Laxmi Organic IPO: All you need to know

Laxmi Organic Industries will sell shares at Rs 129-130 apiece in its three-day initial public offering which commences on March 15 as the specialty chemicals maker looks to expand business amid a continued frenzy in the primary market. 

The Rs 600-crore IPO comprises a fresh issue and an offer for sale of equity shares, each aggregating up to Rs 300 crore. The exercise amounts to 16.59% of the company’s paid-up equity, and will result in the company’s promoter holding falling from 89.51% to 72.92%. At the upper end of the price band, Laxmi Organic Industries will be valued at Rs 3,428 crore.

Key Details 

-  Issue open on: March 15, 2021. 

-  Issue closes on: March 17, 2021. 

-  Face value: Rs 2. 

-  Price per share: Rs 129-130. 

-  Issue size: up to Rs 600 crore. 

-  Shares on offer: 2.30 crore. 

-  Minimum bid size: 115 shares. 

-  Listing on: BSE and NSE. 

-  Book running lead managers: Axis Capital, DAM Capital.

Objectives 

-  Investment in wholly owned subsidiary, Yellowstone Fine Chemicals Pvt., for part-financing its capital expenditure requirements, including setting up a manufacturing facility for fluorospecialty chemicals. 

-  Funding capital expenditure needs for expansion of its specialty intermediates manufacturing facility. 

-  Funding working capital requirements. 

Pre-IPO Allotment 

The company has raised Rs 200 crore through pre-IPO allotment to six entities.

Business 

India’s specialty chemicals industry, according to a Frost & Sullivan report, is expected to grow at an annualised rate of 10-11% over the next five years, led by rising demand from end-user industries and tight global supply following stringent environmental norms in China. The scope is large as India accounts for around 1-2% of exportable specialty chemicals.

Laxmi Organic’s products can be classified into two categories: acetyl intermediates and specialty intermediates. Acetyl intermediates include ethyl acetate, acetaldehyde, fuel-grade ethanol and other proprietary solvents, while specialty intermediates comprise ketene and diketene derivatives like esters, acetic anhydrides, amides, arylides and other chemicals. These compounds are used in the manufacture of paints, coatings, adhesives and pharmaceuticals, among other products. 

The company is among India’s largest manufacturers of ethyl acetate with a market share of around 30%, according to brokerage estimates. That’s expected to rise further completion of its acquisition of Yellowstone Chemicals Pvt.

The company plans to make specialty fluorochemicals, for which it recently acquired assets, including plant and machinery, design and operating paperwork, and patents of Miteni, which makes organic fluorospecialties and electrochemical fluorination. Laxmi Organics’ facility in Lote Parshuram, Maharashtra, is expected to start producing fluorospecialty chemicals by the fourth quarter of FY22. Assets acquired by the company from Miteni are to be relocated to this proposed facility. 

Given their expertise in acetyl and specialty intermediate segments, Laxmi Organic’s entry into the fluorochemicals space will put them at a differentiated position from its peers, the Frost & Sullivan report said.

Competition 

In 2010, Laxmi Organic started making specialty intermediates by acquiring Clariant Chemical India Ltd.’s diketene business. The company is the only manufacturer of diketene derivatives in India with a revenue market share of approximately 55% in FY20. With hardly any competition, comparison with other specialty chemical makers is difficult.

Risks 

These are the internal risks highlighted by the company. 

-  Continuing impact of Covid-19 pandemic could significantly affect operations. 

-  Most of its manufacturing facilities are located in Mahad, Maharashtra. Hence, disruptions from localised social unrest or natural disasters or other breakdowns could lead to shutting of its manufacturing facilities, adversely affecting its business and financials. The company, in an earlier interview, referred to a flood impact that caused significant financial loss in FY20. 

-  Forex risks. 

Financials and Valuations

At the upper end of the price range, the company is issuing equity at a price-to-earnings multiple of nearly 37x on annualised earnings. While this may make it more expensive than some of its peers, comparison is difficult due to their different business models. Yet, this IPO is priced at a cheaper valuation than that of Anupam Rasayan, which is open for subscription from March 12-14.

Laxmi Organic Industries' Financials