Archean Chemical Industries Limited (ACI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Archean Chemicals Industries Limited Q4 and FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on of this date. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Pendurthi, Managing Director of Archean Chemicals Industries Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. We wish you a very warm welcome to our Q4 FY '24 earnings call. Thank you all for being here today. Today, I'm joined by our CFO, Mr. Raghunathan Rajagopalan; and Rajeev Kumar, DGM, Finance; and SGA, our Investor Relations Adviser. I hope and assume everyone had an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange and on our company website as well. I will run through you -- I'll run with you a quick snapshot on the industry and recent developments at the company. Post that, Mr. Raghunathan, our CFO, will walk you through the operational and financial performance of the company. I'll start with the broad industry highlights in the segment that we operate as well as the chemical industry as such. Over the last few quarters, as you all may be well aware, the Indian chemical industry at large as well as globally, we have experienced some headwinds as China is still yet to come out of its economic challenges and to fully revise their domestic consumption, although we are seeing some green shoots there on the ground, which in turn has impacted the overall downstream industries. For a few periods, we saw some stabilization and restoration of select products, but there have been other challenges on the ground with regards to some demand issues as well as some supply chain issues with regard to freight costs. And these have, on occasion, delayed the overall supplies from our end, which in turn have impacted the business temporarily. If you see at an organization level, we have withstood these challenging conditions and maintained a healthy operational performance, showing resilience in both performance and managing costs. We have been constantly reviewing our internal measures to mitigate an impact of any rising cost and shipment delays, ensuring that our supply chain remains stable as well our customers and contracts are fully honored. On this occasion, I would like to thank the Archean team for their commitment and dedication to withstand and come up and rise to all these challenges. Coming to the performance highlights specifically, despite the uncertainties, we are pleased to report a resilient performance for the financial year 2024, registering a total income of INR 13,763 million. Coming to the product itself, the first one on the bromine side. Overall, demand from end-user market of bromine derivatives or bromine compounds continues to remain on stream, albeit a bit slower than we expected, however, stable. Throughout the year, price of bromine stood near above USD 3 mark. Consequently, our bromine segment experienced a drop in business only when you compare it to last year. In last few quarters, we have seen a steady demand from the domestic market, which all goes well for the demand scenario. And we have also ramped up our supply. And the volume offtake from end-user industries like Agrochem and Pharma has started picking up gradually over the last few months. The same can be said of the export market, and we are gradually ramping up our shipments there as well. To reiterate, most of our business associations and relationships are bilateral. And based on our engagement with them, we have good demand visibility for the next financial year as well. As most of you may be aware, most of our contracts are done on a long-term basis and thereby giving that stability and visibility as well. We are confident, of course, to do better business from the Bromine segment specifically and expect a healthy growth in FY '25. The second segment is our Industrial Salt segment. As you all are aware, Industrial Salt is an important product for us and at the moment, contributing nearly 65% of our total revenue. This chemical being a grade 1 category is primarily manufactured by very few players around the world. We are one of those and one of the largest in the world in that segment. For the year, we have crossed the 4 million mark in terms of volume, 4 million tonnes per year, that is. We did see some price moderation. But in the last quarter, however, that only saw specific spot shipments of a certain category and grade, but largely our volume and long-term contracts run at a higher rate and our impact. We continue to remain optimistic in the Salt segment and expect to sustain our growth momentum in FY '25. Our focus will continue to be on leveraging market opportunities and to do more improvements on the ground in terms of our process and cost efficiencies to drive sustainable growth. Sulphate of Potash, as we have been briefing you the last couple of quarters, this is a work in progress. We are seeing encouraging results on the trials and the labs by our technology partner in Europe, and we expect it to contribute meaningfully in H2 FY '25. Coming to our capacity expansion. Phase 1 of our greenfield expansion at the bromine derivative plant at Jhagadia, GIDC has been undertaken through our subsidiary, Archean Chemicals Private Limited, and has successfully commissioned in March 2024. This phase is dedicated to manufacturing bromine performance derivatives and clear brand fluids, which will enhance our product offerings and market presence. We have started engaging with end customers of both segments and have received a very encouraging response. And samples have been tested and approved in certain cases and trials are on elsewhere. The next phase of the same Phase I would be commissioned by the end of H1 FY '25. This phase will focus on producing a high range of demand products. These products are essential for various industrial applications continuing to be on the bromine performance side, and the production will significantly boost both our capability and market reach. A further update that's happened over the last few months is or in hydrocarbon, this we have acquired through our wholly owned subsidiary, Idealis Chemicals Private Limited. This company, we are waiting for the NCLT approval and that is pending at the moment. We're actively engaged in the process and are closely monitoring the situation. While we await these approvals, we remain optimistic about the potential of this project and its contribution to our portfolio. We have started doing some groundwork in restarting the plant, and that will keep going as we move forward. Of course, we understand the importance of keeping our stakeholders informed, and we'll provide more detailed updates in the upcoming quarters. Once approvals are secured, we anticipate that this project will enhance our market position and also our capability in the segments that we sell in. We're looking forward to engage with new clients, expand our product offerings, penetrate new markets and stabilize the new sites. We welcome the new financial year with renewed hope and are confident to deliver sustainable growth. That's it from my side. Now, I would request our CFO, Mr. Raghunathan, to run through the financial performance in broad numbers. Thank you.

Thank you, sir, and a very good afternoon to all the participants on the call. I'm pleased to report a notable performance for this quarter to give a summary of Q4 of FY '24. The total revenue for this quarter stood at around INR 2,922 million. Bromine contributed around 36% of the revenue from the product, and Industrial Salt has contributed around 64%. EBITDA for the company stood around INR 1,019 million for this quarter with a margin at 34%. And net profit for the quarter stood at around INR 596 million. Coming to 12 months' highlights. The total revenue stood at around INR 13,562.8 million. Bromine contributed around 33%. Industrial Salt is around 64%, and the balance 3% of the revenue came from SOP. 74% of the revenue is from the export market, and the balance 26% that was the domestic market. EBITDA for 12 months stood at around INR 5,110.3 million with a margin at 37%. Net profit for the financial year stood at around INR 3,223.5 million. Returns on capital employed and the returns on equity stood nearly at around 24% and 21%, respectively, for the full year. We also wish to inform and are happy to inform you that the Board of Directors have recommended a final dividend of INR 1 per equity share of INR 2 for the financial year amounting to INR 12.34 crores. It is further to be noted that the company had already declared 2 interim dividends in the year. And thus, with this, the total amount disbursed by way of dividend aggregates to around INR 37 crores. With this, we conclude the speech and open the floor for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Archit Joshi from B&K Securities.

Sir, I have a couple of questions. Firstly, if you can throw some light on how are you seeing the contracts for bromine, both long term and short term, to be panning out for this year for FY '25? I think last quarter, we had mentioned that we endeavor to reach close to 28,000, 29,000 tonnes of volume. Do you think in the current state and form of the demand environment, would that number be achievable? And more so, would that be more back-ended towards the second half of FY '25?

Thank you for that question. I think generally, if you see the pattern in our business, the second half generally tends to be stronger than the first half. But having said that, I think we remain on target. I think the recent -- as I mentioned in the introduction, I think we are seeing a healthy demand offtake. So there is no challenge on being able to sell more. So I think we'll continue to maintain that balance between the domestic and the export because the domestic also now with the monsoon coming generally, Agrochem players start getting a bit more active in terms of their production and stocking for the monsoon -- post-monsoon period, et cetera. So I think we don't see a challenge in meeting what we have suggested for FY '25.

Sure, sir. And if you could throw some light on the pricing bit as to at what prices would have our company lock the bromine contracts at? I think even despite, sir, the conflict geopolitically that we saw, we haven't seen much of a rise in the commodity prices, including that of bromine. So would we be higher or lower compared to last year with bromine, if you can share some of that on the long-term contracts that we usually retire for?

I think I was asked this question maybe 1 quarter or 2 quarters ago. I said the geopolitical issue, we are not seeing any impact as such on the bromine business globally, although I think there's a little bit more pronounced effect maybe now. But nevertheless, I think supplies are still happening from that part of the world. And we've always competed, I think, with the global players. So we don't see any reason for us to not be able to continue to compete. And I think bromine pricing, I think the pricing specifically, I think pricing is around the -- I think our last quarter average, maybe I would say about INR 220 per kilo. I think that's a fair number to assume.

Understood, sir. Sir, one last question. We've said that we'll be having our new Phase 2 plants coming in the second half FY '25. Now assuming the ramp-up of all these 3 derivative plants, what would be the internal consumption of bromine with the existing capacity that we have towards these derivatives that we intend to ramp up over a period of time? That would be my last one.

I think the bromine ramp-up, also just to clarify, I think our Phase I is broken up in 2 parts. So I think largely, the Phase II that we're talking about is the SR-related project. So that we have not yet started work on that because we have discovered that in our Phase I itself, there's a lot of products that now actually have a healthy offtake in demand. So instead of committing more CapEx, we want to be able to utilize the CapEx that we already spent and hence, we have expanded the portfolio of products that we're going to make in Phase I itself beyond pure PTA catalyst products or clear brand fluids. So I think in that aspect, we will ramp up. I think we've already started testing and sending for trial and samples almost 8 or 9 new products. So we expect to commercialize and start those sales over the next few months.

Sir, my question was more about knowing all the CapEx plans, assuming that, once we ramp up to, let's say, a peak utilization, how much bromine will be internally consumed? That was my question rather.

Okay. So I think we remain on target. I think we consume between 10,000 to 15,000 tonnes of bromine.

Right. So this assumes the fact that all the capacities, all the derivatives will be more or less at peak utilization, and we might require 10,000 to 15,000 tonnes of bromine?

Yes. That's Phase 1, yes.

Phase 1 only, not assuming Phase 2 here. Only for Phase 1?

Not assuming as far, yes.

[Operator Instructions] The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Sir, my question is on to the volume growth. So more or less, sir, we are -- we have told that we would be setting up the Phase II plant in the second half and Phase I has been started. So for FY '25 and for '26. So cumulatively, what sort of volume growth you're looking at?

So I think we are looking at, at least 30% growth from the FY '24 volume.

30% growth. And sir, in FY '26?

FY '26, that's -- in today's context, that's a long way off. But I will have a guess here. I think we should at least be able to double from where we are today.

Okay. Sir, on to the CapEx side, sir, if you can tell us, sir, how much CapEx of this INR 250 crore has been completed? And how much is remaining in the pipeline?

Mr. Raghunathan will answer that.

Yes, we have incurred cost to around INR 110 crores.

And remaining would be done before the second half?

No, no, not necessarily or not fully. As we have said, for the purpose of completing our -- the so-called Phase 1, we'll be incurring an additional INR 30 crores, INR 40 crores.

Okay. Okay. Sir, my last question, sir. Sir, post-expansion into this bromine derivatives. So considering your domestic export split is somewhere around 25 to 75. So with this bromine expansion, how the split would change more towards the export side?

We would -- our initial efforts are towards the export side. So I would imagine that it will translate into numbers showing the same. It would be a more...

75% exports would remain at 75% post the bromine derivative expansion?

I mean, I think to be honest, I think give or take a few percentage. But by large, generally, at least 70% plus is generally where we export. So our product portfolio shouldn't undergo too much of a change in export versus domestic.

Okay. Sir, just one last question. Sir, on to the import side, are you witnessing any sort of increase in imports in India? So from China or from any other countries, are there any news of capacity expansion, which you have heard?

In bromine?

Yes, sir.

No, I think there's no new capacity as such. I think everyone is may be trying to peak capacity what they have depending upon the market situation. But imports, I think largely over the last few years anyway, have reduced quite a bit. But there will be certain spurts in imports simply because there are some customers who have been buying from the foreign companies for a long time. They're relationship-based. So they continue to import some part of the requirement, but I would say largely, there's no big user of bromine who is not our customer at the moment.

The next question is from the line of Sanjesh Jain from ICICI Securities.

Apologies if it's a repetition, I joined late in the call. First, on the bromine itself, how are you seeing demand scenario? Because it appears that the last few quarters have been very tough for us. How is the bromine market looking up? And when do you see volumes actually normalizing in the market, say, bottoming out in terms of pricing competition and the volume demand?

So thank you for the question, Sanjesh. So I think volume normalization is happening as we speak. I think our order book is full for our capacity, what we have planned for this year. So I think in that context, we see some demand having come back, the domestic market and the export market. And I think there are larger commitments per customer on a per-order basis. So we believe that large segments of the customers also are quite encouraged by the signs that they are seeing in their end-user market. So we believe that it will continue to look that way. I think I mentioned this over the last call or the 2 calls before this, I said I'm not too familiar with how much destocking, et cetera, is happening. But from our industry perspective, we see more stability today as we speak than we did over the last 2 quarters.

That's fair enough. That's fair enough. But now that we have a full order book for the year, how does the pricing look like for this year? Because we generally do pricing plus volume contracts. How does the bromine realization for this year looks like?

Yes. So I think that -- yes, so that question, I think someone else had asked when you were not on the call. So no issues. So it's, I think, no, no problem. I think we're looking at between the 220, 225 mark per kilo, and I think we're comfortable with that range as well.

That's great. Second number, on the -- this downstream products. Clear benefit -- clearly, we can see INR 50 lakhs of revenue being booked in the subsidiary, which is your console minus standalone. That means we have already started doing some sales in the subsidiary. How has been the response from the customer? And what kind of customers are we right now talking? And will that also have a beneficial impact on our expansion or in hydrocarbon?

Very good question. You've tied all the 3 companies together. So I think you're right. I think our aim from 2 years ago was always that we'll continue to grow in the bromine space and the downstream space. So 1 step towards that was Acume, the subsidy that's producing the bromine derivatives. And as you said, we have started the exports of the Clear Brine Fluids from that subsidiary as intended. And we've already invoiced and build. And I think those are the first few batches of product. So I think, as you understand, we will be 2, 3 months of stabilization, but I think our response is very encouraging from the market. Specifically, since you asked the question, I think today, we have on the table almost 60-plus clients that we have started talking to. And we've given almost a majority of them have already taken our sample. And I would say about 1/3 of them are testing it for approval and about 10 of them have already approved it. So we are making good progress. Like we always said, it's a slightly more technical product than elemental bromine. So there's a lot more engagement with the customer and certain testing and specification requirements are there. So as we fine-tune those, we anticipate the response will continue to be encouraging.

Got it. And how this you tie up with Oren? When is that going to start? And will it be the same customer?

So Oren incidentally also deals in the hydrocarbon space. They do make some products, not necessarily only bromine related, but the end-user industries are largely oil and gas and drilling industries. So that is where our derivatives are going already. So we do see a proper fit and hence, the acquisition. And some of these products are complementary, not competition per se. So we'll be able to approach these customers with a bigger basket of products than just only a clear brand fluid product. So that was the intention.

Got it. Got it. And next on the TBBA, the flame retardant part of it. How is that market looking? Like you don't think another 6 months is the right time for us to get in or it will take more than that?

I think the TBBA market specifically, I think, has been weak for a bit. But it's primarily, I think, more of a concern for those who buy bromine and make the product. For iterated manufacturers, at the end of the day, TBBA is still being sold, maybe at lower prices. But I think for integrated manufacturers like ourselves, TBBA will still make return on the investment. However, at this point, we see the other products on the inorganic side, where we've already invested some CapEx, building that portfolio out with the newer products. I think we'll make equally good return, if not slightly better, and still consume equal amounts of bromine. So I would say we have taken a pause, but I think we keep reevaluating it every month and seeing when is the right time for us to commit that CapEx because the money has already been raised and is available with us. So we don't foresee a problem deploying that fund. It is that we need to get the timing right in terms of when we want to comment on the CapEx.

Clear, clear. Just last 2 questions, one on the Salt and one on the SOP. On the Salt, how does FY '25 look like? Should we grow volumes over FY '24, which was stronger? And number two, any more update to share on the SOP flotation technology, which you were trying to do?

Sure. I think on the Salt, our endeavor is to build on the volume that we crossed in FY '24. I think the market is there. And as you know, we are a pretty dominant player in the market in the Asian space itself, not just on the domestic business anyways in Salt. So there is ample scope to improve that volume. On the SOP itself, I think the tests have been encouraging. It's a work in progress. We have made good headway over the last few. And we recently commissioned the pilot plant trial at the technology provider's lab, which basically means the larger sample has been shipped and a larger test is being conducted. So I think, as I've said on earlier calls, I think we are almost there, and we are very encouraged seeing results of the test. So SOP is a bit of a patience gain, but I think we are getting there.

Got it. Will there be any sale of SOP volume in FY '25? Because I think we have exhausted that one batch, which we manufactured last year.

So we've also now started making a second-grade SOP. And this also has a market, and we are seeing some demand and some inquiries for that. So we are now in the process of getting that certified locally within the Indian market domestic, but we're also seeing some encouraging signs on the export side. So that material, we have enough to process and manufacture raw material for that particular grade. So you will see some production and volumes this year.

[Operator Instructions] The next question is from the line of Deepak Saha from [indiscernible] Private Limited.

Am I audible, sir?

Yes, sir. You are audible.

Sir, few housekeeping questions. Can you share the value for Bromine and Industrial Salt for the quarter and the volume for the sale?

Sorry, can you come again? It was -- we can hear you, but you're not very clear.

I'm asking for the value and volume while Bromine and Industrial Salt number for the quarter and the full year.

Okay. For the quarter, the revenue from Salt is around INR 179 crores and for bromine is around INR 102 crores. As far as the volume goes, it's around 930,000 in Industrial Salt and 4,800 tonnes in Bromine.

Sir, thanks for the numbers. And what is the total production for Bromine and Industrial Salt for the full year, the production number, sir?

Okay. For the full year, Bromine production is around 17,300 tonnes. And if it comes to Salt, it's around the 4.25 million.

Okay. Perfect. Sir, one thing, it may be early to say...

Sorry to interrupt you, sir. May I request you to use your handset, please?

Am I audible?

No, sir. There is a break in your voice.

Is it better now?