through Acume Chemicals Private Limited (Subsidiary) to manufacture Bromine Performance Derivatives.

Archean Chemical Industries on D-Street

The smallcap stock hit a 52-week high of Rs 731.75 on February 13, 2023 and a 52-week low of Rs 440.5 on November 21, 2022. It has recovered over 22 per cent from its recent lows.

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