IGI Logo

Salient features of the IPO:

* Laxmi Organic Industries Ltd. (Laxmi Organic), a specialty chemical company is planning to raise up to Rs. 6,000mn through an IPO, which opens on 15th Mar. and closes on 17th Mar. 2021. The price band is Rs. 129 - 130 per share.

* On 27th Feb. 2021 and 1st Mar. 2021, the company undertook a preIPO placement of 15.5mn equity shares at Rs. 129 each, aggregating to Rs. 2,000mn.

* The issue is a combination of fresh issue and OFS. Of the net proceeds from the fresh issue and pre-IPO placement, around Rs. 604mn and Rs. 377mn will be utilized to part-finance the capex requirement and to fund the working capital requirements, respectively, at its wholly owned subsidiary; Rs. 911mn and Rs. 126mn will be utilized to fund the capex requirement and purchase of plant & machineries, respectively, for its proposed SI facility expansion; Rs. 1,793mn to be used for the repayment/prepayment of certain debt and Rs. 352mn will be utilized to fund the working capital requirement of the company. Residual funds will be used for general corporate purposes.

Key competitive strengths:

* Leading manufacturer of ethyl acetate with significant market share

* Only Indian manufacturer of diketene derivatives with a significant market share and one of the largest portfolios of diketene products

* Diversified customer base across high growth industries and longstanding relationships with marquee customers

* Strategically located manufacturing facilities, vertical integration and supply chain efficiencies

* In-house research and development capabilities and consistent track record of technology absorption

* Global presence and low geographical concentration

* Differentiated business model, asset base, product mix and experience in handling complex chemistries create high entry barriers

* Experienced promoter, board of directors and key managerial personnel

Risk and concerns:

* Subdued macro economic environment

* Delay in the proposed expansions

* Unfavorable raw material prices

* Unfavorable forex movements

* Intense competition

Peer comparison and valuation: At higher price band of Rs. 130, the company is demanding a P/E valuation of 77.2x (to its restated FY20 EPS of Rs. 1.7), which is at a significant premium to the peer average of 43.4x. However, if we annualize the H1 FY21 EPS, the demanded valuation P/E comes out to be 37.7x. Considering the historical performance, the issue seems to be aggressively priced.

Below are a few key observations of the issue:

* The domestic acetyl market is valued at USD 1.5bn in 2019. With increased demand from the end use applications, it is projected to grow at 6.6% CAGR over the next five years to reach at USD 2.1bn in 2024. Currently 70% of the acetyl application is concentrated in high growth areas like flexible packaging, pharmaceuticals, printing inks, coatings, adhesives, sealants, elastomers and agrochemicals. Laxmi Organic is a leading manufacturer of Acetyl Intermediates (AI) with around 30% share in the domestic ethyl acetate market. It has been the largest exporter of ethyl acetate during FY18-20 and for the H1 FY21; and one of the largest exporters of ethyl acetate to Europe since 2012. As of 30th Sept. 2020, the AI comprise of 13 products including ethyl acetate, acetaldehyde and fuel- grade ethanol.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://choicebroking.in/disclaimer

Above views are of the author and not of the website kindly read disclaimer