IPO Note - Laxmi Organics Industries Ltd By Nirmal Bang
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BACKGROUND
Company Overview Laxmi Organics Industries Ltd (LOIL) is a leading manufacturer of Acetyl Intermediates and Specialty Intermediates. It is currently among the largest manufacturers of ethyl acetate in India with a market share of ~30%. Laxmi Organics is the only manufacturer of diketene derivatives in India with a market share of ~55% of the Indian diketene derivatives market in terms of FY20 revenue and has one of the largest portfolios of diketene products.
The company also proposes to diversify into manufacturing of specialty fluorochemicals for which it has recently acquired Miteni, a manufacturer of organic fluorospecialties and electrochemical fluorination. We believe that Laxmi Organics is well placed to enter into the high margin specialty fluorochemicals space through this acquisition.
Objects of the Issue
The issue of Rs 600 cr comprised of Rs 300 cr fresh issue and Rs 300 cr Offer for Sale. The company intends to utilize the funds to incur capex, repayment of debt.
Investment Rationale
* Leading manufacturer of Ethyl Acetate
* Only Manufacturer of Diketene derivatives
* Establishing the fluoro specialty business
* Healthy Financials
Valuation and Recommendation
Between FY18-20, Laxmi Organics Ltd’s revenues have grown at CAGR of 6% while EBITDA/PAT de-grew by 13%/4% respectively. FY20 was an abnormal year for the company as it lost 15% of its’ productive days which led to decline in sales over FY19. Lower sales had scaled down impact of EBITDA which de-grew during the year. However, the company was back on track in 1HFY21 where in the EBITDA margins were back to double digits. With healthy balance sheet, experienced management and favorable industry developments, we believe the company is poised for long term growth. Hence, we recommend “Subscribe for long term”.
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