Laxmi Organic IPO Detailed Review | Should I Subscribe?

Rs.600 Cr Lakshmi Organic IPO launch date was open for subscription from March 15 to March 17, 2021. Check out the detailed analysis of Laxmi Chemicals IPO.

Detailed Analysis of Laxmi Organics IPO

Introduction

laxmi organic industries limited ipo, a chemical manufacturer, market leader in Acetyl Intermediated and Specialty Intermediates is coming up with the Lakshmi Organics Industries Ltd.  IPO of Rs. 600 crores, which is open for subscription from Monday, 15th March 2021. Check it detailed analysis of laxmi organics ipo chittorgarh.

Detailed Review of Laxmi Organics IPO

1) IPO DETAILS:

1. laxmi organics ipo listing date for subscription is from 15th of March 2021 to 17th March 2021.
2. With the Initial Public Offering, Company plans to raise Rs. 600 crores from the market.laxmi organics ipo share price details consists of fresh issuance of Shares worth Rs. 300 Cr. and offer for sale worth Rs. 300 crores.
3. Rs. 300 crores Offer for Sale aggregates the stake sale by the Promoters- Yellow Stone Trust and Mr. Ravi Goenka, MD of the Company.
4. The price Band of the IPO hovers around Rs. 129- Rs. 130. The Face value is Rs. 2 per equity share.
5. laxmi organics ipo price listing date was on March 25, 2021. Thelaxmi organics ipo share price today were listed on both BSE as well as NSE.
6. Lot Size of the IPO includes 115 shares in single lot and in multiple thereof up-to 13 lots.
7. The Objective of issue of Lakshmi Organics Industries IPO is:

i)lakshmi organics ipo listing date Price will bring in an investment of Rs. 53.58 crores in Subsidiary Firm, Yellowstone Fine Chemicals Private Limited (YFCPL) to partly finance the capex to establish a new manufacturing facility.

ii) To invest Rs. 37.75 Cr. in YFCPL for financing working capital requirements.

iii) To finance the total Rs. 81.87 Cr. the capex for expansion of SI Manufacturing facility.

iv) To finance Rs. 35.17 Cr. for meeting working capital requirements.

v) An infrastructure development project at SI is being undertaken by purchasing plant and machinery worth Rs. 12.24 crore.

vi) To make prepayment or repayment of borrowings of Rs. 205.91 Cr. availed by the company and subsidiary, Viva Lifesciences Pvt. Ltd. (VLPL).

vii) To meet general corporate purposes.

• The Lakshmi Organics IPO will also bring change to the shareholding pattern of the company. Promoters’ shareholding in the company will decrease from 89.51% (Pre-Issue) to 72.92% (Post-Issue).

2) Laxmi Organics Industries Limited (LOIL) – Company Overview:

• Laxmi Organics Industries Limited was incorporated in 1989 and it is one of the leading manufacturers of specialty chemicals – Acetyl Intermediates and Specialty Intermediates in India with a rich experience of 3 decades.
• The company currently is among the largest manufacturers of ethyl acetate in India with a market share of approximately 30% of the Indian ethyl acetate market, ethyl acetate is used in Paints, Coatings, Perfumes & Pharma.
• Companies that use the company’s products include pharmaceutical companies, agrochemical companies, dye and pigment manufacturers, packaging companies, printing companies, coating manufacturers, flavor and fragrance manufacturers, and adhesive manufacturers.
• The company has 2 key business segments i.e., Acetyl Intermediaries (AI) and Specialty Intermediates.
• In the Specialty Intermediates business segments of the company, it is the only manufacturer of Diketene Derivatives in India, with a market share of 55%.
• laxmi organics IPO details have significantly expanded its scale of operations and has global footprints in 30 countries across countries like China, Russia, Singapore, UAE, UK, USA, and Netherland.
• AI and SI products are manufactured at only two facilities in Mahad, Maharashtra. Mumbai also houses the company’s R&D center.
• The aggregate installed production capacity at the AI Manufacturing Facility was 161,320 MTPA, while the aggregate installed production capacity at the SI Manufacturing Facility was 78,045 MTPA.
• The proposed installation capacity is 82,525 MTPA, hence to cover up the gap of 4,480 MTPA, the company eyes toward raising money from the market.
• Current Capacity Utilization is 77.56% and the company wants to grow the capacity utilization by 6%-7% in order to increase revenue and attract clients.

3) Laxmi Organics- Financial Performance:

i) Revenue from Operations:

• The Financial report of the company does not look very attractive.
• Revenue from the Operation of the company has grown at a CAGR rate of 5.6% from Rs. 1,376 Cr. In FY18 to Rs. 1,534 Cr. In FY20 and Rs. 813 in the first half of the FY21.

ii) Revenue Mix (FY20)- Application Wise:

• Pharma Sector contributes the highest 35.7% to the total revenue of the company.
• After Pharma, Distributors contribute the highest to the revenue mix of the company with 26.3%.

iii) Revenue Mix (FY20)- Geography-wise:

• The domestic business generates the majority of the company’s revenue. 76% of the company’s total revenue comes from the Indian market.
• Outside India, Europe contributes most to the revenue mix of India, by contributing 14% of the total revenue.

iv) Operating Profit Margin:

• The company has reported a continuous downfall in its Operating Profit Margin between FY18 to FY20.
• In FY18, EBITDA Margin was 11%, which decreased to 9.8% in FY19, further it went down to 7.4% in FY20.
• The company has witnessed improvements in its operating profit margin by reporting a 10.5% growth in its margin in H1FY21.

v) PAT Margin:

• The case of PAT Margin is the same as in the case of EBITDA Margin.
• The company has witnessed a decline in PAT Margin from 5.5% in FY18 to 4.6% in FY19 and was constant in FY20.
• Until FY20, the CAGR growth is -3.7%, but the company has recorded Net Profit of Rs. 46 Cr. in H1FY21, which sets the path for upward direction of the PAT of the company and this will also improve the PAT margin of the company.

vi) ROE & ROCE:

• Despite average financials, the company is able to put good ROE and ROCE numbers on the board.
• ROE and ROCE have also faced a downward trend between FY18 to FY20.
• ROE was plummeting from 20% in FY18 to 12.8% in FY20. But improvement has been recorded in the FY21, as the ROE of the company rebounds to the level of 19.3% in FY21 (Annualized Numbers).
• From 26.6% in FY18 to 12.8% in FY20, ROCE has also declined. In FY21, the ROCE of the company was 20.3% because of the efforts the company has made to raise capital.

4) Peer Comparison:

• Tough competition in between the peers
• SRF is the largest company among the mentioned peers with the highest market capitalization of Rs. 33,172 Cr. Market Cap. of Aarti Industries and Atul Ltd. stands at Rs. 22,251 Cr. & 20,073 Cr. respectively. Upon Listing, Laxmi Organics will be the Small Cap Company with an M-Cap. of Rs. 3,428 Cr.
• According to the Operating Profit Margin of peers, Navin Fluorine has a margin of 28.8%, followed by Fine Organics with 25.4% and Atul Ltd. with 23.9%. The Lowest Profit Margin is held by Laxmi Organic, also this margin might improve this year.
• In terms of ROE also, Laxmi Organics lacks behind its competitors. Navin Fluorine again has the highest ROE with 32.4%. Fine Organics also have an ROE above 30%. And here again, Laxmi organics listing date ranks the lowest in this parameter also among its peers, with an ROE of 16.4%.
• While talking about Debt-to-Equity, Navin Fluorine and Atul Ltd. are debt-free companies. And, Laxmi Organics currently have a D/E ratio of 0.15, and post-IPO, this may be further reduced, as the company has certain objective mentioned in its prospectus regarding repayment of borrowings.

5) Valuation:

• laxmi organic shares is currently trading at a PE of 48.8x based on FY20 earnings. Since the earnings have grown about 30% in the current fiscal year, and therefore PE of the company can trade around 35x-40x.
• Considering its peers, Laxmi Organics is trading at a premium valuation. And post-listing, it might be overvalued.

6) Strengths:

• Laxmi Organic is the leading manufacturer of Ethyl Acetate with significant market share of 30%. The company has been the largest exporter of ethyl acetate from India in the six months ended September 30, 2020, and Fiscals 2020, 2019 and 2018
• Diketene derivatives are produced by LoIL, the only manufacturer in India, and the company has the largest portfolio of Diketene products. Currently, the company has 55% of the Indian market for this segment.
• Diversified customer base across high-growth industries and long-standing relationships with marquee customers. The company maintains long-standing relationships with their customers and clients. Their clients name includes Alembic Pharmaceuticals Limited, Dr. Reddy’s Laboratories Limited, UPL ltd. etc.
• Strategically located manufacturing facilities, vertical integration and supply chain efficiencies. LOIL is having 2 manufacturing facilities for AI & SI located in Mahad, Maharashtra. Company has also 2 distilleries located in Maharashtra.
• In-house research and development capabilities and consistent track record of technology absorption. Company is having 2 R&D facilities located in Mumbai which works for development of new products.
• The company is having a wide global presence. LOL serves clients from 30 countries including, UK, USA, China, UAE, Netherlands, Russia, etc.
• The company is having experience in handling complex chemistries which further helps in creation of entry barriers.

7) Risks:

• The Manufacturing units of the company is located in one geographical area only i.e., Mahad, Maharashtra. Any uncertain events or disruptiins on these units can severely affect the production and hence business as well.
• The company wants to expand their new product line ‘Fluorospecialty’, and hence it is a matter of concern for the company, that whether this product line will be successful or not.
• Company is having material exposure to foreign exchange-related risks due to its presence in over 30 countries.
• There are several criminals and civil cases against the company, its promoter, and directors.
• Failure of R&D might severely affect the existing as well as upcoming product lines of the company.

Conclusion:

As per the valuation, share price of laxmi organic seems to be overly priced. Looking at the financial performance, company seems to be struggling with revenue, operating profit and  margin, PAT & PAT Margin,etc, but the same represents the path of improvement in the current financial year. As of now, listing gains seems a possibility with grey market premium (GMP) around Rs.90-100. This translates to listing gains to the tune of 70-75%.