Archean Chemical Industries Limited (ACI) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Archean Chemical Industries Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Pendurthi, Managing Director. Thank you and over to you, sir.

Thank you. Good morning, everyone. A warm welcome to all of you joining our Q1 FY '26 earnings call. Thank you all for taking the time to be here with us today. On this call, I am joined by Mr. N.R. Kannan; our Executive Director; Mr. Natarajan Ramamurthy, our CFO; Mr. Rajeev Kumar, our DGM Finance; and the SGA team who our Investor Relations advisors. I hope you all had a chance to go through the financial results and the investor presentation available on our website and the stock exchanges. I will start up with a brief overview on the recent developments and market trends. Post that, Mr. Natarajan, our CFO, will give you a financial overview for the quarter. To start with the market overview, we are witnessing mixed trends across the chemical industry. with early signs of recovery in select segments. Inquiry levels are steadily improving, indicating a more favorable business environment in the coming quarters and years ahead. However, the recent tariff uncertainties have obviously held many global MNCs from making decisions while reevaluating sourcing and investment strategies. The Indian specialty chemicals industry, nevertheless, is poised for significant long-term growth supported by rising domestic consumption, supply chain diversification, and government-led incentives, et cetera. Recently, NITI Aayog has released a report in July 2025 outlining a roadmap for India to become a global chemical powerhouse with potential to reach USD 1 trillion by 2040. Despite mixed signals and industry challenges, Archean Chemicals has demonstrated resilience and agility while overall improving its operational performance despite volatility in the market. We began FY '26 on a strong note, delivering a 30% year-on-year revenue growth in the first quarter with a steady product mix. Coming straight to our performance, we'll start with Elemental Bromine. We continue to be India's largest manufacturer and exporter in the space. Elemental Bromine contributed approximately 30% of our total revenue in Q1 FY '26, with overall business performance remaining broadly stable as compared to the previous quarter. We are confident and we are seeing consistent demand and expect gradual improvement in volumes over the coming quarters. We're also seeing more traction from domestic clients at the same time. Just to reiterate again, any sharp movements in spot prices do not immediately impact us as most of our contracts are long-term and bilateral in nature, therefore providing the underlying resilience to our business model. While the pricing environment has been challenging from the last couple of years for the chemical industry in whole, we have reported a steady volume as well as some green shoots and uptick in price movements, helping the Bromine segment. At the same time, our strong relationship with our customers, whom many of them have been with us for more than 5, 7 years, continue to place orders with us and continue to demonstrate their confidence in our capability to meet any extra volume that they need, both domestically as well as internationally. Industrial Salt. As you all are aware, we produce a Grade 1 superior quality of Industrial Salt that is primarily exported to the Far East, and to over 10 countries overall. Our end customers are chlor-alkali manufacturers, particularly those in the chlorine value chain. Purity and consistency in delivery is a requirement for most of these global manufacturers, both on the chemical side as well as the petrochemical side. Globally, only a handful of manufacturers can meet this level of purity and we are among them and continue to be India's largest exporter of Industrial Salt. During the quarter, we have maintained sales volume of 1.1 million tons, as we have indicated in previous quarters that that would be largely our run rate and maybe a little bit more in the coming quarters. Earlier, operational challenges, particularly related to logistics, have been largely resolved. With strong demand visibility and once again with long-term contracts with end customers across Asia, we expect to maintain this run rate and also continue to work towards increasing the volumes in this segment. On Sulphate of Potash, our trial runs are progressing very well. We are very confident with the efforts that we are putting in now on improving the conversion ratios. We are also working closely with the technology partner to progress from pilot scale to plant scale trials. Activities to enable this such as plant modifications are under progress already and we are now preparing for plant trials in the coming quarter and are confident of replicating the pilot plant performance where the trials have proved to be very encouraging, and we continue to believe that SOP will be a mainstay business for the company in the quarters and years to come. We are one of the few very global manufacturers of SOP, and the market remains very firm in terms of demand for this specialty fertilizer, of which we are one of the very few in the world who make it. As stated earlier, we expect meaningful contributions from this vertical in the second half of FY '26. On Bromine Derivatives, Bromine Derivatives operations are up and running and currently operating between 30% to 40% capacity utilization. Clear brine fluids and catalysts for Purified Terephthalic Acid, PTA, synthesis has contributed in the Q1 FY '26 performance. We expect the utilization to gradually improve to greater than 50% before the end of this financial year. Once again here, we are encouraged by the response we have received from clients, both domestically and internationally, primarily in the Middle East where the oil fields are based. Both products have been received well and have started engaging with ongoing certifications. Regarding the flame retardant, FR project, as I told you on the earlier call, we have initiated work on this project and this initiative is being actively pursued now and we will provide an update in the coming quarters once the finalization has been done at our end. As you're aware, FR is a very important chemical that's used primarily in electronics and the recent government initiatives on PLI schemes, et cetera and the thrust for the electronics sector, we believe the scope for FR continues to remain robust domestically and continues to be so internationally. On Oren Hydrocarbon, which has been renamed as Idealis Mudchemie, we acquired this company in 2024, and as you are, aware took possession of the assets in the last quarter of that year. Over the past 6 months we made steady progress in reviving and refurbishing the units. The trial runs have commenced in 2 units and product qualification has also commenced. We have started receiving acceptance from certain customers domestically and internationally. And we continue to focus on starting the commercial production soon and starting to contribute meaningfully to the top line and bottom line this year. On our new strategic initiatives, semiconductor, the land acquisition is completed for this project in Odisha, and we have also tendered out RFQs for running the project management office last month, and we expect to commence groundwork post monsoon. On the energy storage business, as you're all aware, we have invested in Offgrid Energy Labs, a zinc-bromide battery innovator with a robust IP portfolio of 50 patents and more across cathodes, anodes and separators. In May 2025, we successfully acquired an 18.14% stake with the remaining commitment expected to be fulfilled over the coming quarters. Offgrid has finalized the pilot site and vendor selection for the pilot plant in the U.K., marking a significant milestone. Upon successful pilot execution, we shall plan to scale up to a giga-factory, which is expected to take 18 to 24 months to materialize. On closing remarks, to sum up, our business fundamentals remain strong and robust. We maintained healthy margins, deepened our relationship with clients, and laid a strong foundation to invest in high potential sectors like Bromine Derivatives, semiconductors, and energy storage. We continue to be a net debt free company backed by robust balance sheet and disciplined capital allocation. This financial strength and business robustness ensures healthy cash flows and provides the strategic flexibility to invest confidently in long-term growth opportunities. With that, I would now request our CFO, Mr. Natarajan Ramamurthy to share the financial performance for Q1 FY '26.

Thank you, and a very good morning to all the participants on the call. We are pleased to report a notable performance for quarter gone by. To give you a summary of Q1 FY 2026 on standalone basis, total revenue for Q1 stood at INR 2,915 million, 30% growth on a year-on-year basis. Our business mix are as follows in Q1: Bromine contributed around 30% of the total revenue whereas, Industrial Salt contributes around 70%. Sales volume of business are as follows: volume sales of Bromine for the quarter 1 FY '26 stood above 4,000-ton level. Volume sales of Industrial Salt for Q1 FY '26 stood around 1.1 million. EBITDA for the company stood at INR 958 million in Q1 FY '26, a 13% growth on a Y-o-Y basis. EBITDA margin stood near 33% for the quarter. Increase in other expenses during the quarter was largely due to increase in packing, dispatching and freight for higher salt sales made and ECL provision. Net profit for Q1 FY '26 stood at around INR 518.5 million. On a consolidated basis, Q1 FY '26 performance stood as follows. Total revenue for Q1 FY '26 stood at INR 3,005.9 million. EBITDA for the company stood at INR 863.2 million in Q1 FY '26. Net profit for Q1 FY '26 stood at around INR 401.4 million. With this we conclude this speech and open the floor for Q&A. Thank you.

[Operator Instructions] The first is from the line of Sanjesh Jain from ICICI Securities.

I got 3 of them. I'll list them. First, can you give us a bookkeeping exact sales volume and revenue for all the 3 segments? That's one. Number two, there is a purchase of goods, which is a very unusual item in our P&L. Can you help us understand what is the purchase of goods we have traded in this quarter? Number three, is on the gross profit margin in the Acume, which is standalone minus consolidated. Last quarter, it was 25%. This quarter, it is 5%. There is a steep deterioration in that. Now it is just because trial and hence volatile or how should we see this gross profit margin on a steady-state basis? Number four, on the Bromine guidance, you mentioned 22,000 to 25,000 metric tons for FY '26 and 4.5 million for salt. Does that hold good for the year, seeing how the quarters are unfolding? These are my questions.

Yes. Product-wise revenue for Q1 FY '26 is totaling INR 279 crores, out of which Industrial Salt is INR 194 crores and Bromine is INR 84 crores. And sales metric ton is 1.1 million of salt and Bromine is 4,054

54?

Yes.

And SOP?

SOP is 52 metric tons.

And revenue?

Total is 279 -- SOP revenue is INR 26 lakhs.

INR 26 lakhs. Not material. Got it.

Our next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Sir, my first question is on to the Bromine side. Sir, when we look at the global player commenting, so whether it is in Agrochemicals, Pharmaceuticals and on electronic side, most of the companies have stated that the demand is weak and their CapEx, what they are planning for the next 2 years, that has been also cut by roughly 40%, 50%. So structurally, it seems like the demand will remain weak. But sir, our guidance of 20%, 25% in Bromine. So sir, I just want to know this guidance which you have given, what is the confidence you have got in terms of data, if you can just mention? And what is the outlook in the Bromine segment in the global market?

So thank you for that question. I'm also going to answer Mr. Sanjesh's question from the previous segment, which I think was -- I think one of them was left unanswered. So on the Bromine and salt volumes, there was a question if they will hold good. I think to answer that question, Sanjesh, they will hold good. As you are all aware, these are long-term contracts that we have in place. And I think customers continue reporting faith in both the supply side with us as well as their own operations where they continue to consume. So at the moment, both remain strong for us, and the offtake continues almost at 100% of what we make, we are able to sell. So that is answering the previous question. And coming to your question on the market itself, I think Bromine on the pricing in the last few months, we are seeing a little bit of an uptick, as I mentioned. I think the readjustment of product portfolios by various Agrochemical companies across the globe as well as India and the chemical companies in China where we sell and export Bromine too, I think they have been quite resilient. And there has also been an uptick in some volumes in some of these chemical companies in terms of sales, whether it be within Asia or whether it be exports from India. And I think we are starting to see that during conversations with some of these manufacturers. Now, obviously, each company is unique in how it operates, what are the strengths, what are the constraints within that environment. So, however, I think our history has shown that even in a tough market, I think our company has continued to be very resilient in volumes for sure. And we've also tackled pricing in a very methodical manner because most of these, again, are locked into contract.

Okay. Got it. Sir, these long-term contracts which we have signed, ideally, sir, from next quarter, if we look what guidance you have given, this quarter we have got some 4,000 tons of a run rate in Bromine. To achieve that number, what you've said of 20%, 25%, ideally, the next quarter Bromine run rate should be around 5,500 tons. So are the long-term contracts in place so that these numbers would be achieved?

I will answer that question in a different way. I think our order book is full. And like I said, today -- and it has been in the past the same way, whatever we're able to make, we're able to sell.

Okay. Got it. Sir, on to -- coming to the other businesses of -- so like the Bromine Derivatives. Sir, the difference in top line, like, INR 292 crore is on consol and what sir has given -- so the revenues from Bromine and salt, they are INR 278 crore. So the difference is into the Bromine Derivatives?

Yes. We are doing about INR 25 crores -- close to INR 23 crores to be exact, but for the first quarter. And as the capacity utilization keeps going up, that sales will keep moving up to the rest of the year. But at the same time, we'll also be introducing 2, 3 other products in the Bromine Derivatives space.

Got it. Sir, we have seen like some news has been floating in the global market that -- so toxic flame retardants, so that -- there are chance that some of the countries might look to ban for it. How do you see this changing in our business? Like when we set up a plant, are we also manufacturing similar set of the flame retardants?

I think the flame retardant portfolio, I think, we'll come back to it when we finalize the plan, because there are different kinds of flame retardants. And so I think there is regulation around certain categories of them. But at the same time, I think there is also, like I said, a large arena of products in the flame retardants. So as I said in my comments earlier, when we finalize the flame retardant portfolio, I think we will come back and answer that question with a little bit more clarity for all of you.

Sir, just one last question --

Sorry to interrupt. [Operator Instructions] The next question is from the line of Krishan Parwani from JM Financial.

2 to 3 from my side. Firstly, when will our Bromine price move up from current USD 2.4 per kg that we've been seeing from the last 2 to 3 quarters?

So I think we've moved -- thanks for the question, Krishan. So I think we've moved past that number. So we are closer to USD 2.5 and a little bit more, in fact, on some cases.

Okay. In July, you mean?

It will come through -- I think it started already in May, June. So it's a mix of old orders and new. So you may not see the full impact of it. But as the old orders get extinguished and the new ones fully kick in, you'll see that come through this quarter and the next quarter.

Got it. And so on the -- some clarification on the derivative business. Did you mention INR 14 crore for the derivative business or INR 24 crore this quarter?

INR 23 crore, INR 23 crores and change for this quarter. It's primarily come from the brine fluids -- clear brine fluids and the other products will get introduced over the next couple of quarters.

Okay. But when I do the math, like, let's say, INR 194 crores from Industrial Salt, INR 84 crores from bromine and you have done INR 292 crores on a total top line basis. So it just comes to INR 14 crores from the Bromine Derivatives. What am I missing?

No, the combined top line is consolidated is INR 3,009 crores, I think or INR 3,005 crores.

Okay. You mean with the other income?

So it's INR 3,005.9 crores total revenue on a consol basis.

But that includes the other income, right?

No, no. Okay, 2 --

Product.

Yes. This is a consolidated basis in which intercompany sales are set off.

Got it. Got it. Anyway, I'll move to the last question, which is, are we still on track to deliver INR 150-odd crore revenue from Oren Hydrocarbon in F '26?

I think that is the endeavor. The product certification, like I said, is taking a bit of time, but at least we've actually started getting some local approvals, the local offices of [ MNCs ] and certain Middle East customers who sell these to oil companies, I think, have tested it and approved. So the endeavor is to kickstart the sales in this coming quarter. I mean, I would like maybe to make an observation largely on the market. So I think the market for those products still continues very healthy. So it's just a matter of time for us to start and be able to sell. So I think we are getting there, and we are still hopeful of that.

So you don't want to lower your guidance of INR 150-odd crores revenue from there?

Well, I think if I were to look at it conservatively, I would possibly lower it. But I think is INR 150 crores realistic? I think we should aim for that.

Our next question is from the line of Rohit Nagraj from B&K Securities.

d Sir, we've had faced certain logistical challenges in the previous quarter. So in the recent quarter -- I mean, recent past, are those challenges have been completely taken care of? And incrementally, that should not be a challenge from our growth perspective for the exports market?

Thank you for the question. So yes, we have largely resolved them. We've added a lot more equipment, both owned and leased and third-party equipment, both on the transportation as well as on the operations side at site. So as you can see, the volume has picked up, and we are hopeful that this run rate will continue, and we'll try to expand that a bit more.

Right. And on the salt side, generally, how the pricing behaves? I mean, is it -- has it been relatively stable over the last few years or on a year-on-year basis, at least there is some price increase based on the operational increase or operation cost increase or how structurally it moves?

So I think over the last year -- let me correct that. Over the last 6 months, there has been a little bit of weakness, but that's largely made up by the efficiency improvements at our end. Because you have to also remember that on a global scale, right, the petrochemical business and the chlor-alkali business has not had the easiest of times. But nevertheless, some of the customers that we sell to are very large and very strong operationally. So we look for more continuity in the offtake, which has happened. All the customers continue with their offtakes. And I think the price has been, I would say, given all that's happened in the market, has fairly been resilient.

[Operator Instructions] The next question is from the line of Pratik Oza from Systematix.

Sir, our standalone entity reported a PAT of INR 518 crores, while our consol PAT was substantially lower at INR 401 crores, so if you can provide a sales breakdown of the difference of the pre-tax loss between your subsidiaries that is Acume Chemicals and Idealis Chemicals?

Sorry, you'll have to repeat that question with a little more clarity because we could not hear you very clearly. We can hear you, but it's not very clear.

Yes. Sir, so what I was referring to was your standalone entity had a PAT of INR 518 crores and consol PAT is substantially lower at INR 401 crores. So there is a negative difference of about INR 170 crores. So I just wanted to know the breakdown at pre-tax loss for the subsidiaries of Acume Chemicals and Idealis Chemicals. I guess, our subsidiaries must have posted a loss and that had impacted our consolidated PAT.

Okay. So your question is at a standalone, it's INR 500-odd crores and why is it -- sorry, INR 50-odd crores and why on a consol basis, it's lower?

Yes, yes.

That is because of the subsidiaries' initial losses being the first year of full operation. Acume and all, we have some small losses. After setting off, that is the net -- the total -- net profit.

So when we start a business in a new subsidiary, generally, the first few quarters, you buy raw materials and all more than your production for next 1 quarter or 2 quarters. And then you expense them also. So that is the differential.

Okay. And sir, how are things shaping up now for the subsidiaries? I mean, given that in the last quarter, you had said that the derivative business would achieve PAT positivity in this fiscal year. So how are things panning out?

I think as I said earlier, I think despite the challenges globally and with all this tariff uncertainty, et cetera, I think the products that we sell, there continues to be a good demand for them. And we continue to have encouraging feedback from clients who we are approaching for approvals and technical certifications. So I think we have -- our only job is to now make the product, and I don't think sales is a problem.