Archean Chemical Industries Ltd (ACI) Q2FY27 Concall Transcript - Sep-2026 Qtr
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Moderator: Ladies and gentlemen, good day, and welcome to Archean Chemical Industries Limited Q2 and H1 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ram Praveen Swaminathan, Managing Director. Thank you, and over to you, sir.
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): Yeah, good afternoon,
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): and welcome to our Q2 and H1 FY '27 earnings call. Thank you all for taking the time to join us today. Now, on the call, as always, I'm joined by several members of our management team, including Mr. R. Natarajan, our CFO, Mr. Rajiv Kumar, Mr. Rishabh, and other members of our finance team, and members of SGA, our investor relations advisors. I hope you all have had a chance to look through the results and investor presentation, both of which are available on the website, and on our website and the stock exchange websites as well. In my opening comments today, I'll briefly provide a brief update on the overall market and external environment, followed by an operating commentary on each of our businesses, some of our key initiatives, our Q2 and H1 FY '26/'27 financials, and a quick overview of where we are in terms of execution of our strategy. Starting with the external environment, and I'll just begin with the demand side, the global chlor-alkali industry continues to see some strong, long-term fundamentals. However, this quarter, this past quarter, like the rest of the year, has been marked with uncertainty and volatility. The price volatility has continued for caustic soda and chlorine with fluctuations in regional demand-supply balance. There has been a sharp increase in ethylene prices and overcapacity in some regions. Ethylene price, CFR prices in China have grown up as much as $1,140 to $1,200 per metric ton. This kind of cost increase, sharp cost increase, along with weaker demand for PVC has resulted in pressure on operating rates and reduction in production volumes, which obviously gets mirrored on the caustic soda side as well. And we have seen evidence of that with some of our larger customers who procure salt from us. These changes have resulted in continuing deferments in schedules of volume and demand, but we do expect that there'll be a rebound in this quarter in PVC pricing, and that should help provide a fillip to the industry and sort of actually start helping see some more firmness in our order schedules. On the positive side, from a long-term perspective, the planned capacity of PVC in India augurs well in the long term for the industry and the sector as a whole. The agriculture sector, which is another big demand driver for us, continues to be fairly tepid in demand due to the impact of the monsoons. This has impacted demand and production, obviously, of several agrochemical products and some of the brominated derivatives and compounds which go into that segment. The oil and gas sector continues to demonstrate resilience despite the ongoing geopolitical conditions in the Middle East. We've actually continued to see a healthy enquiry level like from this segment, though it has seen a drop from the prior year. Demand for specialty chemicals, especially for semiconductor chemicals, remains strong. So, on the supply side, we have continued to see strong inflation impact, especially in the commodities which have a high impact on our business. HSD prices, which were approximately INR 87 per liter in -- for industrial HSD in Q2 FY '26, continue to rise sharply and in Q2 FY '27 they averaged around INR 136. Prices of coal and N-propanol have increased by around 40% year-on-year. Supply shortages due to the Middle East crisis where crisis where a lot of sulfur gets manufactured, has also resulted in a sharp increase in sulfur prices, which have more than doubled. In the in the past quarter, we continue to see increases in SO2 prices and, of course, I mean, sulfur prices and hydrated lime prices, which are also have been impacted by the rise in petcoke prices. All of this has contributed to a rise in manufacturing costs across several of our product categories, and we expect in the near term this will continue for the rest of this year. Now, providing operating commentary on our businesses and how we are kind of working through the external environment and the opportunities in front of us, I'll begin first with industrial salt. Industrial salt revenue for Q2 FY '27 was INR 167 -- 161 crores, which was up 9% year-on-year. Volumes were down by 9% to around 812,000 tons for the quarter. Despite a solid order book, shipments were impacted by deferrals of major or multiple orders largely due to the state of the overall PVC and caustic soda market. To mitigate the impact of this, we have continued to focus to expanding our customer base in other regions. It's an initiative we started a couple of quarters ago
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): to stabilize in H2 right resulting in stronger volumes in Q3 and Q4. The logistics the salt segment also continue to see the impact of high logistics cost. Q2 generally has is it kind of a period of quarter of higher costs because of the seasonal shutdown of Jakhau Port. right And our volumes move to other ports around the Gujarat coast. During this quarter we continue to see that the the shift to Mundra and Kandla which of course has been further impacted by the road changes. and the fuel price environment. We have managed to mitigate this partially with better route management, contracting and vendor changes and our cost per ton actually has remains flat right between Q1 and Q2. Other initiatives have continued to see some good on-time execution. During the quarter we completed new yard development at two out of the three ports. We commenced operations in Kandla and we also expand our company-owned fleet by another 100 new trailers to ensure that we have better control and leverage to optimize our logistics cost. A key challenge for us in the past few quarters has been the was the completion of the new road construction between Hajipir, which is where our plant is based, and the ports, especially Jakhau, and of course, to some extent, Kandla and Mundra as well. This road this road construction has resulted in diversions which had increased the distance per trip by around 15% to 30% and therefore increase the cost as well in a in a similar fashion. As reported earlier, we had expected this construction to be completed by end of September, which it has done. It has completed, and we are now operating on the new roads effective early October. And we, therefore, do expect to see better throughput of volume and and kind of improvement in cost structures with the starting of this new road starting from this quarter onwards. Moving on to bromine. Bromine remains kind of a mixed bag. Our export order books are very strong, and we can do see a pretty stable pricing environment there. The domestic demand, though, has been impacted by slowdown in agro and muted trends in pharma. Those demand trends, along with higher competitive intensity has resulted in high pricing pressure in the domestic markets. Despite that, we have kind of put a lot of focus on growing our export business where we've added more accounts and we remain positive about our blended yield for the year, which has remained stable in the second quarter as well. The quarter was also marked by continued improvement in operations. We've had stable operations. We right, we had some impact because of of power shortages and power cuts during the month, during the quarter and that has some impact on us. But, overall, we did continue to see, you know, operational stability right across the board. Our debottlenecking program on bromine capacities continued to be as per schedule. We have given earlier guidance on the fact that we expect next year to be at a run rate of 125,000 tons and we are on schedule there. We had some minor delays, but we are confident about completing them in this financial year. In financial terms, bromine revenue for Q2 FY '27 was rupees 127 crores, up 76% from the same period last year. Bromine volumes stood at around 4,100 tons, up 29% from 3,160 tons in Q2 last year. Our production during the quarter was impacted adversely by local power cuts. We have seen a series of unscheduled power cuts the in the recent months and that has resulted in additional downtime for us, which is around 7% to 8% of additional downtime during the quarter. Realizations remain broadly stable to Q1 and are up 36% on a year-on-year basis. For the first half, bromine volumes stood at 8,300 tons, up 18% year-on-year and revenue was 2,000 261 crores, up 60 66% from last year. The inflation in costs of sulfur, hydrated lime, other elements has largely been mitigated through improvements in consumption efficiency and productivity. And we'll continue to focus on those for the remainder of these years to ensure that we are operating at higher at at optimal margin levels. Moving on to the derivatives business or Acume as we otherwise call it. So, during the quarter, Acume had a solid quarter, continue to kind of deliver industrially what we have planned for it. Revenue for the quarter was Rs. 36 crores, up 81% year-on-year. The volume for the quarter for finished derivatives stood at 2,115 tons, up 56% year-on-year and 44% sequentially. Growth was driven by high volume high growth in clear brine fluids such as NaBr and CaBr, but organic compound volume was impacted adversely in the quarter by the slowdown in ag demand. During the quarter, we continued to expand our exports focus and we have started shipping to
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): Asia and East Asia, but and the Asian exports comprise around 15% of our total volume. While we had strong volume growth, we did have some unfavorable mix impact because of the lower demand for organic compounds from one-time period cost and a one-time inventory revaluation, which had an adverse impact on earnings for the quarter. And for the quarter, we reported an EBITDA loss of about around 1 crore. However, for the first half revenue the revenues stood for the first half revenue stood at Rs. 56 crores, up 51% on a year-on-year basis, and the business was EBITDA po- positive on a half-yearly basis. We continue to remain focused on volume growth and profitability improvement measures. During the quarter, we have commercialized four new products, including NPBR, for, pharma, IPBR and IPBR, and eight new molecules are under further development, which should get released through the second half of this year and should also then be further catalyst for volume growth. I'll move on to SiCSem. You know, during the quarter, we have obviously achieved a key milestone with the start of our civil work, of the project in Odisha. We have, as you said earlier, we expect construction to be around 18 to 24 months. And we'll keep you posted on progress there. In mid-October, we also got in the EC for the project. And obviously first con- consignments of equipment have started shipping, and from from the from dispatch locations and should start arriving at our sites, in due course. Year to date, we have invested around 463 crores in Neowin and SiCSem towards the project CapEx and related expenses. We'll conti- keep you posted on developments in this space. Some other key updates, which I think are material or relevant, on SOP or sulfate of potash. We are on track on the trials. We as as I mentioned last quarter, we were delayed by around 3 months, but we are back on track. Pilot plant trials are completed fully and plant-scale trials have been successful for the conversion of KTMS to schoenite. We are now working on fine-tuning SOP production basis the system changes. Post that completion, which should be done somewhere in the middle of this quarter, we will start you know lining up feedstock development and also make changes and decide what changes are required on the plant in terms of full manufacturing position. Offgrid Energy, which is an investment we have, in the UK. Offgrid Energy Labs started its zinc bromide battery pilot plant last quarter, and we continue to work on supplying zinc bromide to them. We have worked closely with them to complete REACH certification for for zinc bromide supplies as well. Lastly, the land lease for the Hajipir site, we continue to work closely with the Government of Gujarat to complete the lease extension. Right, there is no material change from last quarter on this, but we continue to work with them and we remain confident about completing this in due course. As we have said earlier, we do not see any operational issues on account of the same right now. So, with that, I'll move on to the financial performance. On a stand-alone basis, Archean Chemical ACIHL reported total income in Q2 of Rs. 305.4 crores, up 31% 32% year-on-year. Total income for Q2 FY '26 was Rs. 231.8 crore 0.8 crores, and total income for Q1 FY '27 was Rs. 3 was Rs. 332 crores. The business mix for the quarter was industrial salt was around 55%, bromine was 44%, and SOP was around 1%. Exports comprise 79% of our revenue compared to 75% in the same quarter last year, right? And obviously the domestic business was around 21% of our revenues for the quarter. EBITDA for that quarter was Rs. 89.3 crores, up 6.4% sequentially and up 17.5% year-on-year. EBITDA for Q1 FY '27 for reference was Rs. 83.9 crores, and for Q2 FY '26 was Rs. 76 crores. Profit after tax during the quarter was Rs. 43.2 crores, again up 6.7% sequentially and up around 12.2% from the same period last year. Profit after tax for the quarter for first quarter was Rs. 40.5 crores and last year for Q2 FY '26 profit after tax was Rs. 38.5 crores. For on half yearly basis total income was Rs. 637.4 crores up 21.8% from last year where our total income was Rs. 523 crores. EBITDA was rupees for the first half of Rs. 173.2 crores.
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): and, obviously, up from Q1, earlier from Q1 this year. On a consolidated basis, total income for Q2 was 301.6 crores, up 26% year-on-year. And that's up from 240 crores last year, for the same quarter. And Q1, the revenue was, you know, around 332.8 crores. EBITDA for the quarter was on a consolidated basis was 74.5 crores, up 2.2% sequentially, and up around 8% last year compared to last year, right? Profit after tax, for the quarter on a consolidated basis, right, was 31.3 crores, up 3% sequentially, and up around 8% on a year-on-year basis. Right. And, right, on H1 basis, total income, as I said, on a consolidated basis was 634.4 crores, up 17.4% from the comparable half last year, right, when total income was 540 crores. EBITDA on a consolidated basis for the first half is 147.3 crores, down 5.2% compared to last year, especially because of a of a weaker first quarter, compared to last year. On the balance sheet front, our ROCE for the chemical business remains, pretty solid. Right, ROCE for the chemical business, overall business grew from around 11.1% in the first half of last year to 12.2%. ROCE for the chemical business alone grew for, from around 15.5%, in H1 last year to 16.5%, in H1 this year. As I look forward, I think our priorities for the rest of the year remain much the same to what we have kind of said earlier. We remain focused on the programs we started in Q4, of last financial year and our strategic platforms, which is driving focused growth, you know, we're driving, expanding operational excellence, using resources efficiently and driving technology adopt- operation. Those platforms remain unchanged. For FY '27, the priorities we shared earlier where we are focused on continuing to continue now expand our market share in salt, developing systems to drive higher throughput in salt, debottlenecking bromine production, accelerating Acume, and ensuring effective capital allocation, execution, etc. They have continued to execute these priorities in the first half of the year. The first half has been challenging with higher inflation, logistics challenges, and variability in demand, but we believe we've executed initially in a consistent, deliberate way, providing traction with bromine and Acume, and I believe we will see the full impact of it in the coming quarters. Overall, we remain confident about the second half of the year, and the, the full year, going ahead. With that, I'll open the floor for questions, and I'll come back in the end with some closing comments.
Moderator: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanjesh Jain from ICICI Securities Limited. Please go ahead.
Sanjesh Jain (ICICI Securities Limited): Yeah. Good afternoon, thanks for taking my question. And, to start with Happy Diwali to the entire team. first question on the volume front for the Bromine, we were ex- anticipating 18,000-20,000 metric ton for, FY27. In the first half, we have done close to 8,200 metric ton. That means in the next two quarter we are looking at even even to touch the lower end of the guidance we are looking at upwards of 5,000 metric ton per quarter. Given our run rate and how should we see the volume for this, FY27, do we, see we will fall short of the guidance this year?
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): No, as of now we are, we don't, we are expected to be at the guidance, Sanjesh, I'll beat at the lower end of the guidance.
Sanjesh Jain (ICICI Securities Limited): Got it. Got it. That means we should ideally expect a, sharper, sales of Bromine volume in the second half?
Ram Praveen Swaminathan (Archean Chemical Industries Ltd): Yes. I, I think production and sales, as I mentioned, we lost around 7%, 6%, 7% in this quarter because of the power, shutdowns and the power cuts. We should see that getting restored. At least we've worked out,
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