Archean Chemicals IPO opens today. Should you subscribe?

About the company

What does Archean Chemicals do: Archean Chemicals is one of India's leading marine chemical manufacturers. It produces:

• Bromine - largest exporter and leader in merchant sales in India (54 per cent of revenue)
• Industrial salt - largest exporter in India (45 per cent of revenue)
• Sulphate of Potash - only producer in India (1 per cent of revenue)

The company has brine reservoirs in Rann of Kutch that span approximately 240 sq km and integrated facility for all three commodities at Hajipur, Gujarat. The company is mostly present in export markets as export sales account for around 70 per cent of total revenue for FY22.

Strengths:

• Leadership position: The company holds a leadership position in all three commodities that it produces. This was possible, thanks to its access to the brine reservoir and a sector with high barriers to entry (capital intensive and forging relationships with clients).
• Integrated facility: The standard cost of production of sea salt is $12 to $15 per MT, but for the company, it is just $5-$6 per MT. This is possible due to its integrated facilities which are located near the reservoir and the ports. Mechanisation, optimal capacity utilisation and demand forecasting have improved the company's efficiency further.

Weaknesses:

• Revenue concentration: Its top customer Sojitz Corporation contributed 20 per cent to the company's revenue and the top ten customers account for 62 per cent of sales. This not only poses threat to revenue as the company forecasts it based on client demand but may also affect credit periods.
• Chinese dependence: The company has high exposure to China as the country accounts for 36 per cent of total revenues. Given the tensions between the two countries, any ban or suspension of trading activities may adversely impact business.

Risk score (The lower the score, the riskier the stock)

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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