Laxmi Organic Industries Limited IPO (Laxmi Organic IPO)

Laxmi Organic Industries Limited IPO Tentative Timetable

About the Company – Laxmi Organic Industries Limited

Laxmi Organic Industries Limited is a leading manufacturer of Acetyl Intermediates and Specialty Intermediates with almost three decades of experience in the large-scale manufacturing of chemicals. The company is one of the largest manufacturers of ethyl acetate in India with a market share of approximately 30% of the Indian ethyl acetate market. Laxmi Organic’s products are divided into two broad categories:

1. Acetyl Intermediates including ethyl acetate, acetaldehyde, fuel-grade ethanol, and other proprietary solvents; and
2. Specialty Intermediates including ketene, diketene derivatives namely esters, acetic anhydride, amides, arylides, and other chemicals.

The products offered by Laxmi Organic find application in various high-growth industries, including pharmaceuticals, agrochemicals, dyes & pigments, inks & coatings, paints, printing & packaging, flavors & fragrances, adhesives, and other industrial applications.

Currently, the company has two manufacturing facilities and two distilleries in Maharashtra. It also has two research and development facilities with state-of-the-art research and development infrastructure to synthesize specialty molecules and advanced intermediates, recognized by the Department of Scientific and Industrial Research (DSIR), Government of India.

Growth Story of Laxmi Organic Industries Limited

Laxmi Organic Industries Limited was incorporated in 1989. In 1992, the company commissioned the Acetyl Intermediates Manufacturing facility at Raigad, Maharashtra for manufacturing glacial acetic acid.

By 1996, it had started the production of ethyl acetate too. In 2004, Laxmi Organic installed two windmills at Chitradurga district, Karnataka with capacities of 0.6 MW each. It also received ISO 9001-2000 certifications for the manufacture and marketing of ethyl acetate, acetic acid, and absolute alcohol.

Two years later, the company installed a windmill at Ghatnandre, Sangli, Maharashtra, with a capacity of 1.25 MW. By 2008, Laxmi Organic set up a distillery at Jarandeshwar and boosted its ethyl acetate manufacturing capacity to 51,000MT. In 2010, the company received ISO 14001:2009 and OHSAS 18001:2007 certifications for the manufacture and marketing of ethyl acetate, acetic acid and its derivatives, acetaldehyde, and absolute alcohol.

It also acquired Clariant’s ketene/diketene business and expanded into diketene and diketene derivatives products by commissioning the SI Manufacturing Facility. By the next year, the company set up a DSIR-approved R&D center at its SI Manufacturing facility and increased its diketene and diketene derivatives manufacturing capacity to 13,380MT and ethyl acetate’s capacity to 120,750MT.

In 2013, the company incorporated its subsidiaries Laxmi Organic (Europe) B.V., in Netherlands, Europe, and Laxmi Petrochem Middle East FZE in Sharjah. 

1. Financials of Laxmi Organic Industries Limited

Here is a quick look at the financial performance of Laxmi Organic Industries Limited over the last four years:

All amounts in INR Crore

A quick glance at the financial performance of Laxmi Organic over the last three years offers the following insights:

• The total income of the company grew at a CAGR of 8.27%. The drop in income in 2020 was due to the fall in the prices of acetates and other chemicals during the pandemic.
• Profit after tax grew at a CAGR of 3.56%
• Total assets grew at a CAGR of 18.55%

SWOT Analysis

The chemicals market in India is valued at USD166 billion. This is around 4% of the global chemicals industry. This is expected to grow at a CAGR of around 12% and reach ~USD280-300 billion within the next five years. The specialty chemicals industry forms around 47% of the Indian chemical industry and is expected to grow at a CAGR of around 11-12% over the same period.

If we look at the global acetyl industry was valued at USD13.4 billion in 2019 and is expected to reach USD18.3 billion by 2024 – a CAGR of around 6.4%. In India, this industry was valued at USD1.5 billion in 2019 and is expected to grow at a CAGR of around 6.6% and reach USD2.1 billion by 2024.

The global specialty intermediaries industry was valued at USD115billion in 2019 and is expected to grow at a CAGR of 5.2% and reach USD148 billion by 2024. In India, this industry was valued at USD6.6 billion in 2019 and is expected to grow at a CAGR of 10.2% and reach USD10.8 billion by 2024.

2. Strengths of Laxmi Organic Industries Limited

• Laxmi Organic Industries Limited is the leading manufacturer of ethyl acetate with a significant market share. It was the largest exporter of ethyl acetate from India in the six months ending September 2020.
• Laxmi Organic is the only Indian manufacturer of diketene derivatives with a significant market share and one of the largest portfolios of diketene products.
• The company’s products find application in a number of high growth industries including pharmaceuticals, agrochemicals, dyes & pigments, inks & coatings, paints, printing & packaging, flavors & fragrances, adhesives, and other industrial applications. Further, it has established long-standing relationships with marquee customers across various industries.
• Currently, the company has two strategically located Manufacturing Facilities for Acetyl Intermediates and Specialty Intermediates which are located in Mahad, Maharashtra, in close proximity to several ports. This helps in quick exports and imports.
• Laxmi Organic has two R&D Facilities, equipped with state-of-the-art research and development infrastructure to synthesize specialty molecules and advanced intermediates.
• The company’s technology development efforts and execution capabilities have enabled it to not only garner a leading position in the domestic Speciality Intermediates market but also made it a leader in several product groups globally.
• In addition to India, Laxmi Organic has customers in over 30 countries including China, Netherlands, Russia, Singapore, United Arab Emirates, United Kingdom, and the United States of America. Its international operations are supported by its offices in Leiden (Netherlands), Shanghai (China), and Sharjah (United Arab Emirates).
• The industry in which Laxmi Organic operates has high entry barriers due to inter alia, the involvement of complex chemistries in the manufacturing of products and the requirement to be enlisted as a supplier after due qualification of the products with certain customers, particularly with the customers in the pharmaceutical and agrochemical industries. Hence, there are high barriers to entry into the industry.

3. Weaknesses of Laxmi Organic Industries Limited

• All the manufacturing facilities of the company are located in one geographical area. Therefore, any disruption can affect its production capabilities and profitability.
• The company has considerable long-term debt of INR90.15 crores. Over the last four years, this has increased at a CAGR of 28.92%.

4. Peer Comparison

Here is a quick look at the performance of Laxmi Organic in comparison to its peers on some key aspects for FY 2020:

All amounts in INR Crore

As you can see, compared to its listed peers, Laxmi Organic has a slightly lower Debt to Equity Ratio as compared to its peers. However, its RoNW ratio is also lower. If the company can leverage its position as a market leader in the ethyl acetate segment, then it might be able to boost its financial performance.

5. Opportunity to Investors – Valuation of the IPO

Let’s look at the valuation factors of Laxmi Organic in comparison with its peers:

As per the peer group selected by Laxmi Organic in the RHP, the average PE Ratio is 21.93. If we look at the price band of Laxmi Organic IPO and calculate the P/E Ratio at the higher price of Rs.130, then we get a value of P/E Ratio of 8.09. This is way lower than the industry average. Therefore, the IPO is undervalued.

6. Risk Factors

• The continuing impact of the outbreak of the COVID-19 could have a significant effect on its operations, and could negatively impact its business, revenues, financial condition, and results of operations.
• A large part of Laxmi Organic’s manufacturing facilities are located in one geographic area and therefore, any localized social unrest, natural disaster or breakdown of services or any other natural disaster in and around Mahad, Maharashtra or any disruption in production at, or shutdown of, its Manufacturing Facilities could have a material adverse effect on its business and financial condition.
• The company in the process of setting up the Proposed Facility for the manufacture of fluorospecialty chemicals. Such fluorospecialty chemicals, a new product line, may not be accepted by its customers and/or may not be profitable or achieve the profitability that justifies the investment, which may have an adverse impact on its prospects, growth, results of operations, and financial condition.
• Any inability on the company’s part to manage its growth or implement its strategies effectively could have a material adverse effect on its business, results of operations, and financial condition.
• If the company’s research and development efforts do not succeed, it may not be able to improve its existing products and/or introduce new products, which could adversely affect its results of operations, growth, and prospects. Further, any failure to commercialize its new products may adversely impact its business, operating results, and future prospectus.
• Any increase in the cost of the raw material or other purchases or a shortfall in the supply of the raw materials, may adversely affect the pricing and supply of the company’s products and have an adverse effect on its business, results of operations, and financial condition.
• A significant portion of Laxmi Organic’s revenues and expenses and certain of its borrowings are denominated in foreign currencies. As a result, it is exposed to foreign currency exchange risks which may adversely impact its results of operations.
• The company’s profitability largely depends upon the global prices of its products. There is no assurance that the prices may sustain or further increase in the future. Any significant fall in global prices of its products may have a material adverse effect on its business, results of operations, and financial condition.
• Laxmi Organic relies on third-party transportation and logistics service providers for the storage and procurement of raw materials and the storage and supply of its products. Significant increases in the charges of these entities could adversely affect its business, results of operations, and financial conditions. Further, disruptions of logistics could impair its ability to procure raw materials and/or deliver its products on time, which could materially and adversely affect its business, financial condition, and results of operations.
• The company’s Registered Office, Manufacturing Facilities, Proposed Facility, Distilleries, and most of its offices are located on leased or licensed premises. Its failure to continue to use such premises may have an adverse impact on its operations.

7. Objects of the Offer

Laxmi Organic Industries Limited proposes to utilize the net proceeds from the issue for:

• Investment in YFCPL for part-financing its capital expenditure requirements in relation to the setting up of the Proposed Facility ~Rs.60.40 crores
• Investment in YFCPL for funding its working capital requirements of YFCPL ~Rs.37.74 crores
• Funding capital expenditure requirements for expansion of our SI Manufacturing Facility ~Rs.91.06 crores
• Funding working capital requirements of our Company ~Rs.35.18 crores
• Purchase of plant and machinery for augmenting infrastructure development at our SI Manufacturing Facility ~Rs.12.56 crores
• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by our Company and VLPL ~Rs.179.31 crores
• General Corporate Expenses

8. Promoters of Laxmi Organic Industries Limited IPO

1. Yellow Stone Trust; and
2. Ravi Goenka;

How Can You Apply for Laxmi Organic Industries Limited IPO?

You can apply for the Laxmi Organic Industries Limited IPO by using one of these two methods of payment:

1. ASBA – available via the net banking interface of your bank account. Almost all banks offer this facility
2. UPI – available with brokers who do not offer banking services. 

Things to Keep in Mind Before Investing in Laxmi Organic IPO

Here are some things that you need to keep in mind before investing in the Laxmi Organic IPO:

1. The IPO seems to be underpriced based on peer comparison. You might want to analyze the intrinsic value of the company before making a decision.
2. While there has been a slump in revenue in 2020, the company is positioned to generate good revenue in the coming years.
3. Laxmi Organic is looking to expand its manufacturing operations but is currently located only in Maharashtra creating a geographical risk.

FAQs

Q1. What is the Laxmi Organic Industries Limited IPO?

The Laxmi Organic Industries Limited IPO is a Main Board IPO for the issue of equity shares having the face value of Rs.2 totaling up to Rs.600 crores. The registrar for the IPO is Link Intime India Private Limited and the shares are proposed to be listed on the BSE and NSE.

Q2. What are the open and close dates of the Laxmi Organic Industries Limited IPO?

The Laxmi Organic Industries Limited IPO opens on March 15, 2021, and closes on March 17, 2021.

Q3. What are the lot size and minimum order quantity of the Laxmi Organic Industries Limited IPO?

The lot size of the Laxmi Organic IPO is 115 shares. Also, the minimum order quantity is 115 shares.

Q4. What is the allotment date of the Laxmi Organic Industries Limited IPO?

According to the RHP, the basis of allotment will be finalized by March 22, 2021. Further, investors can expect to receive the credits in their demat accounts by March 24, 2021 and may be listed on March 25.

Happy Investing!