Ladies and gentlemen, good day and welcome to Q1 FY 2027 earnings conference call of Archean Chemical Industries Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. Now I hand the conference over to Mr. Rampraveen Swaminathan, Managing Director. Thank you, and over to you, sir.
All right. Good morning, everyone, and a warm welcome to our Q1 FY 2027 earnings call. Thank you for taking the time to join us today, and I hope you all are safe, especially those of you who are in weather-affected regions. On this call today, I am joined by Mr. R. Natarajan, our CFO, Mr. Rajeev Kumar, DG of Finance and Strategy, members of our finance team, and SGA Investor Relations advisors. I hope you have had a chance to go through the results and the investor presentation, both of which are on our website and the stock exchanges. In my opening comments, I will briefly cover the operating environment, key developments of the quarter, and our business and financial performance.
Starting off from an overall perspective, the focus in Q1 was on delivering to our commitments and driving the sequential performance in bromine and bromine derivatives while optimizing industrial salt in a challenging external environment. I believe that Q1 performance validates the actions we set out with all of you in the last call. On a standalone basis, revenue for the quarter was INR 3,321 million, up 14% year-on-year base and up 9% sequentially. This is the highest quarterly revenue in the last five quarters. EBITDA was INR 888.7 million, up 26.3% versus the sequential quarter, with margins expanding from 21.8% in Q4 of FY 2026 to 25.3% in the quarter under consideration.
Profit after tax on a standalone basis was INR 405.3 million, up 36% sequentially from the prior quarter. Margins were down year-on-year, largely due to higher logistics costs and purchase price variance on various raw materials, which could not be fully offset by our operating performance. On a consolidated basis, revenue for the quarter was INR 3,328.1 million, up 10.7% year-on-year. EBITDA on a fully consolidated basis was INR 728.7 million, up 48.5% sequentially, profit after tax was INR 300.5 million, more than double the preceding quarter. Year-on-year consolidated performance was affected by standalone business performance, as well as the scaling cost of our semiconductor business. Three things drove our performance overall in the quarter. Actually, four things.
Three of them are structural. I want to call them out. Firstly, bromine volumes were at the highest in the last five quarters. Realizations for the quarter are up 50% year-on-year. Secondly, our derivatives business, Acume, has turned EBITDA positive for the first time. This has been an important area of strategic focus for us. We continue to make good progress there. Thirdly, on Sulphate of Potash, first phase I trials were successfully completed in June 2026. We are in the process of doing our phase II trials by end of Q3 financial year, which will then validate the modified process for commercial production. Operationally, we continue to carry a headwind in industrial salt logistics, which I will address briefly in a while. Both road logistics and sea freight increase have impacted our profitability.
In addition to road logistics, sea freight costs have also increased by 30%-35%, impacting our landed cost to customers in East and South Asia. The shape of the business remains positive. We are confident of entering H2 FY 2027 with stronger momentum. Just a quick overview on our overall markets and highlights on our business. On the demand environment, bromine and bromine derivatives demand has remained firm across most geographies. The supply imbalance of the previous two quarters has normalized. Underlying demand from flame retardants, oil field chemicals, and energy storage applications remain healthy. Our pricing actions continue to hold. Our bromine realization improvement reflects both the market and the approach we have applied to contracts and to customer selections. As the supply shortages have normalized, there has been a correction in pricing.
Landed prices in China, for example, have declined by 30%-40% in the past 12 weeks. In this environment, we continue to work closely with our customers to ensure that we're able to sustain the improvements that have been made in pricing. In industrial salt, the pricing environment has stabilized after declines through most quarters in FY 2026. Realizations in Q1 were broadly flat. Competitive intensity remains high with new capacity additions in Australia and elsewhere. The challenges of landed pricing, which I have mentioned earlier. We are starting to see a flow in terms of market pricing. Our customer relationships and our market position remain fully intact. The pricing challenge which we had is a reflection of the gap in South and East Asia between landed prices from India versus landed price of domestic salt in those regions and salt they source from other regions.
On the broad macroeconomic environment, the India-U.S. trade discussions, the India-EU FTA negotiations, and the kind of new normal in the Middle East continue to shape trade flows. Freight and fuel costs have remained above pre-conflict levels. They actually increased in Q1 for us versus Q4, though they have now started to ease. The conflict in the Middle East has continued to impact demand from QVC, an important customer of ours for salt. Also offtake of derivatives from the oil and gas segment, which has seen volatility because of this. We continue to see good traction, customer interest in new account additions, which has helped us offset some of this volatility. An important element for us during the quarter, obviously, has been logistics. As mentioned earlier, in the last quarter, we've been impacted both by an increased fleet distance and the fuel costs due to higher diesel prices.
The road construction on the corridor from our Hajipir plant to the Jakhau, Mundra, and Kandla ports has continued through Q1, as we had guided earlier, and remains on track to be completed by end of September. The longer haul distance continued to affect fleet turnaround and fuel consumption, and it's the single largest reason for our decline in salt volumes and the profitability for the quarter. We continue to expect this construction to be completed, as I said earlier, by end of September. After which, we expect salt volumes to normalize and improvement in our transportation costs as well. The cost of HSD continued to increase between April and June, though it has normalized in July. Compared to last year, prices in April to June were nearly 60% higher. We have mitigated large part of this through route optimization, additional fleet contracting, commercial diligence, and revised dispatch scheduling.
We did see an impact through the quarter, which was quite significant. Brine field expansions, which we spoke about last quarter, remain on schedule. We have completed most of Phase I, and we'll actually be able to prepone commissioning of Phase I to post the monsoons. The land lease extension discussions are ongoing, and we remain positive of closure of the same in the coming months. Let me now talk about the business in a little bit more detail. The bromine segment delivered revenue of INR 1,333 million, up by 58% year-on-year on volumes of 4,175 tons. Realizations are broadly were up, and we expect them to largely remain firm near the INR 300 per kg level. On production levels, which we have recovered from mid-February and have fully sustained themselves through the quarter.
As guided earlier, our throughput has been improving steadily, and we may expect the quarterly run rate to improve. Our production was up 7% year-on-year, despite lower GPL. We also had an impact of around three days of production due to grid power shortages and scheduled maintenance programs, which are designed to debottleneck our capacity through the rest of the year. Industrial salt generated revenue of INR 1,713 million on volumes of 982,000 tons down 12% on a year-on-year basis. Dispatches were impacted by vessel shortages, fuel supply shortages of diesel, and order deferments due to the ongoing West Asia conflict, resulting in higher finished goods inventory. Logistics and transportation costs, as mentioned earlier, are expected to normalize over the coming months as both diesel prices normalize and the highway infrastructure work is completed. We expect good recovery from Q3 of this year.
Bromine derivatives, it's an important quarter for our Acume Chemicals as it turned EBITDA positive. Acume derivative EBITDA of INR 19 million this quarter against an EBITDA loss of INR 27 million in Q1 of last year. Revenue was up 28% year-on-year. We continue to focus on a richer higher value basket and the operating leverage is beginning to show up. Organic derivatives contributed meaningfully to the year with a large increase in NPBr volumes. Capacity utilization for the quarter was around 40%, and contribution margins will continue to improve as utilization builds and as the organic derivative share of the basket increases. The company has launched new products earlier this year with additional products under development on a campaign basis such as NPBr for pharma, additional spec variants of CaBr and so on. Moving on to Sulphate of Potash.
The reengineering of the manufacturing process, which we described in the last call, has largely been positive, and we continue to work on completing phase II trials by December of this year. SOP revenue for Q1 was INR 113 million against INR 35 million for the full of last year. With the technology successfully proven, our focus is now on finishing phase II trials and then redoing our operational processes, then kind of scaling up volume. Higher sulfate prices though remain a near-term challenge from a feedstock sourcing perspective. The oilfield chemicals business or Idealis, as we call it, revenue remained muted and was around INR 3.5 million for the quarter as we continue to focus on plant readiness and trial customers' orders. This business is in an early stage and we are investing ahead of revenue with an EBITDA loss of INR 13.4 million in the quarter.
Customer trials continue to progress at the three plants commissioned where we started the work over the last 12 months. Gujarat plant is production ready and we continue to wait for necessary state approvals there. At Nagari in Andhra Pradesh, we have completed the read-across of our product roadmap of starch and PAC and we are now working on developing those products and some products are actually in the middle of customer trials. The semiconductor project in SiCSem in Odisha following the fiscal support agreement signed with the Government of India, we are moving firmly into execution as per schedule. As far as energy storage, the Offgrid Energy Labs business is concerned, our investee company has inaugurated a 10 MWh zinc-bromine battery pilot plant facility at Hook in the U.K. They are in the process of stabilizing operations of the pilot.
Over time, this will be a source of pull-through demand for zinc bromide in our larger derivatives portfolio. Talking about the financial numbers in more detail, let me begin with standalone performance. On a standalone basis, total income for Q1 FY 2027 was INR 3,321 million, a growth of 14% year-over-year and 9% sequentially. The business mix in the standalone business for the quarter was industrial salt was 54%, bromine sales at 42%, and SOP was 4%. In terms of geographic mix, exports was around 70% of demand compared to 78% for the same quarter last year. Domestic business was around 30% of our volumes, up from 22% last year. This largely reflects the shift in our product mix due to higher sales of bromine and SOP in the quarter.
EBITDA for the quarter was INR 839 million, with a margin of 25.3%. On cost, employee cost was INR 162 million, and other expenses were INR 2,063 million against INR 1,664 million. This increase in other costs was largely driven by increase in two large elements. We had a sharp increase in our freight costs due to higher logistics costs, which we have discussed in detail. Secondly, we had higher costs in stores and spares this quarter. If you recall earlier in my comments, I'd mentioned that we took planned outages in the quarter to support some of our debottlenecking programs for the rest of the year. Those result in higher stores and spares expenses during the quarter.
Overall, I think the large part, obviously a dominant part of it was logistics costs, which as we mentioned earlier, we expect to start tailing down with lower fuel prices and obviously the highway construction getting complete by end of Q2. Depreciation was INR 199 million for the quarter, and finance cost was INR 86.4 million against INR 44.6 million for the previous year. Profit before tax was INR 553 million, and standalone profit after tax was INR 405 million. On a consolidated basis, total income for Q1 was INR 3,328 million, up 10.7% year-over-year and 8.6% sequentially. EBITDA was INR 728.7 million.
Profit after tax was INR 442.2 million, and PAT was INR 303.5 million against INR 122.2 million in the prior quarter. Basic EPS was INR 2.48 for the quarter. A large part drivers in the consolidated performance were really the standalone performance. The impact of the cost increase in our standalone performance largely drove the decline in the consolidated performance as well. From an entity perspective, Acume delivered revenues of around INR 300 million, up 28.1%, and a positive EBITDA of INR 19 million against a loss of INR 27 million a year ago. Its loss before tax narrowed to INR 58.6 million, down from INR 103.3 million in the previous year, which is a 14% improvement.
Idealis supported revenues of INR 3.5 million with an EBITDA loss of INR 13.4 million for the quarter. Newen and SiCSem collectively on a consolidated basis reported revenues of INR 0.4 million with an EBITDA loss of INR 5.6 million as that business largely remains the investment phase. A detailed breakup of the sum of the parts and our constituent elements of our consolidated performance is provided in the earnings deck on our website. Before I close, let me quickly summarize key priorities and outlook. To summarize the quarter, I think sequential improvement across all our line items. Margins were up around 340 basis points versus the prior quarter, and a continued shift towards a higher volume business mix, a broader customer base, and a stronger balance sheet.
Our three priorities, which I've outlined to you in the last couple of calls remain unchanged. Consolidating the core salt and bromine business remains a focus. Bromine is recovering and improving, and salt pricing has stabilized. With the change in transportation infrastructure and softening of fuel prices, we expect that to move to our higher gears. Scaling up our derivatives business, which is oil field chemicals and our mud chemicals business, is the second priority which we have detailed. Our derivatives business is now EBITDA positive. We are now in customer trials for several products in our mud chemicals business. We continue to invest in long-term opportunities in advanced materials. SiCSem is now in execution phase.
Offgrid has started its pilot plant. We continue to remain committed to these investments, which we think are going to be very accretive in a 24- 48 month window for the company. We continue to remain focused on stronger cash flow and more disciplined capital allocation. For the balance of FY 2027, we expect salt volumes to normalize from Q3 as the highway work completes. We are focused on holding our guidance, which I had given earlier in terms of bromine volumes. Obviously in trying to maintain most of the price increases which we have implemented.
Derivatives to continue to build on breakeven, and continue to scale up volume, and completing our SOP scale-up by the end of this year. Therefore, I think we feel positive about where we are in the early part of the second quarter of the year. With that, let me open up the floor for questions. I'll come back towards the end for closing comments.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 queues load. Participants, you may press star and one to ask the question. First question is from the line of Sanjesh from ICICI Securities. Please go ahead.
Sir, good morning, Ram.
Good morning, Sanjesh.
Thank you, sir. I got a couple of questions. First, on the bromine volume, we did 4,175 metric ton in this quarter. We guided for around 20,000 metric ton for FY 2027. We said in the previous quarter that we have reached a production of 55 metric ton per day, which should have actually translated to 4,500 metric ton.
Where is the gap? Are we still confident of achieving a 20,000 metric ton kind of a volume for FY 2027? That's number one. Another question on bromine is the pricing. We generally do an annual contract for export. Now that the realization have crossed INR 300, is it fair to assume that next three, four quarter, the realization, barring domestic volatility, should be in the range of INR 300, which you did mention, but how strong is the outlook for the pricing? These are the questions on the bromine.
Let me address the pricing issue first. Obviously, very volatile pricing environment. That goes without saying. As I said, there's always concerns when the prices are going up sharply, and there are concerns that prices come down sharply as well. I think, from our perspective, 60%-70% of our business, as I said earlier, is long-term contracts. The 30%-35% has been short-term spot businesses. We are reasonably confident. Obviously, customers are raising concerns around pricing, for sure. We do believe strongly that we'll be able to hold an weighted average blend, which I mentioned earlier, on the external market. Remain fairly confident about that. There is obviously work to be done there, but we believe strongly in the customer partnerships and the historical long-term approach we have used with them, that should hopefully reap us benefits.
Some impact will be there on spot segment of the business, but we are working closely to ensure the blend is in line with what I had said earlier. In terms of volume, firstly, I think I just want to restate what I had said earlier on, was that we expect to exit the year at the 20,000-25,000 ton run rate. You are right, that that would basically translate into 4,500 tons for the quarter. We had two challenges or two things which really impacted the volume. I think we're 325 tons short in the quarter. A part of that was power shortages in the region. During the quarter, we had sudden power cuts in the grid power supply. That meant that we obviously have to shut down, restart plants, and work through it.
We probably lost three and a half days of production there, which is probably close to around 175-200 tons. We also took plant shutdowns. As you know, Q2 and Q3 is really the real test of our improvement. I don't really like to consider Q1 as a test of our improvement. Last year, I think the Q2 was down around 3,000 tons. We are continue to working on debottlenecking the plant, and we did take around two to three days of additional shutdown on the feedstock plant in terms of upgrading some of the infrastructure on the feedstock plant to drive improved recovery.
One of the things which you would be aware of, Sanjesh, is that there's been a very high inflation in cost of sulfur through the quarter, through the last five months, which as you know, the Middle East is a big source of sulfur manufacturing. There's been a very large increase in coal costs, which have almost doubled. The improvement in recovery is part of how we've been able to offset those cost increases. It's not just the improvement throughput which has happened, we've also been able to chemically improve recovery, and that has actually helped offset the cost increases, and we have to continue to invest in the plant upgradations and debottlenecking to ensure that happens.
It's obviously a multiple set of factors we are working with, I think broadly, at a headline level, I continue to believe that we remain on track to what I'd said earlier last quarter. I remain confident about that. We're working on it. As I said, Q2 and Q3 will be meaningful opportunities for us to demonstrate that improvement. In Q1, GPL did decline versus last year. We still were able to show 7% production improvement despite that lower GPL, which I think is a reflection of the work. I think broadly, we lost probably 200 tons because of power and we lost around 150 tons because of our plant shutdowns. Without that, we had been at the 4,500 level.
Very clear. Thanks. That's super clear. Second, on the salt. We said there was some volume spillover from last quarter also, if I read Q4 concall. This quarter, it's more seasonality demand, postponement of Middle East, or you see there's a real challenge in the because caustic soda prices have been quite firm up.
Yeah.
Demand should not have been an issue, right?
Overall, chlor-alkali has remained positive, though I would say that the conflict has impacted some amount of PVC demand, which obviously has some flow-through into our business. Overall, at a headline level, demand has not moved backwards at all, Sanjesh. That remains positive. I think our challenge is, if you remember last quarter, I think we told you that we had around 110,000 tons of shipment being impacted. One, because of the order deferral from QVC as they continue to see the Middle East crisis, and one ship which got deferred because of logistics issues.
This quarter, we've seen the same issue. I think we've seen QVC remains on hold because of the conflict situation is not really fully eased for them to start operations. We continue to have a lot of issues in logistics. As I mentioned, while we talk a lot about road logistics, Sanjesh, the actual reality is that sea freight has also reflected a sharp increase in both of change in trade flows and the increase in fuel costs. That has meant that 76%-70% of our volume is customer-nominated vessels.
Yeah.
Therefore, we have been obviously seeing different delays, bunkering issues, and those kind of challenges which are there, berthing issues, and so on and so forth, which has resulted in delays. It's affected our bromine and derivative business as well, by the way. It's not just an issue of salt. It gets called out a lot for salt because bromine is flooding positively. In bromine as well, we've had issues, and derivatives as well. Towards the end of the quarter, we had cutoff issues with vessels not getting loaded, the vessels from Hazira not being available, slots not being there. Those challenges remain. What we have done, and actually I probably called this out earlier as well, what we have done in this quarter is we also started this quarter, which is we'll start in Q2. In July and September quarters, we'll also start shipments from Kandla.
Okay.
By increasing our throughput overall spread from two ports to three ports, we just built our stockyard out in Kandla. As we start building that, Sanjesh, what will happen is that our flexibility on shipments will improve. Freight liners who are running to Kandla but not Mundra will actually find it more easy to berth and will not do blank sailings on us. There is work happening to solve that problem, but that is the way the situation is right now.
I think we also tried to emphasize commercial discipline on some contracts, which also has probably impacted us a little bit, though we've not seen any actual order loss because of that, where we are trying to pass through this cost increase to our customers. That's something which we are trying to push a lot on as well because of the large increase in costs. That, to some extent, probably has affected our conversion rates as well, which I hope will pick up from Q3 onwards.
Just one last on the SOP. What was the volume this quarter?
2,200 tons.
Okay. Whether this run rate will continue.
Sorry, I stand corrected. The actual volume of sale was 1,952. I probably referred to a production number. Our sales quantity is 1,952 at an average realization of You can do the math, but roughly around INR 58,000 per ton.
Got it. Whether this number at least is sustainable through the year, or even this could be volatile?
No, obviously feedstock affects this, Sanjesh. You know our business pretty well. That said, as I said last quarter, for the full year, our target is to do around 9,000- 10,000 tons, we still remain very confident about our ability to run through that throughput. In terms of month-to-month variations, to some extent, it depends upon actual feedstock quality, which comes from the crystallizers and what kind of yield we can get. The 9,000- 10,000 tons we had given last quarter as in target for the quarter, for the year, we still remain positive on that.
We've been trying to push production up, which is why this quarter, as you have seen, we've actually been able to do nearly 2,000 tons. We are on it, though I won't say that that's going to happen month-on-month. If you're asking me that question, I can't say for sure that's going to happen month-on-month. Full year number, we still remain by it, stable.
Very clear. On the bromine derivative, what really drove to the breakeven? This breakeven will continue and volume ramp-up will continue from this level?
I think it's three things. I think first of all, it's increasing volumes from improving mix. If you look at it historically, till last year, our focus really was our volumes largely were CBF, Clear Brine Fluids, products like CaBR and sodium bromide. We actually have stopped making sodium bromide because the yields are very low on it, and we repurposed that demand back to Calcium Bromide. We've also had an increase in NPBr volumes, which last year, for example, where same quarter last year were around 25-30 tons. This quarter has been on 350 tons for the quarter. Organic derivatives actually give us much better, higher end of the pricing basket. One big lever is the product mix itself. More products are under release right now. We are working on several alkyl bromides and also derivatives of our existing products.
I mentioned in my earlier comments, this quarter, for example, we released a pharma-grade NPBr, which will allow us to basically get more penetration on the pharma demand. One part was that. The second part, obviously, was cost management. At the Jagadia plant, with higher volume, we're also able to optimize our BCT, our batch compression times, our consumption of n-propanols and several other elements which are there in our consumption basket. The third one, obviously, was commercial discipline. Just as we did price increase in bromine, our focus was h igher commercial discipline in derivatives as well.
Very clear.
Thank you very much. Sanjesh, sorry to interrupt. I request you to come back, please.
Yeah. Yes, thank you.
Thank you so much. A request to all the participants, kindly limit yourself to two questions per participant, and rejoin for a follow-up question. Next question is from the line of Aditya Khetan from SMIFS Limited . Please go ahead.
Thank you, sir, for the opportunity. Sir, just a couple of questions. Sir, first, my question is on to the cost side. As you mentioned in your presentation, that there were some route changes that from A to B, now we have changed it to A, B to B, and diesel prices also you mentioned are up by some 50%. Sir, what if tomorrow all the costs come down, the diesel prices and the freight route also becomes our earlier route? How much savings in cost per quarter and also on annual basis do you think?
I think, let me just look at the past, because that's probably a good indication of the future rather than give you any guidance on this. I think we've seen that our other costs have increased. If you look at our results on the website, our other costs have increased by approximately INR 40 crore year-on-year. Around 60% of that was really driven due to the increase in logistics costs. Right? That logistics cost is divided roughly 60/40. 60% is the increase in distance. For example, Jakhau, Mundra, from the plant to Jakhau and Mundra, which used to be, let's say, 270-350 km, they have actually gone up by nearly 50%. Jakhau has doubled to 500+ km, and Mundra went up by 40%-50% because of the route change.
40% of it has been the diesel price increase. Right? Which has been a factor, which, as I said earlier, has gone up by around 40%-50% year-on-year. Both of these, as they get normalized, will basically reflect back in our earnings. Right? Will reflect in our earnings. We have obviously mitigated some amount of the diesel price increases. All of that has not gone through. We have reduced vehicle downtime. We've improved the rerouting. We've done our best to reroute and improve, schedule vehicles differently, source from multiple new locations. Doing those things have actually helped us mitigate some of it. At a headline level, I think a large part of this cost increase will get mitigated as the resets happen, as fuel prices come down and as the routes get reset.
These are not structural cost increase. These are short-term issues, which we have to just work through. As I said, fundamental dynamics of the business in solid remain positive. Our customer relationships remain intact. We have gone from two ports to three ports. We've created stockyards in all three ports now. We expanded our own fleet to reduce dependence on old, inefficient market fleet to become more efficient in terms of fuel efficiency and improve the tack times of vehicles. All of these should start, I won't say bleeding in, but they should start reflecting our numbers by when in Q3, and should help us first improve profitability and then secure more demand as well.
Got it, sir. Sir, my second question is on to the pricing of the bromine derivatives. We look at this quarter, bromine prices are up by 25%, but the bromine derivatives are up by only 10%. Should we assume that in the subsequent quarters that 15% gap of higher realizations would be recouped by the bromine derivatives with a lag effect first, sir? Second, sir, adding on to this, any updates around to the lease side, like we have also mentioned in our-
Sure.
In our results that we have. We are quite confident onto it. Sir, when I look at, two to three years back, Government was more keen for the bidding process. Has that changed and Government is now awarding to the players who have existing brine? Has that policy been changed by the Government and what gives you the confidence like we can right now? Sorry-
Let me just respond. Let me respond two things. I'm not sure about the numbers you quoted on bromine derivatives specifically. I think if you reach out to our team, we will give you specific numbers on this, more specific numbers. Broadly, one thing which I would just say is that bromine, depending upon the derivative you use, bromine is a percentage of the cost. It could be 40%, it could be 50%. For example, in Calcium Bromide, bromine is around 50% of the cost. Whenever you expect, if bromine goes up by X, you must just recognize that bromine derivatives will go up by that fraction of X, in a perfect world. In a perfect world, they'll go up by that fraction of X.
Therefore, to assume that bromine is up 25% or 50%, and therefore derivatives price will increase by the same percentage, is not actually a consistently defensible pricing action in the market. If you reach out to our team, our investor relations team or our finance team, they will give you more specific numbers about how those movements have happened. I would probably just say that your numbers do not seem very accurate at this stage. Directionally, it is right that we can never get the same price increase on bromine. On derivatives, as we see it in bromine, all other things being equal, it is a fractional cost increase. Right? That is one. As far as the lease is concerned, I think I covered in my opening comments, we remain confident about closing this in the coming months, and completing the agreement signing process with the Government of Gujarat.
To the best of my knowledge, I will go back and check this back with our team, I do not think there has been a bidding process on existing leaseholder, in the State of Gujarat, unless a leaseholder has not been paying money or there has been some performance issue or a lack of interest from the leaseholder. I think, to the extent we have known, that scenario has not happened. As I said, we are working very closely with the government. We are very confident based on where we are in the discussions with them, and the feedback from them that we expect to close this in the coming months. Operationally, as I mentioned earlier, we continue to file our TACs.
They continue raising voices for rents and accept those rents. We have been increasing rents as per the G.O., in terms of annual increases, which are done once in three years. They have been accepting those price increases and raising demand notices on us in line with that. We do not see any particular reason, and given the state of our negotiations right now, we remain pretty optimistic that this will get done in the coming months.
Got it, sir. Thank you.
Thank you very much. I request all the participants, kindly limit yourself to two questions per participant. Next question is from the line of Rohit Nagraj from 360 ONE Capital. Please go ahead.
Thanks for the opportunity, and congrats on the zinc bromide pilot plant commercialization. What are the timelines that we are looking at, given that this 10 MWh facility has now come up? From this to 1 GW scale capacity in India, how the process will be in terms of validations, qualifications, and in terms of the project start-up and then commission? Broader timelines should also do. Thank you.
Rohit, let me just frame this first by looking at just probably telling a little bit about how we see Offgrid. Okay? I think it has a relevance to your question. I think we are investing in Offgrid. We are a strategic investor in Offgrid. Offgrid has a management team which is working on the execution of the pilot. Our interest on it has been threefold. One is that we see these Offgrid energy solutions first as a standalone basis, a very interesting business opportunity for us. Secondly, there is flow-through demand of chemicals, especially zinc bromide for us. We are the primary supplier of zinc bromide for the Offgrid business. Third one, obviously, is a chance for us to build up and scale up some plus megawatt kind of projects in India. Right?
These three are to be seen with very different timelines because they all are not compressible into one natural flow. Right? Firstly, I think they have right now launched a 10 MWh facility. Obviously, a plant of this scale cannot be determined to be successful immediately. Right? The management team of Offgrid, which is responsible for the success of this pilot operationally, is working on the execution of the pilot, and I would say it's probably going to be several months before we can actually say that it is completely done and [Non-English content] and is fully scalable. One has to go by their guidance and decisions on that. The second one is our zinc bromide demand is concerned, we continue to supply them zinc bromide. As they need zinc bromide, we'll continue to supply them.
We are just finishing our REACH certification for zinc bromide of the Jagadia plant. Once that happens, the volume will scale up further. I think it's after the pilot plant is fully demonstrated at scale, and they look at scale-up into the business overall, that we will actually look at megawatt plus kind of plants in India. Right? That's Phase III . That's Horizon 3 . I won't time it. I think it's difficult to put a specific time on it right now.
These are the three horizons. Horizon 1 is Offgrid's internal operations, which I think continue to focus on scaling up. Horizon 2 is scaling up our zinc bromide delivery, which will happen along with their scale-up. Horizon 3 is working together with them on launching 10 MWh plus kind of power plants in India on a commercial power supply basis, which I think is a third Horizon, which right now we've not specifically fixed a specific time around it.
Sure. This is helpful. Yeah. Sir, second question on the Semiconductor project, where are we currently? Again, here, if we can, give us broader timelines as to how we are looking at the progress of the project. Thank you.
Let me just make an opening comment, and I'll see if Rajeev, and I'll let Rajeev also add a little bit more if he. He's closer to the actual scheduling of the project. Broadly, I think we have said earlier, 24- 27 months. Right? Which is what we said last quarter, that once we finish the FSA, our target is to kind of get this done in 24, 27 months. We are executing to that schedule. Right? That's broadly the number. Bear in mind that 24- 27 months is commercial SOP, start of production. Then, of course, scale-up takes time after that. It's not a binary equation that the moment, the day we launch the plant, it immediately goes to 100% capacity. There's always a capacity ramp-up in these kind of projects. That's the high-level status. Let me see if Rajeev
Rohit, just to add to what Rampraveen said. See, we signed our FSA with Government of India on 11th May. Post that, we have completed the other operational requirements like signing of Tri-Party agreement and some other documents. We are currently in the process of obtaining the environmental clearance and consent to establish, post which the construction work will start. Sometime late August, early September is when the construction work will start. We have already onboarded the general contractor. The design readiness, in fact, the overall basic and detailed engineering design is on schedule.
Sorry to interrupt, you're sounding distant.
Yeah. Is it better now?
Yes, sir.
Yeah. On the design front, we are progressing as per the schedule. When we plan to start late August or early September, our design readiness will be very much there. We so far are on the schedule.
Perfect. That is helpful. Just one last clarification on the production volumes of salt. We have generally been about 1,100,000 tons a quarter. Given that last quarter we had logistical challenges, we still have some inventories and which can be liquidated throughout the rest of three quarters?
Yeah. I think we still have some This is a quarter, I think, inventory increase. I think generally in Q1, we tend to add inventory. In Q2, as the monsoons come in, we tend to optimize a little bit of harvesting and washing operations, so we can ship more from inventory. This quarter, actually, we cut down a little bit of manufacturing as well because of the high fuel costs. To optimize the fuel cost, we actually reduced a bit of the downstream little of our washery and harvesting operations as well. We do have inventory for us. It's a small amount, which will get liquidated as a normal course the rest of the year. I do expect that we'll have double-digit growth from Q3 onwards of salt. As we try to ramp up and things get a bit more smoother with the overall environment and the logistics situation.
Sure. Thanks a lot and all the best.
Thank you.
Thank you very much. Next question is from the line of Archit Joshi from Nuvama. Please go ahead.
Hi. Very good morning, sir. Thanks a lot for the opportunity. Sir, my question is regarding the bromine industry, particularly. If I just look at the historical volumes that we have done, taking into consideration that FY 2022 was the best possible year that anybody could have had in the chemical industry, we still had done about 20,000 tons in terms of volumes in FY 2022. We're talking about the same number in FY 2027, roughly, 20,000 odd tons, hopefully recovering from the second quarter to the extent of 5,500 tons of quarterly volumes.
Sir, it's basically been a span of five years and our volumes have sort of flattened out. Has this been a bromine industry specific issue? Because we have almost 43,000 tons of capacity, had the potential of doing about 28,000 tons of merchant sales. Where has the math gone wrong, sir? If you could explain your parts in the bromine industry.
Yeah. I think it's hard to say the math has gone wrong, I think for all the data points which you have shared are all very accurate. As we look back into our past, I think they're all fairly accurate. I think overall, because firstly, I would say, I think from an industry structure perspective, the attractiveness of that industry segment still remains very positive. Overall demand for bromine, both through flame retardants, oil and gas, and agriculture are all positive headlines for the sector overall. There'll be shifts which happen within those segments. For example, in flame retardants, one brominated retardant, FR, might be replaced by another one, which is a monomer might be replaced by a polymer and so on and so forth.
The bromine's inherent characteristics lend themselves very strongly for the applications they're being used in, I don't see any headwind from an industry structure perspective, at least for the next three to five-year window. If anything, as electronics consumption increases, as India does more of Make in India, some of these things will actually be positive for us. I think the challenge over the last three, four years have been two things broadly. I think the first one has been that as the feedstock As you know, our bromine depends upon brine, which comes in from the sea. As the feedstock has changed and the brine characteristics have changed, obviously a chemical system in terms of recovering bromine has to be modified for that. We have seen that changing, which has been a structural change, I think, over the last four, five years.
Probably one of the things which we could have done faster and better is basically making those changes in our design system, to basically enhance our recovery performance. If the total and improve our recovery performance, this is what we are working on right now. The second thing, of course, has been, I would say, one-off events. Sudden high amount of floods or rains, sudden amount of cyclonic behavior, et cetera. Average rainfall in the Kutch region has gone up from around 50 mm, 60 mm 20 years ago to 900 mm today. Obviously, we have seen more cyclonic kind of activity, and those have at times resulted in sudden dilution of our brine and created operational issues which have been difficult to respond to in the short term. A good example of that is what happened last year in end of Q2, early Q3.
It's a combination of structural shift, which we are resolving, and some one-off events which none of us is able to perfectly forecast. The structural ones are the things which we are taking actions on to enhance and debottleneck our capacity. Our goal is that we will be at a run rate which is between 20,000 and 25,000 by the end of this year and by early next financial year. On annual run rate. Annual run rate of 20,000.
Understood. Sir, just two small follow-ups, then I'll come back in the queue. The 28,500 tons of directional volumes that we plan to sell in the merchant market, when do you think that could be achievable? Has the industry also, over the last five years, been at the same level? The data points that we have are roughly the bromine industries to the extent of about one odd million tonnes. Has that number grown? How do you see that growing?
Yeah. I think it's growing. I think in India, the challenge from domestic demand perspective, obviously FR, there's not any FR capacity in India, therefore FR is the largest demand for bromine, domestic demand basically has a vacuum there. With most of it being imported directly, indirectly, fundamentally, I think it's a low single- digit to medium single- digit kind of growth sector. I think from the numbers you said, I think broadly the way you have structured the numbers is our earlier comment that if we have 40,000 tons, then around 30%-40%, 30% to go to internal consumption and 70% to go to market to merchant. I'm assuming that's the way you structured it, because that's probably what I and Rajeev were mentioning in calls or in analyst meetings. I think that's probably 2027, 2028.
Late, I would say 2028, 2029 is, I think financial year 2028, 2029, when we will be in the range of that run rate. As I said earlier, we think that the 25,000 tons run rate is something which we'll be able to accomplish through debottlenecking. The 40,000 will require some more investment, which we'll have to do, we will time that investment along with our flame retardant project and the expansion in derivatives. Those will go hand in hand, because adding that capacity without a clear demand pattern should not result in pricing pressure on our flow through and volume. With that said, that investment is designed to be aligned together. That's why I think it'll probably be 2028, 2029. We'll take that call exactly in the second half of next year, then it's probably a three-quarter expansion, three-quarter amount.
Thank you very much. Archit request to come back for a follow-up question. A request to all the participants, kindly limit yourself to two questions per participant and rejoin for a follow-up. Next question is from Karan from Keynote Capital. Please go ahead.
Yes. Thank you for the opportunity. My first question is related to the brine quality at Hajipir. Were there any issues due to the rainfall this time?
No, not really. I think as I mentioned earlier, brine GPL was lower than last year, but it is what we expected it to be. It is in line with what we are designing our operations for.
Got it. Sir, second thing I wanted to understand is related to Idealis coming in the drilling chemicals that you are working on. As oil prices have surged and Government of India is also focusing a lot on increasing the seismic activity by funding them. Just wanted to check, how has been the demand for these products right now, and how are you expecting it to scale down the line?
I think our oil field chemicals business is largely driven by exploration and not so much our production. Production to some extent, exploration is a larger driver. If you look at the global market, I think the large part of the market is still overseas and outside India. While the government is adding increasing capacity investments, there aren't too many huge investment expansions happening in terms of offshore drilling in India. There's a lot of wells which are basically being drilled, but they are not yet close to a production phase in terms of the actual activity. Therefore, continued demand, the size of the market is actually quite small. Demand is still largely driven by overseas markets, both in Middle East, Africa, and of course, the increasing amount of shale production in the U.S. which requires slightly different products in terms of well management for shale.
Slightly different elements, but fundamentally that demand pattern still remains stable. I think we make starch, PAC, and we make some thickeners like barite and viscosity product, drilling product barite and bentonite. Fundamentally, demand for them at a category level is still pretty robust. Our challenges remain what we articulated before, getting the plants cleared from a technical perspective for production, then getting the licenses and agreements sorted out, and then getting the new products developed. In the last three, four years, obviously markets have shifted. Therefore, the product plan is something we've had to revisit and lay out a new product plan, which we have pretty much completed. We are in the progress of completing that.
For PAC and starch, we have laid out a future product plan. We're developing new products, and some of them are in customer trials. It is a cycle which has to go through the oil industry, but for good reasons, is an industry which is a long cycle adoption industry. Therefore, it takes us time for us to go through customer trials and drive volume growth in the sector.
Got it. When we are expecting these volumes to run if the project
I think we are hoping to have started to have meaningful volumes in the second half of this year for PAC and starch, and then probably by the end of the year for bentonite, and barite will follow.
Got it.
Just to reference for you, PAC and starch is Nagari plant in Andhra, and bentonite is the Mandvi plant in Gujarat.
Thank you very much. The next question is from Darshita Shah from DSP Mutual Fund. Please go ahead.
Hi. Thank you for the opportunity. Just one clarification. This year, we will end the quarterly run rate should be for bromine should be roughly about 20,000, 25,000 tons. FY 2028, we should be able to do about 25,000 tons for full year.
Yeah. That's what we are pivoting towards, Darshita.
Got it.
Same thing I said last quarter.
Okay, great. One more question for Rajeev. For Semiconductor, once we start the construction, how should we think about the CapEx for the full year and then for FY 2028?
See, Darshita, the CapEx for Semiconductor, which was $249 million- 15%-20% of that has already been incurred, which ACIL, you would've seen, has already intimated the stock exchanges. The balance CapEx, around 60%-65% of that will happen in this financial year, which will be mostly towards advances for plant and machinery and other equipments. The balance 40%-45% will happen in the next financial year. That's how we should think about the overall CapEx for Semiconductor.
Got it. Great. That's all from my side. Thank you.
Thank you very much. Ladies and gentlemen, that was our last question for today.
All right.
We now hand the conference over to Mr. Rampraveen Swaminathan, Managing Director, for closing comments.
Thank you, everyone, for joining us today. We appreciate your time and your continued interest in the company. At the overall level, I believe Q1 has given us a good start for FY 2027, and we are confident about the path ahead. In case of any queries, please do get in touch with us or with the SGA Investor Relations teams. We look forward to meeting all of you in the next call. Thank you for your continued interest, and stay safe. Thank you very much.
Thank you very much. On behalf of Archean Chemical Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect. Thank you.