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About the Company

Incorporated in 1989, Laxmi Organic Industries Ltd is a leading manufacturer of Acetyl Intermediates and Specialty Intermediates, with almost three decades of experience in large-scale manufacturing of chemicals.

The company is one of the largest manufacturers of Ethyl acetate in India, enjoys a market share of ~30% of the Indian Ethyl acetate market. In addition, they have one of the largest portfolios of Diketene products and are the only manufacturer of Diketene derivatives in India, with a market share of ~55 % in the Indian market in terms of revenue in FY20. Their products are largely used in various high-growth industries such as pharmaceuticals, agrochemicals, dyes & pigments, inks & coatings, paints, printing & packaging, adhesives, etc.

Currently, they have two manufacturing facilities in Mahad, Maharashtra with one each for both products. They have global footprints in over 30 countries and have established long-standing relationships with marquee players like Alembic Pharma, Dr. Reddy’s Laboratories, Granules India, Hetero Labs Ltd, Huhtamaki India, Laurus Labs, Mylan Laboratories, UPL Ltd, etc.

Objects of the Issue

* Funding Capex and working capital of subsidiary Yellowstone Fine Chemicals Pvt Ltd

* Expansion and purchase of assets at SI Manufacturing Facility

* Repayment of outstanding borrowings of the company and subsidiary Viva Lifesciences Pvt Ltd

* Funding working capital of the company.

* General corporate purposes.

Valuation

The Indian chemicals market is valued at USD 166 Bn (~4-5% share in the global chemical industry) and it is expected to reach ~USD 280-300 Bn in the next 5 years, with a CAGR of ~12%. The specialty chemical industry forms ~47% of the domestic chemical market, which is expected to grow at a CAGR of 11-12% over the same period.

Within the specialty chemical, the Indian Acetyl market is valued at USD 1.5 Bn in 2019, which is expected to reach USD 2.1 Bn by the end of the year 2024 (CAGR of 6.6%) owing to the demand for the end-use applications. Laxmi organic operates in a specialty chemical space that has high entry barriers and is capital intensive. However, the company is well-placed with 34 products. Further, its efforts towards product development and investment in R&D have aided it to be one of the leading manufacturers in Indian Acetyl markets and the only manufacturer of Diketene (share of 55%).

Going ahead, with many multinational players investing in India for manufacturing, we believe active players such as Laxmi Organic would benefit the most on the back of dominance in the market, large product portfolio, technologically driven manufacturing facilities. Besides, increasing demand for pharmaceuticals and agrochemicals from developing and developed economies is likely to increase the consumption of chemicals such as Diketene and its derivatives, which will provide a good opportunity for the company to grow.

The company is also planning to expand its product portfolio as well as increase the global presence (currently ~23-25% of revenue) while maintaining the current market share. On the valuation front, the company is valued at 45x FY20 EPS. We have a positive view on Laxmi Organic and investors can Subscribe for the long term.

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