ICICI Securities has reiterated its 'Buy' rating on Archean Chemical Industries Ltd, setting a target price of Rs 655. This projection implies a significant 35% upside from the current market price, making Archean Chemical its top pick in the specialty chemicals sector.
Core Business Recovery and Growth Drivers
The brokerage firm cites a favorable risk-reward profile and an expected recovery in Archean Chemical's core operations as key reasons for its optimistic outlook. Improvements in bromine production and a normalization of bromine prices, following three challenging years, are anticipated to bolster earnings. Additionally, the salt business is projected to improve in the second half of FY27, with the company's SOP (Sulphate of Potash) and bromine derivative businesses offering further upside potential.
ICICI Securities expects Archean Chemical's bromine production to recover, targeting an annualized run-rate of 20-24 kilotonnes by the end of FY27. This is projected to drive bromine revenue growth at a 37% compounded annual rate and bromine EBITDA at a 42.5% compounded annual rate between FY26 and FY28.
Strategic Entry into Power Semiconductor Business
A crucial element of ICICI Securities' investment thesis is Archean Chemical's planned venture into the compound power semiconductor business. The company is in advanced stages of establishing India's first integrated silicon carbide semiconductor fabrication and ATMP (Assembly, Test, Mark, and Pack) facility. This ambitious project, with an estimated cost of USD 250 million, has secured approval under the India Semiconductor Mission.
To support this initiative, Archean Chemical has forged strategic partnerships, including collaboration with Clas-SiC from the UK for fabrication technology, Aixtron for silicon carbide epitaxial film deposition equipment, and IIT Bhubaneswar for silicon carbide crystal growth expertise.
Strong Earnings Outlook
Overall, ICICI Securities anticipates a sharp recovery in Archean Chemical's earnings from the second half of FY27, with EBITDA estimated to grow at a compounded annual rate exceeding 50% between FY26 and FY28. Importantly, these current estimates do not yet account for any revenue contribution from the nascent power semiconductor business, which is expected to commence generating revenue from FY29, potentially offering additional long-term growth.