IPO Analysis: Laxmi Organic Industries

IPO rating- Invest for listing gains 

About the issue 

The company is entering the capital market with its initial public offering (IPO) of equity shares of the face value of Rs 2 each. The public issue comprises a fresh issue of equity shares worth Rs 300 crore and offer-for-sale (OFS) of up to Rs 300 crore. The price band of the issue has been fixed at Rs 129 to Rs 130 per equity share. The IPO opens on March 15 and closes on March 17, 2021. The issue may list on March 25, 2021. Laxmi Organic IPO has a market lot size of 115 shares. A retail-individual investor can apply for up to 13 lots. The quota for retail investors in Laxmi Organic initial public offer (IPO) has been fixed at 35 per cent of the net offer. The QIB and NII quotas are fixed at 50 per cent and 15 per cent, respectively. The objective of the offer is to make an investment in its subsidiary firm, Yellowstone Fine Chemicals Private Limited (YFCPL) to partly finance the working capital requirements as well as Capex to establish a new manufacturing facility. It would also finance the working capital requirements and Capex for expansion of the SI manufacturing facility. Last but not the least, it aims to make repayment of borrowings availed by the company and also, to meet general corporate purposes.

About the company 

Laxmi Organic Industries Ltd was incorporated in 1989. It is a speciality chemical manufacturer that operates in two business segments namely, Acetyl intermediates (AI) and speciality intermediates (SI). The company is the leading manufacturer of ethyl acetate with over 30 per cent market share in the Indian ethyl acetate market and the only manufacturer of Diketene derivatives in India. Acetyl intermediaries and Diketene derivatives are used in the agrochemical, pharmaceutical, paint and coating, and packaging sectors. Laurus Labs, Hetero Labs, Alembic Pharmaceuticals, Heubach Colour, Granules India, Hubergroup India, UPL, Huhtamaki India, Macleods Pharmaceuticals, Colourtex Industries, and Suven Pharmaceuticals are some of its customers. The company has a global presence with customers in almost 30 countries including China, Russia, Singapore, UAE, UK, USA, Netherlands, etc. It has 2 manufacturing facilities located in Mahad (Maharashtra) for the manufacturing of AI and SI products. The company is also proposing to set up a new manufacturing facility at Lote Parshuram (Maharashtra) to manufacture four speciality chemicals. 

Strengths 

Leading manufacturer of ethyl acetate with significant market share. 

It's the only Indian manufacturer of Diketene derivatives with a significant market share as well as one of the largest portfolios of Diketene products. 

Strategically located manufacturing facilities, vertical integration and supply chain efficiencies. 

Global presence and low geographical concentration. 

Financials 

The company’s total revenue was Rs 1,076.52 crore, Rs 1,290.59 crore, Rs 1,434.98 crore and Rs 1,366.28 crore in the fiscals 2017, 2018, 2019 and 2020, respectively. Further, PAT was Rs 70.78 crore, Rs 76.73 crore, Rs 77.79 crore and Rs 78.62 crore in the fiscals 2017, 2018, 2019 and 2020, respectively. The utilisation of the speciality chemical plant rose to 67 per cent in December 2020 compared with 41 per cent in April 2020. In the first half of FY21, the company posted revenue of Rs 813 crore with a profit of Rs 45.50 crore. The pharma and packaging customers contribute two-third to the revenue. The export forms nearly a quarter of the revenue. 

Valuation & recommendation  

The company’s capacity of speciality chemicals will increase to 82,525 metric tonnes per annum (MTPA) by November 2021 from the current 78,045 MTPA. Recently it has entered into fluoro speciality chemicals business through the acquisition of Italy’s Miteni. Commercial production from the new fluorochemical plant is expected to start in March 2022. In the next few years, it is expected that one in every three active pharmaceutical ingredients will be based on fluorine chemistry, which offers a promising scope for growth. The company will continue to leverage its know-how in complex chemistries and experience in engineering to focus on the addition of downstream and value-added products to its product portfolio. At Rs 130, the initial public offer (IPO) demands a P/E multiple of 37.6 based on the annualised revenue for the first six months of FY21, which is in line with the industry average P/E of 35.6. Rossari Biotech, a speciality company, recently listed on the bourses, commands a P/E of 67 based on the annualised earnings for FY21. The company’s ROE for the past three financial years stood at 15.99 per cent, 17.46 per cent and 22.13 per cent, respectively. Aarti Industries, Fine Organics, Navin Fluorine, Rossari Biotech and SRF are some of the listed peers of Laxmi Organic. Looking at the above positives, we believe that the company will keep growing its business at a healthy rate, and hence, you can invest for a listing gain.