Why SBI Mutual Fund is betting on this small cap chemical stock?
Recently listed Archean Chemical Industries- ACI is in focus after marquee domestic investor SBI MF picked up close to 80 lakh shares or 6.46 percent stake in this chemical company.
On November 24, the stock settled 8.14 percent higher at Rs 502.40 apiece on the BSE, while the benchmark Sensex closed 762.10 points or 1.24 percent higher at 62,272.68.
Archean Chemicals is a market leader in manufacturing Bromine, Industrial salt, sulphate of potash.
They produce products from their brine reserves in the Rann of Kutch, located on the coast of Gujarat, and manufacture products at their facility near Hajipir in Gujarat. The company recently raised over Rs 1,450 crores via IPO out of which Rs 805 crores was via fresh issue of shares.
Export Drives Company's Revenues
Company's current market capitalisation is close to Rs 6,000 crores and in FY22 company clocked in sales worth Rs 1130 crores, EBITDA margin of 41.3 percent and a posted a net profit of Rs 189 crores. Archean generated positive cash flows to the tune of Rs 327 crore in FY22 as per company filings.
For FY22 close to 70 percent of ACI's sales came from export markets. As of June 30, 2022, besides 24 domestic players, the company marketed its products to 18 global firms across 13 countries.
For industrial salt, ACI's major customers include - Sojitz Corporation (which is also a shareholder in the company), Wanhau Chemicals and Qatar Vinyl Company Limited. For bromine - Shandong Tianyi Chemical Corporation and Unibrom Corporation are major buyers.
Triggers Ahead
The company raised funds in IPO to repay debt and hence interest cost is expected to drop substantially. Also, the company is looking forward to integration with Bromine Value add products.
New Upcoming Expansion plans of the company:
High end Flame retardant - 10,000 TPA
Clear Brine fluids – 13,000 TPA
PTA – 5,000 TPABromine New Capacity will be 42,000 MTPA from current 28,500 MTPA