Laxmi Organic Industries IPO opens today. This chemical manufacturer is raising Rs 600 crore through an IPO. Should you bid for its shares? Here’s the full analysis to help you make up your mind.

Incorporated in 1989, Laxmi Organic Industries Ltd is a specialty chemical manufacturer that operates in 2 business segments; Acetyl Intermediates (AI) and Specialty Intermediates (SI). It is the leading manufacturer of ethyl acetate with over 30% market share in the Indian ethyl acetate market and the only manufacturer of diketene derivatives in India.

Its AI segment includes ethyl acetate, acetaldehyde, fuel-grade ethanol, and other proprietary solvents whereas the SI segment includes ketene, diketene derivatives namely esters, acetic anhydride, arylides, amides, and other chemicals. Its products are being used in various industries like pharmaceuticals, agrochemicals, inks & coatings, dyes & pigments, paints, printing & packaging, etc. Alembic Pharmaceuticals Limited, Laurus Labs Limited, Granules India Limited, Hetero Labs Limited, Heubach Colour Private Limited, Hubergroup India Private Limited, Huhtamaki India Limited, Macleods Pharmaceuticals Private Limited, Suven Pharmaceuticals Limited, Colourtex Industries Private Limited, and UPL Limited are some of its customers.

The company has a global footprint with customers in 30 countries including but not restricted to China, Russia, Singapore, UAE, UK, USA, Netherland, etc. Currently, it has 2 manufacturing facilities in Mahad, Maharashtra for the manufacturing of AI and SI products. It is also proposing to set-up a new manufacturing facility at Lote Parshuram, Maharashtra to manufacture four specialty chemicals.

Strengths of Laxmi Organic Industries Limited

• Laxmi Organic Industries Limited is the leading manufacturer of ethyl acetate with a significant market share. It was the largest exporter of ethyl acetate from India in the six months ending September 2020.
• Laxmi Organic is the only Indian manufacturer of diketene derivatives with a significant market share and one of the largest portfolios of diketene products.
• The company’s products find application in a number of high growth industries including pharmaceuticals, agrochemicals, dyes & pigments, inks & coatings, paints, printing & packaging, flavors & fragrances, adhesives, and other industrial applications. Further, it has established long-standing relationships with marquee customers across various industries.
• Currently, the company has two strategically located Manufacturing Facilities for Acetyl Intermediates and Specialty Intermediates which are located in Mahad, Maharashtra, in close proximity to several ports. This helps in quick exports and imports.
• Laxmi Organic has two R&D Facilities, equipped with state-of-the-art research and development infrastructure to synthesize specialty molecules and advanced intermediates.
• The company’s technology development efforts and execution capabilities have enabled it to not only garner a leading position in the domestic Speciality Intermediates market but also made it a leader in several product groups globally.
• In addition to India, Laxmi Organic has customers in over 30 countries including China, Netherlands, Russia, Singapore, United Arab Emirates, United Kingdom, and the United States of America. Its international operations are supported by its offices in Leiden (Netherlands), Shanghai (China), and Sharjah (United Arab Emirates).
• The industry in which Laxmi Organic operates has high entry barriers due to inter alia, the involvement of complex chemistries in the manufacturing of products and the requirement to be enlisted as a supplier after due qualification of the products with certain customers, particularly with the customers in the pharmaceutical and agrochemical industries. Hence, there are high barriers to entry into the industry.

Weaknesses of Laxmi Organic Industries Limited

• All the manufacturing facilities of the company are located in one geographical area. Therefore, any disruption can affect its production capabilities and profitability.
• The company has considerable long-term debt of INR90.15 crores. Over the last four years, this has increased at a CAGR of 28.92%
• High dependence on some of its suppliers. Its top 10 suppliers accounted for more than 78 per cent of its total expenditure as of September 30, 2020.
• The CBI and ED have initiated criminal proceedings against one of the directors of the company. Also, the promoter has been booked under the Factories Act, for a criminal proceeding.

Peer Comparison

Here is a quick look at the performance of Laxmi Organic in comparison to its peers on some key aspects for FY 2020:

Should you subscribe to the IPO?

Disclosure:

EZ Wealth is a Stock Broker registered with BSE, NSE and MSEI in all the major segments viz. Cash, F&O and CDS segments. EZ Wealth is also a Depository Participant and registered with both the Depositories viz. CDSL and NSDL. Further, EZ Wealth is a SEBI registered Portfolio Manager. EZ Wealth is a step-down subsidiary of Wealth Discovery Securities Pvt. Ltd (referred as ‘WDSPL’ hereafter).

This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from EZ Wealth.

The projections and the forecasts described in this report are based on estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections are forecasts were based may not materialize or may vary significantly from actual results and such variations will likely increase over the period of time. The recipients should consider and independently evaluate whether it is suitable for its/ his/ her/their particular circumstances and if necessary, seek professional / financial advice as there is substantial risk of loss. EZ Wealth does not take any responsibility thereof. Any such recipient shall be responsible for conducting his/her/its/their own investigation and analysis of the information contained or referred to in this report and of evaluating the merits and risks involved in securities forming the subject matter of this report. The price and value of the investment referred to in this report and income from them may go up as well as down, and investors may realize profit/loss

This report has been prepared by EZ Wealth and published in accordance with the provisions of Regulation 19 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014, for use by the recipient as information only and is not for general circulation or public distribution. The solicitation of an offer to buy, purchase or subscribe to any securities, and neither this report nor anything contained therein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. It does not constitute a personal recommendation or take into account the particular investment objective, financial situation or needs of any individual in particular. The research analysts of EZ Wealth have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. The recipients of this report must make their own investment decisions, based on their own investment objectives, financial situation or needs and other factors. Past performance is not a guide for future performance. Actual results may differ materially from those set forth in the projection. This report has been prepared by EZ Wealth based on the information available in the public domain and other public sources believed to be reliable. Though utmost care has been taken to ensure its accuracy and completeness, no representation or warranty, express or implied is made by EZ Wealth that such information is accurate or complete and/or is independently verified.

The contents of this report represent the assumptions and projections of EZ Wealth and EZ Wealth does not guarantee the accuracy or reliability of any projection, assurances or advice made herein. Nothing in this report constitutes investment, legal, accounting and/or tax advice or representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. Since EZ Wealth or its associates are engaged in various financial activities, they might have financial interest or beneficial ownership in various companies including subject company/companies mentioned in the report. EZ Wealth or its associates have not received any compensation for investment any compensation including brokerage services and for products or services other than investment banking or merchant banking from the subject company in the past 12 months. It is confirmed that EZ Wealth or research analyst or its associates have not managed or co-managed public offering of securities for the subject company in the past 12 months.

Research analyst or EZ Wealth or its relatives’/associates’ have no material conflict of interest at the time of publication of this report. Neither research analyst nor EZ Wealth are engaged in market making activity for the subject company. It is confirmed that research analysts do not serve as an officer or director. No material disciplinary action has been taken on EZ Wealth by any regulatory authority impacting Equity Research Analysis activities. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. This information is subject to change, as per applicable law, without any prior notice. EZ Wealth reserves the right to make modifications and alternations to this statement, as may be required, from time to time. Research analyst or EZ Wealth or its actual/beneficiary ownership of 1% depends from case of case. It is also confirmed that research analysts have not received any compensation from the subject company in the past 12 months.

WDSPL registered address: 1206, 12th Floor, Kailash Building K.G. Marg.
Connaught Place New Delhi-110001

Tel No: 91 +11-43444-666 | 91 +11-43444-623 |

Wealth Discovery Securities Pvt Ltd – CIN: U74999DL2010PTC211626

Wealth Discovery Commodity Pvt Ltd – CIN: U74999DL2011PTC213264

SEBI-NSE-INB/F/E231435737,BSE-INB011435733/INF011435833, DP-IN-DP-CDSL-679-2013 SEBI- REG.NO- MCX & NCDEX – INZ000015731