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Archean Chemical Industries IPO: 5 Things to Know

Nov 7, 2022

Archean Chemical Industries IPO: 5 Things to Know

IPO or an initial public offering is the first sale of shares by a private company to the general public. When a company goes public, it can raise money to grow its business and expand. A newly public company will have shares listed on a stock exchange.

Investors love IPO because they get to buy good company shares at a low price. At least that's the common perception. The listing gains on IPO are the most attractive thing about IPOs.

For instance, recently, a SME company Phantom Digital Effects came out with its IPO and listed on NSE with over 200% gains on listing day.

There are several instances where companies have delivered big gains on listing day.

However, investors may need to spend time researching and analysing companies before applying to any IPOs.

Healthy momentum in the secondary market, ample liquidity in the system and greater participation of retail investors were some of the factors keeping the IPO street abuzz in 2021.

It appears the phase is back and the market has already started to rise. As many as four new companies are coming out with their IPOs this week. This is on the back of two issues which are underway.

From the four, the biggest IPO is by chemical company Archean Chemical.

The chemical manufacturer's IPO will open for subscription on 9 November 2022. Here are the key details.

Issue period: 09 November 2022 to 11 November 2022

Issue size: Rs 14.6 bn (fresh issue for Rs 8.1 bn offer for sale for Rs 6.5 bn)

Price band: Rs 386 to Rs 407 per equity share

Bid lot: 36 shares and multiple thereof

Application limit: Minimum one lot maximum thirteen lots

Face value: Rs 2 per equity share

The company has reserved not less than 75% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 10% of shares are available for retail individual investors.

Tentative IPO allotment date: 16 November 2022

Tentative listing date: 21 November 2022

Here are 5 important details about Archean Chemical Industries IPO.

#1 About the company

Archean Chemical Industries is India's largest exporter of bromine and industrial salt as of financial year 2020-2021.

The company is the leading speciality marine chemical manufacturer in India and is focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world.

The company is the only manufacturer of sulphate potash in India. The company's marine chemicals business is predominately conducted on a business-to-business basis both in India and internationally.

The company has an integrated production facility for the bromine, industrial salt, and sulphate of potash operations, located at Hajipir, Gujarat, located on the northern edge of the Rann of Kutch brine fields.

#2 Financial position

Archean Chemical Industries' financials are improving. Its revenue has increased by around 51% in the financial year ended 31 March 2022. The expenses have also seen a decline.

However, return on net worth (RoNW) remains a concern. In the last three years, the company has seen both negative and declining RoNW.

Financial snapshot

Particulars 31-Mar-22 31-Mar-21 31-Mar-20
Revenues (Rs m) 11,428.3 7,547.9 6,170.1
Revenue Growth (%) 51.4% 22.3%  
     
Expenditure Before Tax 8,918.3 6,643.3 6,337.0
% of Total Income 78.0 88.0 102.7
     
Net Profit 1,885.8 666.1 -362.2
Net Profit Margin (%) 16.5 8.8 -5.9
     
Net Worth 2,610.6 723.8 59.9
Return on Net Worth (%) 72.2 92.0 -605.1
     
Basic Earnings per share (Rs) 18.3 6.5 -3.5
Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the RHP, Tata Chemicals, Deepak Nitrite, Aarti Industries, and Neogen Chemicals are its listed peers.

Peer Comparison

Company Total Income
(2022) (Rs m)
Net Profit EPS (Basic) (Rs) Return on
Net Worth (%)
Archean Chemical Industries 11,428.3 1,885.8 18.3 72.2
Tata Chemicals 12,878.1 11,741.0 49.2 6.9
Deepak Nitrite 68,448.0 10,666.0 78.2 31.9
Aarti Industries 70,007.6 13,074.0 36.1 22.1
Neogen Chemicals 4,883.2 446 10.2 10.2
Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

  • It has a leading market position in bromine and industrial salt segment.
  • There are high entry barriers in the speciality marine chemicals industry, which means the company will face less competition.
  • The company has a well-established infrastructure and integrated production with cost efficiencies.
  • It is the largest Indian exporter of bromine and industrial salt with a global customer base.
  • It has an experienced management team, and promoters.

#5 Risk factors

  • The company underwent debt restructuring in 2017. Debt restructuring may be a sign of concern for investors.
  • It is heavily dependent on a few customers. Top 10 customers generate around 70% of the total revenue. Hence, losing even one of them will have a major impact on the company's revenues.
  • Being a chemical company sourcing raw materials at the correct time is extremely important for manufacturing quality chemicals. However, the company does not have a long-term contract with its suppliers, which means it is exposed to loss of suppliers and not to mention price variability.
  • In the past, it has failed to meet certain requirements of the market regulator.

To conclude

A horse that pants in a short race cannot be trusted to win the derby.

Debt restructuring means the reorganization of a distressed company's outstanding obligations to restore its liquidity and keep it in business.

Archean Chemical Industries had to be restructured before it went public. Under this circumstance, will it be able to stand on firm ground after listing? Especially since a company's compliances manifold once it is listed.

However, it cannot be ignored that with China plus one strategy in force, there are tailwinds for the chemical sector. It might help Archean Chemical Industries pick up the much-needed pace.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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