Archean Chemical Industries Limited (ACI) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Archean Chemicals Limited Q2 H1 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Ranjit Pendurthi, Managing Director of Archean Chemical Industries Limited. Thank you, and over to you, sir.

Thank you. Good morning, everyone. A warm welcome to all of you joining on our Q2 and H1 FY '26 Earnings Call. I appreciate you all taking the time today to be here with us. On this call, we are joined by Mr. NR Kannan, our Executive Director; Mr. Natarajan Ramamurthy, our CFO; Mr. Rajeev Kumar, DGM Finance; and the SGA team, our Investor Relations adviser. I hope you've all had a chance to go through the financial results and investor presentation that is available on our website as well as notified to the stock exchanges. I will start 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 and the first half. To start with, I would like to inform you all that we have obtained the India semiconductor mission approval for our SiCSem project, a compound semiconductor project, which we believe is a major milestone for the company's growth. So I only thought it was important for us to mention this at the very beginning. Also, I'd like to inform you that the income tax department conducted a search and seizure operation from September 4, 2025 to September 9, 2025, at various locations of the company, and its subsidiaries under the Section 132 of the Income Tax Act, 1961. The company extended full cooperation with authorities and continues to do so. Moving on to the Market Overview. On part of the Market Overview, the chemical industry continues to see a mixed trend. As we look back on the quarter, it's important to recognize the complex global environment we are operating in. Persistent macroeconomic headwinds, supply chain disruptions and geopolitical developments continue to influence strategy, demand trends, pricing and overall operations across industries. We view these challenges as temporary, and the long-term growth story for India remains strong, and for the chemical business is no exception. As we navigate through this continuously changing environment, our focus at Archean Chemicals remains clear, building a strong foundation for sustainable long-term growth and meaningful diversification in line with our strategy. Now coming to the performance H1 FY '26 performance. While we began FY '26 on a steady note, the first half of the financial year grew by 10%, and to INR 5,232 million despite all challenges. As you are aware, seasonal and uneven monsoon patterns also impacted business in terms of production, sales, logistics, et cetera. As a group, we are confident that the fundamentals of our business remains robust and team on the ground continue to focus on operational efficiencies, improving customer engagement and execution across all key initiatives, which we have taken over the last few years and especially so over the last couple of quarters. Coming to our segmental performance. We will start with the first one, elemental bromine. Elemental bromine contributed approximately 30% to 31% of our total revenue in H1 FY '26. And Overall, bromine demand was robust and price was healthy. However, due to lower efficiencies in our plant due to some technical reasons, the production volumes were below target. However, we have already started taking the corrective measures and are implementing the action plan to improve the same. Performance is expected to improve in the coming quarters, supported by a gradual pickup in the subsidiary operations as well. In the near term, we do not see any major challenges on either the demand or supply side. On the pricing front, we are seeing encouraging trends. As we move forward, our performance will improve along with production. Just to reiterate from the long-term perspective, any sharp movements in spot prices do not immediately impact us as most of our contracts are long term and bilateral in nature. Our strong customer relationships continue to support our business. Their consistent orders and confidence in our capabilities have helped us maintain our position as India's largest manufacturer and exporter in this space. Secondly, on Industrial Salt to the quarter gone by, we sold nearly 0.9 million metric tons, which contributed to more than 65% of our total revenue. While the reported volume is shy below the quarterly guidance of 1 million, we would like to highlight that the shortfall is temporary and was mainly due to the prolonged monsoon season, which impacted the overall production and transportation. We have a strong demand visibility and long-term contracts in place with customers. We're confident to export close to the guidance we have given of 4.5 million tonnes in FY '26. As I mentioned earlier, globally, only a handful of manufacturers can meet the highest level of purity at scale, and we are among them continuing to be India's largest exporter of industrial salt primarily to the Eastern part of the world. On sulfate of potash, like I mentioned in the previous call, the pilot trials have been done and they have been successful. Presently, we are working closely with the technology partner to progress from pilot scale to plant scale trials. Plant modifications have started and are under progress, and we are now preparing for plant trials in Q4. We're confident of replicating the pilot plant performance where the trials have proved to be very encouraging in terms of results and recovery. Site work has started and equipment is already ordered. We are one of the few global manufacturers of SOP and the market remains very firm in terms of demand for the specialty fertilizer. As stated earlier, we continue to believe that SOP will be one of the important business drivers for the company in the coming quarters and years. Number four, on bromine derivatives. Our bromine derivatives business operations are up and running, currently operating between 30% and 35% capacity utilization. Ideally, we would like to have been at a higher rate. However, the clear brine fluid sales uptick expected after qualifications and approvals from end users are received. Going forward, we expect the utilization to improve gradually to at least 50% by the end of this financial year. We are confident of receiving the necessary approvals from clients, which is an ongoing process, primarily in the Middle East where the oil fields are based, and have started engaging with them for the necessary certifications as well. Regarding the Flame Retardant project, as I mentioned in the earlier call, we continue to pursue this initiative actively, and we will provide an update soon in the coming months. Of the total direct CapEx of INR 250 crores originally envisaged for the bromine derivatives towards plant and machinery, to date, we have already invested close to INR 190 crores. On Oren Hydrocarbon renamed as Idealis Mudchemie post takeover by us. As you're aware, we took position of the assets in the last quarter of the previous year. Since then, we have made progress in reviving and refurbishing the units. We are through with the trials in 3 units and are awaiting necessary approvals to start the production soon. Samples have been sent out to customers, and we are waiting for the go ahead. For the past few months, our team has been working through several on-ground challenges. As you know, it is -- we bought the company through NCLT to restore operations and improve output. This has gone some delays in our revenue contribution, and it was further affected by the lower global crude prices leading to slow rig activity and delayed in the onboarding of new suppliers like us by the oil majors. Now coming to our new strategic initiatives. Number one, Semiconductor. During the quarter, our semiconductor business achieved a major milestone. Our project was among the select few approved by the Union Cabinet under the Indian Semiconductor mission. The project underwent a thorough evaluation covering technical capabilities, specifications and long-term planning. This marks a landmark year for our company, and I would like to thank our entire team and all our stakeholders for their trust and continued support. We are pleased to inform you that the groundbreaking ceremony was conducted on the first of November 2025, marking the commencement of the plant's commissioning activity. We have outlined INR 2,067 crores investment in the first phase, which will include both the central and state's fiscal support along with our own contribution. With the recent developments in the sector and the government's emphasis on building an entire semiconductor ecosystem, we are confident that this initiative is timed perfectly to harness the sector's growth momentum, both domestically and globally. The second one on the energy storage battery business. 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 over 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. The company plans to set up a 10-megawatt [odd] demo manufacturing facility in the U.K. The work has already started, and further its research and development in the pipeline for next-generation stationary energy storage solutions and commercialize its patented ZincGel batteries through certification, testing and finalizing the blueprint for the giga-factory. 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. 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, semiconductor and energy storage. We continue to focus on our core business and improve efficiency and production and the overall numbers there as well given the support we are getting from the market and healthy demand from the market. Importantly, we continue to be a net debt-free company backed by a robust balance sheet and disciplined capital allocation. This financial strength ensures healthy cash flows and provides the strategic flexibility to invest confidently in long-term growth opportunities, and we look forward to the shareholder support in this. With that, I would now request our CFO, Mr. Natarajan Ramamurthy to share the financial performance for Q2 and H1 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 Q2 and H1 FY '26 on stand-alone basis, Q2 FY '26 performance. Total revenue for Q2 FY '26 stood at INR 2,317.8 million and 8% lower on a year-on-year basis. Our business mix are as follows in Q2. Bromine contributed around 33% of the total revenue, whereas Industrial Salt contribute around 67%. Sales volume of business are as follows: volume sales of Bromine for the Q2 FY '26 stood above 3,000 metric ton level. Volume sales of Industrial Salt for the Q2 FY '26 stood at around 0.9 million metric tons. EBITDA for the company stood at INR 759.9 million in Q2 FY '26, a 15% decline on a year-on-year basis. EBITDA margin stood nearly 33% for the quarter. Net profit for Q2 FY '26 stood at around INR 384.6 million. H1 FY '26 performance. Total revenue for H1 FY '26 stood at INR 5,232.3 million, a 10% growth on a year-on-year basis. EBITDA for the company stood at INR 1,717.9 million in H1 FY '26 yes, 2% lower on a year-on-year basis. Net profit after exceptional item for H1 FY '26 stood at around INR 903.1 million, 28% growth on a year-on-year basis. On a consolidated basis, Q2 and H1 FY '26 performance. Total revenue for Q2 FY '26 stood at INR 2,395.6 million. EBITDA for the company stood at INR 689.8 million in Q2 FY '26. Net profit for Q2 FY '26 stood at around INR 290.4 million. H1 FY '26 performance total revenue for H1 FY '26 stood at INR 5,401.5 million. EBITDA for the company stood at INR 1,553 million in H1 FY '26. Net profit for H1 FY '26 stood at around INR 691.8 million. With this, we conclude the speech and open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Sucrit Patil from Eyesight Fintrade.

I have 2 forward-looking questions. My first question is looking beyond this quarter numbers. I like to understand the bigger picture. Archean operates in a space where global demand for Specialty Marine Chemicals like Bromine and Industrial Salts keep on changing very quickly. Over the next 1 to 2 years, what is the 1 big thing or the 1 big change you're driving that will make Archean stronger and more trusted in the global markets. Just curious to know whether this is more about expanding the technology platforms or building deeper customer relationships or shaping the company in such a way that makes it hard for your competitors to copy your business. This is my first question. I'll ask my second question after this.

So yes. So thank you for that question. I think over the next couple of years, we continue, like I said, to focus on the core business, most importantly, which is our industrial salt, bromine and sulfate of potash business. We anticipate enough and more growth available in those 3 areas. Salt, of course, because we have been a market leader. We have a lot of customer engagement. And we will continue to do that. And we are also having new customers that we're approaching and we'll continue to build the volumes. Quality always will be a primary concern. And as we scale that volume, we should ensure that the quality parameters continue to be the best in the world. On bromine, we already have the capacity installed. So we want to increase the utilization rate. The quality already is among the best, which is why there's a continuous demand for our product, both domestically and globally. So I think there, our focus will be more on the elemental side to increase the volumes that we are producing which is one of the reasons why, as I mentioned in the last call, we're also doing certain capacity enhancements at the site in terms of field evaporation area, et cetera, to increase utilization rates. So the demand is not a problem there. The third one is the Potash business. Obviously, we have made good progress. And over the next couple of quarters, we should see those results coming in as well on the trial plant side. And then I think starting post monsoon next year, we should be in a full fledged state to start production and utilizing the installed capacity. So large part of this doesn't require any real CapEx apart from regular operation maintenance. So on these three products at the core, we will continue to drive volume, quality, delivery and expansion and utilization of existing capacities. Now having said that, going down, of course, the bromine derivatives unit will play a big role in enhancing our utilization of in-house bromine. And there, there's a deeper engagement, both with customers and the application side as well as conversion of the bromine into various other inorganic and organic bromides. And additionally, the Flame Retardant project also should come online in the next 12 to 18 months and that's what we're driving at.

My second question also a forward-looking one. Specifically on margins and cost planning, whenever cost rises, we see a collateral pressure on the margins, whether it is through raw materials, energy, logistics or any compliance that you have to follow. I just want to understand how you think about protecting the profits without slowing on growth means like do you rely more on smarter sourcing or pricing control? Or is there any other USP that the company is following? And how do you balance these parameters in practice for that Archean is strong and profits keep on clocking even when sometimes things get out of control or sometimes when things don't go planned as we are supposed to.

So I think, as you rightly said, today in the business environment, volatility and uncertainty are a given. We have to be able to navigate on a daily basis since changes happen on a daily basis. But I think the macro environment is something we can't control. Unfortunately, we end up reacting to it. However, at our end, as a company, what we can do is be very, very conscious of cost. If you see over the last few years, we've been able to manage that very effectively. It's a combination of both good practices as well as continuously trying to see where we can reduce cost. Logistics is a big cost for us, simply because we had a remote location, so we need to necessarily move the salt, for example, by trucks, but I think the government is hinted that they're going to build a railway somewhere in that area, which may happen sooner than later. And if that does, then we would look at using a combination of that sort of transportation method to reduce cost. And then in terms of bromine, I think it's about efficiency. If you're operating at ex-efficiency, the idea is to be able to extract more from the given raw material. So I think that helps bring down cost as well. So there are certain factors that are in our hands that we will continue to tackle as we have been. But certain things are market driven. For example, the price of fuel, fortunately, I think it's been pretty consistent over the last couple of years. But that may change. We don't know. But I think when that happens, we'll have to find other places to become more efficient.

I think that's good guidance from your part. And I wish the entirety best of luck for Q3.

Thank you.

The next question is from the line of Vinay from Hathway Investment.

I have just 1 question. If I have to look at the volumes of -- if somebody can just give us the sales volumes in the quarter in Industrial Salt, Bromine and SOP?

Sure. Mr. Natarajan?

Okay. In quarter 2, the sales of industrial salt [889,193 metric tonnes] Bromine is 3,160 metric tons, SOP 26 metric tons.

And corresponding last year?

Q2 last year?

Yes.

Yes, [792,365 metric tons] industrial salt, bromine 4,683, SOP 26.

Okay. Now this SOP for the last -- such a long period that we have been looking at. I'm still not getting on though we are -- it's an extremely promising category. How long do you see this extending now? When will we start in the commercial production and the sales coming in?

Yes. So as I mentioned, I think the trials have been finished and the pilot plant is being erected as we speak. So that will come into the trial production will start in Q4. Like I said, the work has already started on the ground and equipment has been ordered. And we are confident that it should be successful as it has been in the lab skill. And we believe that we will start production of this post monsoon next year because generally, during monsoon, we don't ideally run SOP plant because it makes -- material is very hydroscopic. So we generally don't -- we avoid monsoon. But that has been the plan, and I think we are sticking to that time line.

So we'll see Q3 FY '27, the sales of SOP getting into books?

Yes.

And this is margin accretive business, right? The highest margin among the 3 products?

Well, assuming that the current prices hold, it's likely to be because the capacity is already installed, and we have about 130,000 tonnes that we can put to production and sales because the market is there and the prices are pretty firm in -- because being a specialty product.

Okay. This is 130,000 per annum?

Per annum, yes.

Okay. So what kind of roughly margins are you looking at? Can you share that? Or is it confidential?

Well, I think, one, it's confidential, but more importantly, I think we'll probably provide a better update once the pilot plant is up and running in Q4, because then I think we will also be giving you a fair idea about where we should end up on margin front.

The next question is from the line of Archit Joshi from Nuvama Wealth.

Sir, a couple of questions. First one on Oren Hydrocarbon. I mean, now that we've already done quite a lot of work here. What are our expectations in the second half are we deriving any revenues from there? Have we seen any ramp-up? If you can throw some numbers, if possible, what to build in second half and expectations for FY '27?

So thank you, Archit, for the question. On Oren, it has been disappointingly slow. I believe we should have already been able to start sales by now. But I think the fact that we have bought the company from NCLT, I think we underestimated the challenges on the ground in terms of dealing with regulatory authorities, et cetera. So there has been a delay even though the 2, 3 of the facilities are up and ready. We're still dealing with some of the challenges coming over from the acquisition. But having said that, I think we've been able to start sending samples to customers, and I think the products are coming out well. So there is momentum there. For the rest of the year, I would not really consider any meaningful contribution from Idealis, ex-Oren simply because I think we would like to start showing some results on the ground in terms of sales before we start giving an idea on that. But yes, there has been a delay. And I think we are 6 months behind than where we want to ideally be. But nevertheless, I think the encouraging part is reception of the products being made and the ability to make them, I think that's something that we are happy about.

Sir, FY '27 and onwards, the ramp-up should be strong, should that be a good assumption on Oren?

Yes. I think FY '27, we expect some of those products to definitely start selling. And apart from, I think, the earlier question that was asked, what happens with the core business and SOP, et cetera. I think FY '27, we'll see a lot of additional revenues and products coming in from Oren from the core business as well as the derivatives.

Understood. Sir, secondly, on the INR 2,067 crore CapEx that you are planning to deploy within the semi-confis. How should we number it in the model? How do we see it being deployed? Is it like a 2, 3-year thing? Can you give some broad time lines as to when -- what amount of money will be spent in FY '26, '27, '28 in that manner?

Fair question. I think it's a bit early to commit to that spreadsheet you want to build. But I can tell you this that we kick started work on it. We have finalized the consultants who have come on board last week for the construction project management for the go-to-market, for the technical evaluation, for the bidding, et cetera, and for other support on documentation and other things. So the work has started. And very soon, we hope we'll be able to give, I guess, a notification to stakeholders on the commencement of construction.

Sure. Just one follow-up on the same one. And the subsidy that you are expecting to receive from the state and the central government...

Sorry to interrupt, sir, but I request to rejoin the queue for the follow-up as there are more participants left in the queue? Thank you. The next question is from the line of Aditya Khetan from SMIFS.

Just a couple of questions. Sir, when we look at the bromine volumes, so we are sitting at some 10 to 12 quarter has structurally changed in bromine. I think, sir, in last year also that there was 1 one-off in the salt business. In this year, we are witnessing salt volumes are picking up, but bromine is going down, although your initial commentary suggests that so there are no challenges on supply and demand side. So why is the volume Is low, and our target are we on track to meet by this fiscal FY '26 of 25%, which we stated early?

Thank you for that question. So I think 2 things. One is, as you pointed out on the supply and on the demand side, right? In fact, bromine, I think, is holding steady, and there has been no fall in demand. And as I also mentioned in my commentary, the price trend is encouraging. It's moving up over the last quarter or so. And I think we are witnessing that coming through to us as well. Primarily on our side, it's been a production challenge. There has been a bit of a prolonged monsoon, not to mention erratic, even as recently as October end, it has been raining including places like Bombay, the Coast and up in Gujarat. So that's obviously not helping our production. But having said that, there are certain steps that I mentioned in my commentary as well, we are doing. And you will see these coming through in the next quarter onwards. We are fixing certain problems at the equipment level. But the demand stays robust. In fact, I think we have almost 10,000 tonnes plus backlog in orders. So yes, so I think it's two sides of the same coin.

Got it. Sir, on to the bromine derivatives, can we share the volume figure and the revenue share in this quarter? And what is the outlook for FY '26 and '27?

Sure. I'll have Mr. Natarajan give you the volumes for the derivatives. Just give us a second.

Yes. One second. Just -- yes, what we in H1 we have done 3,135 metric tons. And value of INR 43 crores.

43 crores. Okay, okay. Sir, my next question is on to our SOP. As you have highlighted earlier that SOP -- so trial runs have concluded. So how bigger business this can be, whether it can be a INR 500 crore or INR 1,000 crore top line business earlier because when we look at the capacity side, the figure can be this big. But what is the plan like at the initial by FY '27, '28, how big this can be?

So this is Kannan. I'm answering it on behalf of our MD, Mr. Ranjit. Basically, this has got a potential to reach the kind of numbers which you mentioned. But the clarity will emerge once our trials are completed, the process, it goes through certain changes. Our old process in the plant. There are some changes which are required in that. And once those changes are completed, we will be able to kind of definitely say what's going to be the rating of the existing plant, but as a potential for this product, definitely, it's got the capability to reach the kind of numbers which you mentioned.

Got it. Sir, in your initial commentary, you mentioned about the 50% utilization. This is for the Oren Hydrocarbon right?

This is for Acume.

[Operator Instructions] The next question is from the line of Sunaina Chhabria from Chola Securities.

Yes. My first question is relating to the bromine that -- the bromine production that was there. Could you speak on why the efficiency was lower? What was the internal difficulty that was there beyond a prolonged and erratic monsoon? And the initial target that was given a 22,000 to 25,000 would this be lower for the next year? Do you see buildup of the order book of about 10,000 that you were speaking about? Would we be closer to 20,000 metric tons? Or would it be lower?

So I think -- this is Kannan again, responding on behalf of Mr. Ranjit our Managing Director. I think during the call, when Mr. Ranjit was speaking, it was already mentioned that there were some technical challenges primarily contributed by the heavy rainfall, unseasonal rainfall which led to a dilution of the bromine concentration and the brine and consequently, lower efficiency of the assets. So those aspects are being addressed and they are being worked around. To your point, with respect to what the volumes will look like from going forward. Certainly, this year, we will need to overcome these challenges. So to that extent, we are looking at definitely more than H1 performance in H2 for this financial year, FY '26 and definitely looking forward to the order -- kind of order of volumes, which we had indicated in our previous guidance for FY '27. So this will be a progressively ramping up activity, and that's how we see the whole thing.

Okay. And my second question is relating to Offgrid Energy Labs. What is the update over there. Would this be something that's coming into play into FY '27, '28. The investment, I know will be done in FY '26. So if you could provide a bit of color over there?

Rajeev, can you take this call?

Yes, sure, sir. So thank you for the question. See, Offgrid Energy investment is a long-term investment -- the idea there is twofold. One, of course, once the pilot plan is set up, the 10-megawatt our pilot plant, which is being set up by the Offgrid team in United Kingdom. That should take at least 12 to 18 months once the pilot plant is up, the idea is to create a blueprint for a giga-factory. And then see the possibility of setting up the giga-factory in India. And the second rationale is the electrolyte for Offgrid Energy is Zinc Bromide and Acume one of the product that Acume subsidiary of Archean Chemical is making or going to expand is Zinc Bromide. So these are the 2 rational for that investment.

So we would see pilot being done after 12 to 18 months. What's the investments or the expense that would be there for this be margin dilutive for the parent company?

No. So the investments are already made this so that it is clear. The investment is already done. Archean Chemical has made the investment. That investment has given them around 21% to 22% stake in Offgrid Energy. And the investment proceeds will be utilized by Offgrid to set up this giga-factory. And the investment proceeds will also cover the CapEx and OpEx for the next 2 years for the -- sorry, for the pilot plant.

The next question is from the line of Rohit Nagraj from 360 ONE Capital.

So first question is on the Odisha investment of almost INR 2,000 crores. What would be our contribution given that there will be state and [indiscernible] subsidies. And what could be the time line in terms of funding our equity for the product?

I think Rajeev is available to take that question, Rajeev?