Release Date: February 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Archean Chemical Industries Ltd (BOM:543657, Financial) reported a healthy performance for Q3 FY24, with total revenue of INR4,227 million, marking a 13% year-on-year growth.
- The company observed stabilization in certain end-user industries, particularly in bromine, which saw a demand pickup.
- Industrial salt volumes remained steady at over 1 million tons per quarter, with a strong client base in the Asian market.
- The bromine derivatives facility in Jhagadia, Gujarat, is progressing as per schedule, with the first phase expected to start soon.
- The company declared a second interim dividend of INR1 per equity for FY24, amounting to INR12.34 crores, indicating strong financial health.
Negative Points
- The chemical industry at large has faced headwinds over the last few quarters, impacting overall business performance.
- Bromine prices have moderated and are currently around the $2.75 to $3 mark, which is lower than the long-term average of $3.
- The domestic market for agrochemical players is facing headwinds, leading to lower offtake than usual.
- Global geopolitical tensions have led to additional inquiries, but these are considered momentary and not sustainable in the long term.
- The company is still awaiting necessary clearances from regulatory authorities for the bromine derivatives facility, which could delay the project.
Q & A Highlights
Q: We have seen that the downward spiral of the bromine prices got arrested. Can you give some colors with respect to prospectively when we look at this business, how do we see the contracts getting signed?
A: There is a demand moderation. We are performing on our long-term contracts and have a backlog of almost 4,000 tons of orders. The pricing of bromine is influenced by end-user industries, especially in China. We anticipate that the pricing will continue at current levels, give or take a few cents. The Israel situation has not significantly impacted the supply chain.
Q: With respect to the derivatives as the capacity is coming up, have we been able to get some contracts or visibility to this business?
A: We started doing sampling and trials with both domestic and overseas customers in January. We are on track and hope to move towards firmer negotiations on contracts and offtake once the trials are done.
Q: In terms of costs, we had embarked on some costs. Are we largely done with it? And can we start seeing the benefits there from FY25 onwards?
A: Cost-saving is an ongoing process. Certain measures have kicked in recently, and we will start seeing some benefits in the coming quarters. It is about balancing cost savings with efficiency.
Q: Can you help us with the volume, sales volume for all the three products during this quarter?
A: For this quarter, the sales from salt are around 1.3 million tons, bromine around 5,000 tons, and SOP around 4,300 tons.
Q: Now that we have already hit 5,000 tons of bromine this quarter, do you believe that consuming the 28,000-29,000 tons of elemental bromine now looks possible in FY25?
A: That is our endeavor. If we get a boost from external customers, we will definitely look at doing that. However, we are taking a more conservative number for now.
Q: Can you help us understand what excites you about the Oren Hydrocarbon business?
A: Oren Hydrocarbon ties into our bromine derivatives business, allowing us to expand our product portfolio into oil drilling products. This acquisition provides synergy and expands our offerings to oil drilling customers.
Q: What is the level of investment required to bring Oren Hydrocarbon back into operation?
A: We anticipate spending between INR20 crores and INR30 crores on the revamp. The plants have been largely in operation, and some are brand new, so we do not expect a long startup time.
Q: What kind of revenue can we expect in FY25 from the first phase of the bromine derivatives project?
A: We are targeting between INR200 crores to INR300 crores on the lower end from the derivative plant in FY25. Subsequent revenue will increase with the addition of the second phase of the flame retardant part of the project.
Q: What kind of margins can we expect from the bromine derivative business compared to the normal bromine business?
A: On a combined basis, we aim to maintain margins in the 35% to 40% range. The bromine derivative business is expected to add 20% to 25% over the market prices of bromine.
Q: Can you provide clarity on the lease renewal for the company?
A: The government is evaluating the whole industry, not just our lease. We believe the government is working on sorting out and closing many pending leases. We remain confident that it will happen sooner than later.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
