Archean Chemical lists at 11% premium to issue price, extends gain

Archean Chemical Industries (ACIL) make strong stock market debut, with its shares listed at Rs 450, a 11 per cent premium to its issue price of Rs 407 per share on the National Stock Exchange (NSE).

Post listing, the stock moved higher to Rs 473.65, up 16 per cent over its issue price on the BSE. At 10:04 am, the stock traded at Rs 462.45. Meanwhile, the S&P BSE Sensex was down 0.73 per cent.

The Rs 1,462 crore initial public offering (IPO) of ACIL had received good response with the issue subscribed 32.23 times. The portion for institutional investors was subscribed 48.91 times. The quota for non-institutional buyers was subscribed 14.90 times, whereas the allocation for retail investors fetched 9.96 times bids.

The company proposed to utilize the net proceeds of the fresh issue towards redemption or earlier redemption in part or full of non-convertible debentures (NCDs) issued by the company amounting Rs 644 crore and general corporate purposes prepayment.

ACIL is a leading specialty marine chemical manufacturer in India. It manufactures three major product categories such as bromine, industrial salts and sulphate of potash. . In FY21, it was one of the largest exporters of both bromine and industrial salts in India. It has the lowest cost of production globally.

ACIL has planned product innovation, and capex to expand existing as well as new manufacturing facilities ensures positive business growth. The company has delivered 36.3 per cent / 77.7 per cent growth in revenue and EBITDA between FY20-22, respectively.

The company is expected to utilize its funds for the redemption of NCDs issued by company which will improve its debt to equity ratio up to ~1.0x from 2.6x as on June 2022. Further, this will have a positive impact on the profitability given the significant reduction in the interest cost of NCDs (with yield to maturity at 17 per cent p.a.). ACIL is valued at a discount based on its P/E of 26.6x, EV/EBITDA of 12.7x compared to its average valuation of peer companies, analysts at Nirmal Bang Securities said in IPO note.

The company is a leading market position, expansion, growth in bromine and industrial salt, high entry barriers in the specialty marine chemical industry, expanding into downstream bromine derivative performance products and expanding bromine and industrial salt capacities are key triggers/highlights for the stock, ICICI Securities said in IPO note.

Excessive rainfall in Gujarat may reduce the quality of salt and brine reserves, exchange rate fluctuations may adversely affect revenue, dependency on major customers for significant revenue and dependency on third party transaction and logistics service providers are key risk & concerns, the brokerage firm said.