Archean Chemicals seeks SEBI nod for Rs.1,000 Cr issue

Amidst the excitement of the LIC IPO and the slew of other IPOs on the anvil, one more company has filed its draft red herring prospectus (DRHP) with SEBI for its proposed IPO. Archean Chemical Industries Ltd has sought approval from SEBI to raise funds through an initial public offering. The IPO will be a combination of a fresh issue of shares and also an offer for sale by the early shareholders of the company and its promoters.

The Archean Chemical Industries IPO will comprise of a fresh issue of Rs.1,000 crore and an offer-for-sale (OFS) of up to 1.91 crore shares tendered by the early shareholders of the company and its promoters. In terms of shareholding pattern, CS LLP holds 41% stake in the Archean, IRF-I has 7.46% stake, IFR-II has 12.19% and PNRPL has 7.46% stake in Archean. These are some of the early investors who have invested in Archean Chemical Industries.

Let us first focus on the OFS component of Archean Chemical Industries. Among those tendering shares in the OFS, there will be 53 lakh shares by Chemikas Specialty (CS) LLP, 37.3 lakh shares by India Resurgence Fund Scheme I (IRF-I), 63 lakh shares by India Resurgence Fund, Scheme II (IRF-II) and 37.3 lakh shares by Piramal Natural Resources (PNRPL). The OFS will only be transfer of ownership with now fresh funds coming in.

In terms of the fresh issue component, it will be predominantly used to redeem the non-convertible debentures of the company. The outstanding NCDs, inclusive of accrued interest is already close to Rs.980 crore at this juncture. The redemption of NCDs is expected to reduce solvency risk of Archean Chemical Industries, improve the debt/equity ratio and enhance the coverage ratio like the interest coverage and the debt service coverage ratios.

Archean Chemical Industries is one of the leading specialty chemical companies in India with a strong and niche focus on marine specialty chemicals. The predominant products of the company include bromine, industrial salt, and sulphate of potash and these are not only sold domestically but also to customers around the world. Most of its products are made from the brine reserves in Kutch and processed at a facility near Hajipir in the state of Gujarat.

Archean Chemical Industries has a very strong customer franchise that spreads across India and the global markets. Currently, the company markets its products to 13 global customers located in 13 different countries and to a total of 29 B2B domestic customers in India. This is a highly specialized focus on chemicals where competition is not too intense.

In FY21, Archean Chemical Industries reported sales revenues from operations of Rs.741 crore, reflecting a growth of 21.9% YoY compared to Rs.608 crore in FY20. For the latest fiscal year FY21 Archean Chemical Industries  reported a turnaround from a loss to a net profit of Rs.66.61 crore implying healthy net profit margins of 9%. The company has maintained its robust sales and profit performance in H1-FY22 also.
The public issue will be lead managed by IIFL Securities Ltd, ICICI Securities Ltd and JM Financial acting as the lead managers to the issue.

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