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Salient features of the IPO:

* Laxmi Dental Ltd. (LDL), India’s only end-to-end integrated dental products company in India , is coming up with an IPO to raise around Rs. 670.579 – 698.058cr, which opens on 13th Jan. 2025 and closes on 15th Jan. 2025. The price band is Rs. 407 - 428 per share.

* This public issue is a combination of fresh issue (Rs. 138.0cr) and OFS (Rs. 532.58 – 560.06cr). The company will not receive any proceeds from the OFS portion. From the fresh issue net proceeds, the company will be utilizing Rs. 22.98cr for Repayment/prepayment, in full or in part, of certain outstanding borrowings availed by the Company; Rs. 4.6cr for Investment in certain Subsidiaries for the repayment/prepayment, in full or in part, of certain outstanding borrowings; Rs. 43.51cr for Funding the capital expenditure requirements for purchase of new machinery for the Company; and Rs. 25.0cr for Investment in the Subsidiary, Bizdent Devices Pvt. Ltd., for the capital expenditure requirements for the purchase of new machinery. Residual proceeds will be utilized for general corporate purpose.

* Some of the promoter & promoter group (P&PG) entities are participating in the OFS and are offloading 0.063cr equity shares. Few investors are also offloading 1.25cr shares. Post-IPO, the P&PG and public shareholders will have 42.68% and 57.32% stake in the company, respectively.

Key competitive strengths:

* The only integrated dental products company in India, well-positioned to capture industry tailwinds

* Second largest player in domestic laboratory business and largest export laboratory with increasing adoption of digital dentistry

* Vertically integrated diverse branded product portfolio

* Large Dental Network providing LDL with competitive advantage in the market

*  Robust technologically advanced capabilities with stringent regulatory compliance ensuring high quality standards

* Experienced management team with significant industry experience

Risk and concerns:

* Heavy reliance on qualified and experienced dental technicians and skilled laboratory staff

* Exposed to the risk of exchange rate fluctuations

* Lack of long term purchase orders or commitments from Dental Networks

* Business is concentrated in certain jurisdictions both globally and domestically

* Criminal proceedings under Indian Penal Code, 1860 and Prevention of Corruption Act, 1988 are pending against promotes and the company

* Competition

Below are the key highlights of the company:

* The dental care services include the provision of cosmetic, preventive and restorative dental care services by licensed dentists to patients. The Global Dental Care Services market is estimated to grow from $506.8Bn in FY23 to $840.8Bn in FY30, growing at a CAGR of 7.5%.

* India's dental care services market is estimated to be $3.4Bn in FY23 and is expected to grow at a rate of 12.6% to reach $7.8Bn in FY30. The Indian Dental Market is vast comprising of over 5,000 Dental Laboratories and 306 Dental Institutes.

* Incorporated on July 8, 2004, LDL offers a comprehensive portfolio of dental products, including custom-made crowns and bridges, branded dental products such as clear aligners, thermoforming sheets and aligner related products as a part of aligner solutions, and pediatric dental products.

* LDL provides diverse portfolio of dental offerings that can be classified segment wise as (a) laboratory offerings such as metal-free zirconia and intraoral scanners, (b) aligner solutions (under the brands Illusion Aligners and Taglus), (c) paediatric dental products.

* LDL’s primary branded dental product offerings include (a)range of branded premium zirconia crowns and bridges “Illusion Zirconia”, (b) intraoral scanners ‘iScanPro’, (c) clear aligners ‘Illusion Aligners’, (d) thermoforming sheets and aligner related products as a part of aligner solutions under ‘Taglus’ and (e) paediatric dental products offered by Kids-E-Dental LLP.

* Company’s non-branded dental products include the laboratory offerings such as porcelain fused to metal (“PFM”) crowns, bridges, and dentures.

* LDL is one of the very few companies in India to manufacture and supply thermoforming sheets, thermoforming machines, dental consumables, biocompatible resins for 3D printing under the Aligner Solutions portfolio. Branded product portfolio in this segment includes “Illusion Alligners” and “ Taglus”. Total units sold under this category of portfolio are 10,14,083 which constitutes 54.31% of total units sold. In terms of revenue it is Rs. 35.796cr which is 31.10% of the total revenue.

* Laxmi Dental’s Illusion Aligners brand offers clear aligners which are customised by laser marking indicating the unique specifications of our end customers. It was launched in 2021, and is the first Indian brand to receive 510(k) clearance from US FDA in 2021 to market Clear Aligner and the company is the largest indigenous manufacturer of Clear Aligners in India with a Business-to-Businessto-Consumer (B2B2C) business model.

* The company has adopted B2B2C business model for sale of the customised clear aligner solutions while offering a flexible ‘pay as you go’ model along with the upfront payment model, making aligners more affordable to the end customers. Adoption of a B2B2C model involves sale of clear aligners through Dental Network who in turn offer the dental products to end customers, which has helped the company grow rapidly owing to its already established Dental Network with reach of over 22,000 dental clinics, dental companies and dentists between FY22 to September 30, 2024.

* Primary dental products offered by domestic laboratory are focused on prosthesis such as metal free crowns including Illusion Zirconia premium crowns, PFM crowns, dentures. The laboratory has also launched iScanPro, branded intraoral scanners in India. Total units of products sold under Laboratory offerings is 381,209 which constitute 20.42% of total units and in terms of revenue it is Rs. 72.96cr which is 63.07% of total revenue. In FY24, Metal-free products of dental laboratory business contributed to 53.70% of the total revenue from Indian market and 36.31% of total revenue from international markets.

* The company also entered the paediatric dental market through the Jointly Controlled Entity Kids-E-Dental LLP by acquiring a 60% stake in 2021. In terms of revenue from operations as of March 31, 2024, it is one of the leading paediatric dental product brands in India. Kids-E-Dental LLP is the only Indian company specialized in paediatric dental products and manufacturing of pre-formed metal free paediatric dental crowns.

* Total units of products sold under Paediatric segment is 4,45,358 which constitute 23.85% of total units and in terms of revenue it is Rs. 6.742cr which is 5.83% of total revenue. The Indian paediatric dental crown market is estimated to grow from $63.9mn in FY23 to $164.8mn in FY30 at a higher rate of 14.5% compared to the global market which is estimated to grow from $2.1bn in FY23 to $3.5bn in FY30 at a rate of 7.5%.

* In this segment, it offers a comprehensive range of paediatric products, including pre-formed branded paediatric crowns, Silver Diamide Fluoride (“SDF”), space maintainers, fissure sealant, reinforced splint and mineral trioxide aggregate. Further, it has partnered with a leading paediatric dental company for distribution of Bioflx crowns manufactured by them globally across 81 countries. Kids-E-Dental LLP generated revenue from operations of Rs. 16.00cr, Rs. 26.67cr, Rs. 7.93cr, and Rs. 2.18cr in six month period ended September 30, 2024 and FY24, FY23, and FY22 respectively.

* LDL has six manufacturing facilities, three of which are located in Mira Road with a total built up area of 57,244.4 square feet , two in Boisar with a total built up area of 84,606.2 square feet, and one in Kochi. Also it has five supporting facilities two of which are located in Mumbai, and one each in Delhi, Bengaluru, and Ahmedabad with manufacturing capabilities.

Key highlights of the company (Contd…):

* As on Sept 30, 2024, actual Production capacity in SKU for Laboratory Offerings is 407,613 with 87.10% capacity utilization. Similarly, out of actual 182,850 units and 436,852 units of Aligner products and Paediatric Crown Products, 32.37% and 53.93% is actually being utilised for the respective products segment.

* With market presence of more than 20 years, reinforced by a large Dental Network with a reach of over 22,000 dental clinics, dental companies and dentists over the six month period ended September 30, 2024 and last three Fiscals, the company has catered to global and domestic demand by exporting its dental products to more than 95 countries and selling across 320 cities in India between FY22 to September 30, 2024. It continues to engage and deepen the relationship with Dental Network through hands-on workshops, in-clinic branding, key opinion leader tie-ups, and product trainings.

* Laxmi Dental is one among the few vertically integrated players globally with backward integrated (that is manufacturing the raw materials to designing of dental products) and forward integrated (that is offering solutions for treatment planning) business model.

Peer comparison and valuation:

LDL is an end-to-end integrated dental products company, offering custom-made crowns and bridges, clear aligners, thermoforming sheets and aligner related products as a part of aligner solutions, and paediatric dental products. The growth of the industry is being driven by increasing prevalence of Oral Health disorders such as Dental Caries, Malocclusion and Periodontal diseases among the population, and greater demand for general and specialized dental care due to growing awareness.

At the upper end of its price range, LDL is demanding a P/E multiple of 93.2x, based on its FY24 EPS of Rs. 4.6, and an EV/Sales multiple of 11.7x, this valuation seems to be fully priced compared to its peers. The company is well-positioned for growth in the coming period, driven by the increasing demand and awareness in the dental care industry, the introduction of new product lines, and the adoption of advanced technologies. However, challenges such as the potential impact of exchange rate fluctuations, reliance on skilled dental technicians, and other risk factors persist. Thus, we recommend a “Subscribe for Long Term” rating for issue.

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