Laxmi Organic IPO analysis!
Last updated: 15 Mar, 2021 | 07:28 am
Laxmi Organic is set to raise up to Rs 600 crore via IPO which opened on 15th March, Monday. Here are the details:
About Laxmi Organic
- Laxmi Organic Industries is a specialty chemical manufacturer that operates in 2 business segments a) Acetyl Intermediates (AI) and b) Specialty Intermediates (SI)
- It is the leading manufacturer of ethyl acetate with over 30% market share in the Indian ethyl acetate market and the only manufacturer of diketene derivatives in India.
- As of Dec-20, 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 company has two manufacturing units and two distilleries and is in the process of establishing one more manufacturing unit.
- The company has a global footprint with customers in 30 countries including China, Russia, Singapore, UAE, UK, USA, and Netherlands, among others.
- Laxmi Organic faces competition from both domestic and multinational corporations. The Indian specialty chemicals industry is highly fragmented in nature. The key players include Aarti Industries, Navin Fluorine, Rosari Biotech, SRF and Atul Ltd.
- The table below shows a comparison of Laxmi Organic with its listed peers in terms of Revenues, Return on Net Worth and P/E ratios. Laxmi Organic has lower RoNW as compared to its listed peers (except Rossari Biotech)
- The company has seen a low growth in topline over the last 3 years, with revenue from operations increasing from Rs 1,393 cr in FY18 to ~Rs 1,534 cr in FY20. The total revenue increased at a CAGR of 5% from fiscal 2018-2020.
- Most of the company’s manufacturing facilities are located in Mahad, Maharashtra. The company said that the bottomline was hit due to floods.
- The company’s bottomline has shown negative CAGR growth over the last two years.
- The net profit margin has been in the range of 4.5% to 5.5%. The company has seen healthy RoE and RoCE margins. H1FY21 numbers are not annualised.
- The company has paid a dividend of 15% (FY18), 3.5% (FY19) and 17.50% (FY20). It will follow prudent dividend policy post listing on the basis of its performance and future prospects.
About the issue
Issue open: 15th March- 17th March 2021
Price band: Rs 129-130 per share
Issue Size: Rs 600 crore (Gross)
Issue Size: The Rs 600-crore IPO comprises a fresh issue and an offer for sale of equity shares, each aggregating up to Rs 300 crore.
Reservation for QIB: 50% , Retail - 35%, Non institutional Investors -15%.
Bid lot: 115 shares, and in multiples of 115 shares
At the higher end of the price band, Laxmi Organic IPO is priced at ~49.8 times FY20 Earnings Per Share (on a trailing basis), and around ~37.6 times annualised EPS of 1HFY21. This is reasonable, considering that listed peers such as Aarti Industries (PE of ~45), Fine Organic (PE of 62), and Rossari Biotech (PE of 71), are trading at higher valuations. As is the case in the IPO season, good businesses are getting priced at expensive valuations. However, the issue is cheaper compared to the ongoing IPO of Anupam Rasayan.
The company has a good market share in Acetyl Intermediaries & Specialty Intermediates business. It is also establishing its footprint in the Fluorospecialty chemicals business. Its expansion into high-margin fluorochemicals space brightens its topline and bottomline growth outlook over the long-term.
Considering factors such as good return ratios, robust growth outlook, dominant market share and reasonable valuations, we remain positive on the long-term prospects of the issue.