Archean Chemical - Bromine Is A Good Chemical Play Amid China Overcapacity: ICICI Securities

ICICI Securities Report

Bromine prices have dropped below 15-year low in China in June 2023, but it has partly recovered in August 2023. The price fall was a mix of greed, speculation and sudden drop in demand. China is undergoing destocking which may last till end CY23 as per ICL.

We fundamentally like bromine producers as China is significantly dependent on imports to meet its demand, and thus, it cannot create overcapacity.

Archean Chemical Industries Ltd.’s Q1 FY24 result was relatively better despite the volatility in bromine prices due to long-term contracts, and strong performance in industrial salts.

We expect bromine to witness volume recovery by Q4 FY24E, and prices to firm up only in FY25E. Archean Chemical is also in the process of commissioning its derivative plant which increases earnings visibility during the forecasted period.

We maintain 'Buy' on Archean Chemical with an unchanged target price of Rs 750 (13 times FY25 earnings per share).

Key risks:

• Lower than expected bromine prices and volume recovery; and

• delay in bromine derivative plant commissioning.

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