Laxmi Organic Industries IPO | 10 Things You Must Know

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Laxmi Organic Industries IPO | 10 Things You Must Know

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A leading manufacturer of acetyl intermediates and specialty intermediates, Laxmi Organic planned to raise Rs 600 crore through the public issue. Founded in 1989, Laxmi Organic is based in Mumbai and is a part of the Goenka Group. It has over three decades of experience in large scale manufacturing of chemicals.

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1) About:

Incorporated in 1989, Laxmi Organic Industries Ltd is a specialty chemical manufacturer that operates in 2 business segments; Acetyl Intermediates (AI) and 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.

Its AI segment includes ethyl acetate, acetaldehyde, fuel-grade ethanol, and other proprietary solvents whereas the SI segment includes ketene, diketene derivatives namely esters, acetic anhydride, arylides, amides, and other chemicals.

The company has a global footprint with customers in 30 countries including but not restricted to China, Russia, Singapore, UAE, UK, USA, Netherland, etc. Currently, it has 2 manufacturing facilities in Mahad, Maharashtra for the manufacturing of AI and SI products. It is also proposing to set-up a new manufacturing facility at Lote Parshuram, Maharashtra to manufacture four specialty chemicals.

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2) IPO Details:

The Rs 600-crore IPO comprises a fresh issue and an offer for sale of equity shares, each aggregating up to Rs 300 crore. The exercise amounts to 16.59% of the company’s paid-up equity, and will result in the company’s promoter holding falling from 89.51% to 72.92%. At the upper end of the price band, Laxmi Organic Industries will be valued at Rs 3,428 crore.

IPO Date: Mar 15, 2021 - Mar 17, 2021
Face Value: ₹2 per equity share
IPO Price: ₹129 to ₹130 per equity share
Market Lot: 115 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Mar 22, 2021
Initiation of Refunds: Mar 23, 2021
Credit of Shares to Demat Acct: Mar 24, 2021
IPO Shares Listing Date: Mar 25, 2021

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3) Business

Laxmi Organic’s products can be classified into two categories: acetyl intermediates and specialty intermediates. Acetyl intermediates include ethyl acetate, acetaldehyde, fuel-grade ethanol and other proprietary solvents, while specialty intermediates comprise ketene and diketene derivatives like esters, acetic anhydrides, amides, arylides and other chemicals.

According to a Frost & Sullivan report, India’s specialty chemicals industry,  is expected to grow at an annualised rate of 10-11% over the next five years, led by rising demand from end-user industries and tight global supply following stringent environmental norms in China. The scope is large as India accounts for around 1-2% of exportable specialty chemicals.

These compounds are used in the manufacture of paints, coatings, adhesives and pharmaceuticals, among other products. The company is among India’s largest manufacturers of ethyl acetate with a market share of around 30%, according to brokerage estimates. That’s expected to rise further completion of its acquisition of Yellowstone Chemicals Pvt. The company plans to make specialty fluorochemicals, for which it recently acquired assets, including plant and machinery, design and operating paperwork, and patents of Miteni, which makes organic fluorospecialties and electrochemical fluorination. Laxmi Organics’ facility in Lote Parshuram, Maharashtra, is expected to start producing fluorospecialty chemicals by the fourth quarter of FY22. Assets acquired by the company from Miteni are to be relocated to this proposed facility. Given their expertise in acetyl and specialty intermediate segments, Laxmi Organic’s entry into the fluorochemicals space will put them at a differentiated position from its peers, the Frost & Sullivan report said.

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4) Financials And Valuations

At the upper end of the price range, the company is issuing equity at a price-to-earnings multiple of nearly 37x on annualised earnings. While this may make it more expensive than some of its peers, comparison is difficult due to their different business models. Yet, this IPO is priced at a cheaper valuation than that of Anupam Rasayan, which was open for subscription from March 12-14.

5) Key facts:

  • It is also the only Indian manufacturer of diketene derivatives.
  • This is a significant strength as India has traditionally imported the chemical. Due to its research and development efforts, Laxmi Organic has captured 55% of the revenue share in the Indian market.
  • Laxmi Organic customers are spread across various sectors like pharmaceuticals, agrochemicals, dyes and pigments, inks and coatings, paints among others. Pharmaceuticals is the biggest contributor to its top line, with a share of 35.7% of the company’s total revenue.

6) Peer comparison:

Source: Anand Rathi

In 2010, Laxmi Organic started making specialty intermediates by acquiring Clariant Chemical India Ltd.’s diketene business. The company is the only manufacturer of diketene derivatives in India with a revenue market share of approximately 55% in FY20. With hardly any competition, comparison with other specialty chemical makers is difficult.

7) Grey Market premium:

(As on Mar 16, 2021) The grey market premium of  shares of Laxmi Organic Industries is at 100 Rs. or 76% up from the IPO price.

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8) Objective of IPO:

  • To invest in YFCPL for financing working capital requirements.
  • To finance the capex for expansion of SI manufacturing facility.
  • To finance business working capital requirements.
  • To purchase plant and machinery for infrastructure development at SI facility.
  • To make prepayment or repayment of borrowings availed by the company and subsidiary, Viva Lifesciences Pvt Ltd (VLPL).
  • To meet general corporate purposes.
  • Investment in subsidiary firm, Yellowstone Fine Chemicals Private Limited (YFCPL) to partly finance the capex to establish a new manufacturing facility.

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9) Pros:

  • Leading manufacturer of ethyl acetate in India.
  • Largest manufacturer of diketene derivative products.
  • Diversified customer base across industries.
  • Strategically located manufacturing facilities.
  • Consistent financial performance.
  • Its products are being used in various industries like pharmaceuticals, agrochemicals, inks & coatings, dyes & pigments, paints, printing & packaging, etc. Alembic Pharmaceuticals Limited, Laurus Labs Limited, Granules India Limited, Hetero Labs Limited, Heubach Colour Private Limited, Hubergroup India Private Limited, Huhtamaki India Limited, Macleods Pharmaceuticals Private Limited, Suven Pharmaceuticals Limited, Colourtex Industries Private Limited, and UPL Limited are some of its customers.

10)  Cons:

  • Continuing impact of Covid-19 pandemic could significantly affect operations.
  • Most of its manufacturing facilities are located in Mahad, Maharashtra. Hence, disruptions from localised social unrest or natural disasters or other breakdowns could lead to shutting of its manufacturing facilities, adversely affecting its business and financials. The company, in an earlier interview with BloombergQuint, referred to a flood impact that caused significant financial loss in FY20.
  • Forex risks.

All recent IPOs in the chemicals space like Rossari Biotech Ltd. (July 2020), Chemcon Specialty Chemicals Ltd. (October 2020) and Heranba Industries Ltd. (March 2021) listed on bourses at a good premium. Investors are expecting the same with Anupam Rasayan.

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Data source: Bloombergquint, LiveMint, moneycontrol, chittorgarh

Akshay Seth
Research Analyst (SEBI Regd.)
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