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Laxmi Organics IPO Review and Analysis in Detail

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Basis Structure of Laxmi Organics IPO

Another IPO that has joined the race of raising money is Laxmi Organics Industries IPO. The issue will open in the coming months of 2021.

Laxmi Organics Industries filed its draft papers in December 2020 and it intends to raise about Rs. 800 crore.

This IPO is of a book-building nature. This means the shares that are being offered are quoted with a price band. The other kind of offering is called fixed price offering, and this is characterized by a fixed price for the shares that are on offer.

The Laxmi Organics Industries IPO will comprise of both a fresh issue segment and an offer for sale segment. The company will raise Rs. 500 crore through the fresh issue while the promoter and the other selling entity will raise Rs. 300 crore.

The fresh issue segment will contain shares that are being newly issued by Laxmi Organics Industries IPO. This amount is retained by the company.

In this case, Laxmi Organics will use this amount to expand its manufacturing facilities and to repay some of its existing debt burden.

As for the offer for sale segment, that includes those shares which are being sold by existing shareholders. These shares are not being diluted by the company. In this case, the transaction is between the existing shareholders and the new shareholders.

The table below summarizes the details about the Laxmi Organics Industries IPO. Details about the Laxmi Organics Industries IPO share price, Laxmi Organics Industries date 2020, Laxmi Organics Industries IPO listing date and more have been included.

IPO Details

After the IPO, the Laxmi Organics Industries shares will be listed on both NSE and BSE.

About the Company

Laxmi Organics was originally incorporated in the year 1989. Over the course of the past few decades, the company has grown in leaps and bounds.

The company deals in the manufacture of organic chemicals. These are used as intermediates and raw materials in the production of medicines, chemicals, ink and other forms of colour pigments, and more.

From acetaldehyde, it has now expanded to ethyl acetate, diketene derivatives and much more. Currently, the company is the largest producer of ethyl acetate in India.

In 2010, Laxmi Organics acquired Clariant Chemicals.

Currently, the company operates two manufacturing facilities, two distilling facilities and two R&D facilities located in Maharashtra.

Customers

Owing to the nature of its operations, Laxmi Organics operates on a B2B business model.

The company currently has clients spread across 30 countries like USA, UK, UAE, China, Russia, Singapore and others.

Examples of clients include Syngenta, Alembic Pharmaceuticals, Covestro, Dr. Reddy’s, Granules, Hetero Labs, Laurus Labs, Macleod Pharmaceuticals, Mylan Laboratories and more.

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The graph above shows the share of the different geographical areas in the operating revenue of the company.

Products & Services

Laxmi Organics’ product portfolio can be divided into two verticals – acetyl intermediates and speciality intermediates.

Under acetyl intermediates, there are a number of products like ethyl acetate, acetaldehyde, ethanol, etc. Speciality intermediates include products like ketene, esters, amides, acetic anhydride and more.

The graph below shows the share of each product in the operating revenue of the company.

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Apart from these, Laxmi Organics also plans to diversify into a number of speciality fluorochemicals in the near future.

Promoter Shareholding Pattern

The table below summarises the promoter shareholding pattern prior to the Laxmi Organics IPO.

Promoter Shareholding Pattern 

Financial Overview of Laxmi Organics Industries IPO

The table below compares the key financial figures for Laxmi Organics over the last four years. All the figures mentioned below are in Rs. Crores.

Financial Overview

Although the total revenue earned by Laxmi Organics increased steadily till 2019, in 2020, we can see a decrease. This is primarily due to the impact of the COVID-19 lockdown and the fall in the prices of acetates and speciality chemicals.

Total Revenue

Overall, the total revenue of Laxmi Organics has maintained a CAGR of 8.28%.

Total Assets

As for the total assets, that has maintained a CAGR of 18.59%.

Laxmi Organics has considerable long-term debt. Over the past four years, this debt burden has grown at a CAGR of 28.92%.

Long term debt

Most of these expenses are related to the expansion of manufacturing facilities. However, if the debt burden continues to grow at this rate, it will pose immense stress on the company’s balance sheet.

It should be noted here that Laxmi Organics plans to use a part of the IPO proceeds to service some of its debt burden.

Industry Analysis

The global chemical market was sized at $ 4,738 billion in 2019. Out of this, China has captured the largest market share with 37%. India, in comparison, lags with a 3.5% market share.

Speciality chemicals comprise a sub-set of the overall chemical market. In 2019, this market was valued at $ 798 billion. The largest demand for speciality chemicals comes from the Asia Pacific region, primarily from India and China. The graph below shows the demand split-up.

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Now, coming to India, the domestic chemical market was valued at $ 166 billion in 2019. Backed by rapid industrialization and the increasing demand for chemical intermediates, this market is expected to grow to $ 300 billion over the next five years.

The speciality chemicals sub-segment, in this case, was sized at $ 78 billion in 2019.

This market is expected to benefit from the effects of the Make in India campaign and the incentives provided to domestic manufacturers in India. The government has direct plans to implement the Atmanirbhar Bharat initiatives in the chemicals and petrochemicals sector.

India’s closest competitor, China, has experienced some downturns. On account of the rising costs in China and its worsening position in the global markets, much of the overseas demand is shifting to India. While China’s growth rate has stifled, the Indian industry is set to grow at 10% over the next five years.

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Coming to the Indian acetyl market, it was valued at $ 1.5 billion in 2019 and is expected to grow to $ 2.1 billion by 2024. Much of the demand for acetyl products comes from the packaging industry and the colours and pigments industry.

The graph below shows the market share in this sub-segment of the Indian chemicals market.

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It is interesting to note here that Laxmi Organics is the largest manufacturer of ethyl acetate in India. It enjoys a market share of 30%.

Apart from that, in the market for diketene derivatives, the company enjoys a market share of 55%. In fact, currently, Laxmi Organics is the only company in India that manufactures these niche products.

Peer Comparison of Laxmi Organics Industries IPO

The table below compares the main financial parameters of Laxmi Organics with that of its listed peers.

Peer Comparison

In comparison to its peers, Laxmi Organics' financials are lagging behind. In terms of revenue growth and return on equity, Rossari Biotech takes the first place.

In terms of the operating margin, Atul Limited takes the first place.

If the company is able to utilise their position as a market leader in the ethyl acetate segment and maintain efficiency in the growth and expansion plans, then we might see an improvement in the company's financial parameters.

Strengths of Laxmi Organics Industries IPO

The primary strength for Laxmi Organics is its position as a market leader in the ethyl acetate segment. This market is expected to grow at a CAGR of 4.5% and the company stands to benefit directly from this growth.

Laxmi Organics is also the only manufacturer of diketene derivatives in India. It has a market share of 55%, which will only increase if the company maintains its performance.

Another strength for the company is the fact that it has long-standing relationships with its clients across the country. A diversified client portfolio as well as a diverse range of products reduces specific risk.

Also, there is the market structure in which Laxmi Organics operates. Owing to the high entry barriers, the chances of newer players entering into the market is minimal.

Weaknesses of Laxmi Organics Industries IPO

A weakness for the company is the fact that the company's financials do not any stable growth. In fact, some of its domestic and foreign subsidiaries have incurred losses. If this pattern continues, it will have negative impacts on the company's financials.

The director of the company, O.V. Bundellu is involved in ongoing legal proceedings on account of his affiliation with the Kingfisher Airlines fraud.

Valuation of Laxmi Organics IPO

The table below compares the main valuation parameters of the Laxmi Organics IPO.

Valuation

A common valuation metric is to compare the company's P/E ratio with the industry average. If the company's P/E ratio is higher than the industry average, we can conclude that the company is overvalued. If, on the contrary, the P/E ratio is lower than the industry average, the company is considered to be undervalued.

Based on the upper price band of Laxmi Organics, the company is vying for a P/E ratio of 59.09. If we compare this with the industry average of 21.70, it is clear that the Laxmi Organics IPO is overvalued.

Frequently Asked Questions

1. How to apply in Laxmi Organics Industries IPO through Zerodha?

Simply log onto the Zerodha website or the Zerodha mobile app. Select the Laxmi Organics Industries IPO from the IPO menu. Select the number of lots and submit your bid.

2. When Laxmi Organics Industries IPO will open?

The subscription window for the Laxmi Organics Industries IPO is from March 15-17, 2021.

3. What is the lot size of Laxmi Organics Industries IPO?

The Laxmi Organics IPO shares will be available in lots of 115. This means you have to bid on a minimum of 115 shares. If you want to bid on more than 115 shares, you will have to do so in multiples of 115 – that is, 2 lots for 230 shares, 3 lots for 345 shares and so on.

4. How to apply for Laxmi Organics Industries IPO?

There are two ways to apply for an IPO. You can apply either through UPI or through ASBA (net-banking).

In order to apply, simply log on to your brokerage house’s website, select the IPO for which you want to apply, select the number of lots that you want to bid for, and submit your bid.

5. When is the Laxmi Organics Industries IPO listing date?

The listing date for Laxmi Organics shares is March 25, 2021.

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