Laxmi Organics IPO- Business Review and Fundamental analysis
Laxmi Organics is coming up with its IPO with an offer size of Rs 600 crore on 15th March 2021. The offer consists of a fresh issue of Rs 300 crore and an offer for sale of Rs 300 crore by its promoter Yellow stone Trust. Offer Details follow:
|Offer Size||Rs 600 crore|
|Fresh Issue||Rs 300 crore|
|Offer for sale||Rs 300 crore|
|Price Band||Rs 129-Rs 130 per share|
|Offer Period||15-17th Mar 2021|
|Offer Structure||QIBs: 50% of the offer
NIIs: upto 15% of the offer
RIIs : upto 35% of the offer
|Market lot||1 lot (115 shares), Rs 14950
13 lots (1495 shares), Rs 194350
|Listing on||BSE, NSE|
|BRLM’s||Axis Capital Limited, DAM Capital Advisors Ltd.,|
⇒ Leading manufacturer of Acetyl Intermediates and Specialty Intermediates.
⇒ Global presence and low geographical concentration
⇒ High entry barriers in the sector
⇒ Plans to expand installed capacities to support growth initiatives.
⇒ Proposes to diversify into manufacturing of specialty fluorochemicals chemicals by the year 2022.
⇒ Diversified customer base, in India and abroad.
Business Profile Laxmi Organics IPO Business Review and Fundamental analysis
⇒ Incorporated in the year 1989, Laxmi Organics is a leading manufacturer of Acetyl Intermediates and Specialty Intermediates. The products manufactured find application in various high-growth industries, including pharmaceuticals, agrochemicals, dyes & pigments, inks & coatings, paints, printing & packaging, flavors & fragrances, adhesives, and other industrial applications.
⇒ The products are currently divided into two broad categories,
- Acetyl Intermediates – Acetyl Intermediates include ethyl acetate, acetaldehyde, fuel-grade ethanol, and other proprietary solvents,
- Specialty Intermediates-This category comprises of ketene, diketene derivatives namely esters, acetic anhydride, amides, arylides, and other chemicals.
⇒ The company has a global reach with customers in more than 30 countries including China, Netherlands, Russia, Singapore, United Arab Emirates, the United Kingdom, and the United States of America. Customers in the pharmaceutical segment include marquee names like Alembic Pharmaceuticals Limited, Dr. Reddy’s Laboratories Limited, Hetero Labs Limited, Laurus Labs Limited, Macleods Pharmaceuticals Private Limited, Mylan Laboratories Limited among others.
⇒ The company has two manufacturing facilities in Mahad, Maharashtra with one facility dedicated to Acetyl Intermediates (installed production capacity at 161,320 MTPA) and another dedicated to Specialty Intermediates (installed production capacity at 78,045 MTPA) which are strategically located in proximity to several ports and each other.
⇒ The company is in the process of setting up the Proposed Facility in Lote Parshuram, Maharashtra for manufacturing floor specialty chemicals which is proposed to commence operations by the fourth quarter of Fiscal 2022. It has recently acquired assets including plant & machinery, design, and operating paperwork, REACH registrations, and patents of Miteni, a manufacturer of organic fluor specialties and electrochemical fluorination.
⇒ The company is considering the acquisition of AHPL (Acetyls Holding Private Limited) and its subsidiary YCPL, having an aggregate installed production capacity of 10,500 MTPA of acetaldehyde and 29,200 MTPA of ethyl acetate as on December 31, 2020. Laxmi organics has two distilleries located in Satara district (Jarandeshwar Distillery) and Kolhapur district in Maharashtra Panchganga Distillery.
Laxmi Organics posted total revenues of Rs 814.36 crore for the six months ended 30th Sept 2020 against PAT of Rs 45.48 crore. The revenue for FY20 reduced by 2.27% to Rs 1538.62 crore from Rs 1574.32 crore in FY19 because of a fall in selling prices of the products manufactured. PAT was Rs 70.21 crore for FY20 as compared to Rs 72.39 crore for FY19. Operating and net margins are quite volatile as can be seen from the table below. We have excluded exceptional income (non-recurrent income) in fiscal 2020 to calculate EBITDA margins.
Return on net worth has been decent at 16.45% for FY20. Debt to equity has been low at 0.31 for FY20.
|Key Financial Metrics||Amount in INR Crores|
|30th Sep 2020||FY 20||FY 19||FY 18|
|Return on net worth||9.63%||16.45%||16.09%||19.96%|
Valuation and peer comparison
At annualized EPS of 4.04 per share, P/E is 32.18x at the upper price band of Rs 130 per share which indicates that the IPO is fully priced. P/BV comes at 6.19x with NAV at Rs20.99 per share at the upper price band. The average P/E for the sector is 30x.
The following table shows the listed peers of Laxmi Organics and their P/E data.
|Peers||Aarti Industries||Atul Limited||Fine Organics Industries||Navin Fluorine International||Rossary Biotech||SRF Limited||Average P/E|
Future Outlook and Conclusion
Laxmi Organic is a leading manufacturer of Aceytal Intermediates and Speciality Intermediates. The company has a diversified base of customers and has established its global footprint in over 30 countries. The Company plans to grow by expanding its installed capacity and also by diversifying into the manufacturing of specialty fluorochemicals.
The company has decent financial numbers over the last three fiscals and also proposes to expand its operations. The sector has high entry barriers due to the complexity of products. Global operations demonstrate low geographical concentration. Hence, one may consider subscribing to the IPO for the long term.