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Margin pressure continues

Quick Pointers:

* Volumes increased by 1% YoY in Q4FY25 and 11% YoY in FY25 across both the business units

* The company has signed LOI with Hitachi Energy to set up production of an eco-efficient gas used in Hitachi’s SF6-free high-voltage switchgear portfolio

Laxmi Organic Industries (LXCHEM) reported a topline of Rs7.1bn, reflecting a decline both YoY and sequentially, primarily due to continued pricing pressure across its product segments. However, the company recorded a modest volume growth of 1% during the quarter. The Specialty Chemicals segment outperformed in FY25, with EBITDA margin improving by 200bps to 23%. However, one of the products in this segment has undergone a regulatory phase-out, which is expected to impact topline performance in the near term until the replacement product planned comes online. The Essential Chemicals segment, which contributes ~69% to the company's revenue, witnessed a sequential revenue decline of 9%. EBITDA margin for this segment fell to 3% in FY25 from 4.2% in FY24, as pricing pressure continues to impact segment profitability. Management has guided that the Fluorochemicals segment is expected to contribute 40–60% of the Rs2bn peak revenue potential in FY26, with full ramp-up expected by FY27. The company has announced a total capex of Rs11bn aimed at doubling its revenue by FY28. On the demand side, the Agrochemicals segment remains soft, whereas sub-segments such as pharmaceuticals, printing & packaging, and colors & pigments continue to show stable demand trends. The stock currently trades at 29x FY27E EPS. Using SOTP valuation, we value it at Rs172 and maintain our 'Reduce' rating on the stock.

* Revenue declined due to weakness across segments: Consolidated revenue stood at Rs7.1bn (-10.4% YoY/ -9.7% QoQ) (PLe: Rs7.2bn, Consensus: Rs 7.7bn), the actual topline was lower than our estimates. Essentials Segment revenue decreased by 10% YoY/ 9% QoQ in Q4FY25, while it increased by 1% in FY25. Specialty segment revenue decreased by 7% YoY/11% QoQ in Q4FY25, while it increased by 14% in FY25. Specialty segment now constitutes 31% of overall revenue vs 30% in Q4FY24 & 32% in Q3FY25, the revenue contribution from the Essentials segment remained stable YoY, while increased by 1% sequentially to 69%.

* EBITDA declined on both YoY and sequential basis: EBITDA came in at Rs590 mn, down 34.4% YoY and 21.1% QoQ (PLe: Rs539mn, Consensus: Rs620mn). EBITDA margin dropped to 8.3% from 11.4% in Q4FY24 and 9.5% in Q3FY25, mainly due to higher operating cost.

* Concall key takeaways: (1) The company has less than 10% exposure to USA, tariff impact on Laxmi is expected to be neutral. (2) Acetic acid price decreased by 11% and Ethanol price decreased by 15% in FY25 compared to FY24. (3) Other expenses increased during FY25 due to the steep increase in freight rate. (4) The company has signed LOI with Hitachi Energy to set up production of an eco-efficient gas used in Hitachi’s SF6-free high-voltage switchgear portfolio; this product is currently sourced from China. (5) Total volumes increased by 11% YoY in FY25, while for Q4FY25 volume increased by 1%. (6) Company has received EC and the factory license for its Dahej facility. (7) Average Ethyl acetate long term spread over Ethanol and acetic acid were $225, currently they are $140-$150. (8) Ethyl acetate is 80-85% of essentials revenue, aim is to reduce it to 65% by FY28. (13) One of the products is undergoing a regulatory phase-outin specialty portfolio, a substitute has been lined up, but there will be an interim impact on the topline due to this transition. (14) From Q4FY25, Fluorochemicals segment started contributing to topline, 40%-60% of peak revenue expected in FY26 and peak revenue by FY27.

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