The initial public offer (IPO) of Laxmi Organic Industries - an industrial chemical manufacturer and the largest manufacturer of ethyl acetate in India, as per Frost & Sullivan Report - is set to open for subscription on Monday. The company has fixed the price band for the issue at Rs 129-130 per share. The IPO
will close on March 17.
The Rs 600-crore issue comprises a fresh issue of Rs 300 crore and an offer for sale (OFS) of shares aggregating up to Rs 300 crore by Yellowstone Trust, the promoter group. The minimum bid lot is 115 equity shares and in multiples of 115 shares thereafter.
The proceeds from the fresh issue will be used for investment in wholly-owned subsidiary, Yellowstone Fine Chemicals Private Limited (YFCPL), for part-financing its capital expenditure requirements, funding capital expenditure requirements for expansion of the company’s SI Manufacturing, and funding working capital requirements of the company.
The company has allocated 1,38,46,153 shares at Rs. 130 per share on March 12, to the anchor investors. 8 Foreign Portfolio Investors (FPIs) that participated in the anchor were Nomura India Equity Fund, Abu Dhabi Investment Authority, Goldman Sachs, Kuber India (Plutus), Theleme India Master Fund, Malabar India Fund, Ashoka India Opportunities Fund, India Acorn Fund. These investors were allocated 78,45,760 shares for around Rs 102 crore. Malabar India Fund and Ashok India Opportunities Fund have also invested Rs. 55 crore and Rs. 35 crore, respectively in a pre-IPO
round in February.
Amongst the domestic investors, SBI Mutual Fund, ICICI Prudential Mutual Fund and Aditya Birla Mutual Fund picked up the largest allocation of 10,76,860 shares (7.78%) for around Rs 14 crore each. The other domestic institutions who were allocated shares include Kotak Mutual Fund, SBI Life Insurance, HDFC Life and DSP Mutual Fund.
Strengths and risks
Laxmi Organic is the leading manufacturer of ethyl acetate with significant market share while also being the only Indian manufacturer of diketene derivatives with a significant market share and one of the largest portfolios of diketene products. These are the company's key positives, according to Angel Broking. Besides, a diversified customer base, and strategically located manufacturing facilities are the other things that work in the company's favour, the brokerage said.
That said, analysts have flagged certain investment concerns, including the continuing impact of the outbreak of the Covid-19 on the company's operations, concentration of a large part of the manufacturing facilities in one geographic, and a foreign client base, which exposes the company to foreign currency exchange risks.
For the six months ended September 30, 2020 and the fiscals 2020, 2019 and 2018, Laxmi Organic's consolidated revenue from operations was Rs 813.4 crore, Rs 1,534.1 crore, Rs 1,568.5 crore and Rs 1,393 crore, respectively. Its consolidated earnings before interest, tax, depreciation, and ammortisation (Ebitda) for the six months ended September 30, 2020 was Rs 86.3 crore.
Meanwhile, the company's consolidated profit for the period from continuing operations for the six months ended September 30, 2020 was Rs 45.5 crore, and Rs 70.2 crore, Rs 72.3 crore, and Rs 75.6 crore, for the fiscals 2020, 2019 and 2018, respectively.
Angel Broking -- Subscribe
Based on FY2020 earnings, the IPO
is priced at a PE of 42x at the upper end of the price band along with a good ROE of 16.4 per cent. The company is the largest manufacturer of ethyl acetate with over 30 per cent market share in the Indian ethyl acetate market and the only manufacturer of diketene derivatives in India with a diversified customer base. Looking at the competitive advantage and strong growth potential we are assigning a “SUBSCRIBE” recommendation to the issue.
Anand Rathi -- Subscribe
At the upper end of the IPO price band, it is offered at 49.81x its FY20 earnings, with a market cap of Rs 3,428 crores. The company has strong presence in Acetyl Intermediaries & Specialty Intermediates business; further it is establishing Fluorospecialty chemicals business. The company also plans expand and optimise its capacity and product portfolio. Considering the growth prospects - we give this IPO a "Subscribe (Long Term)" rating.