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Saturday
Saturday, 13 March 2021
CM RATING 48/100

Laxmi Organic Industries

Focused on acetyl intermediates and specialty intermediates

Expanding capacities of specialty chemicals and acetyl intermediates by acquiring AHPL, while entering the fluoro specialty chemicals business

Laxmi Organic Industries was incorporated on May 15, 1989. The company is a leading manufacturer of acetyl intermediates and specialty intermediates with almost 3 decades of experience in large scale manufacturing of chemicals. The company initially started manufacturing acetaldehyde and acetic acid in 1992 and soon thereafter moved on to manufacturing of ethyl acetate in 1996.

Laxmi Organic is currently among the largest manufacturers of ethyl acetate in India with a market share of approximately 30% of the Indian ethyl acetate market. In FY 2010, it commenced manufacturing the specialty intermediates by acquiring Clariant’s diketene business. It is the only manufacturer of diketene derivatives in India with a market share of approximately 55% of the Indian diketene derivatives market in terms of revenue in fiscal 2020 and one of the largest portfolios of diketene products.

The promoters of company are Ravi Goenka and Yellow Stone Trust. Ravi Goenka is the Chairman and Managing Director of Laxmi Organic Industries. Yellow Stone Trust was formed as an irrevocable trust pursuant to a trust deed dated October 31, 2017. VasudeoGoenka is the settlor of the Yellow Stone Trust. Yellow Stone Trust (through its trustee, Ravi Goenka) holds 199,781,907 equity shares, representing 83.04% of the issued, subscribed, and paid-up equity share capital of the company. The trustees of Yellow Stone Trust are Ravi Goenka, Manisha Goenka and Rajeev Goenka. The trust fund is controlled and managed by the Trustees. Ravi Goenka is the managing trustee of the Yellow Stone Trust. The decision making is conducted by a majority vote, wherein the managing trustee has a veto right.

The company's products are currently divided into two broad categories, namely the acetyl intermediates and the specialty intermediates. Acetyl Intermediates contributed 55.37% of total revenues during the six months ended September 30, 2020, while the Specialty Intermediates contributed 30.21% over the same period. The acetyl intermediates include ethyl acetate, acetaldehyde, fuel-grade ethanol, and other proprietary solvents, while the specialty intermediates comprise ketene, diketene derivatives namely esters, acetic anhydride, amides, arylides and other chemicals.

The acetyl intermediates find application in the pharmaceuticals, agrochemicals, inks and paints, coatings, printing, packaging, and adhesives industries. Ethyl acetate is used in multiple industries as a solvent. Its faster evaporation rate and quick drying time makes it one of the preferred solvents in the pharmaceuticals, flexible packaging, and printing inks industries. Specialty intermediates comprise more than 34 products which include ketene, diketene derivatives namely esters, acetic anhydride, amides, arylides and other chemicals. Specialty Intermediates find application in the pharmaceuticals, agrochemicals, dyes and pigments, flavor and fragrance and paints and coatings industries.

The company currently has two manufacturing facilities in Mahad, Maharashtra, with one facility dedicated to acetyl intermediates and another dedicated to specialty intermediates, which are strategically located in proximity to several ports and each other. As on December 31, 2020, the aggregate installed production capacity at the acetyl intermediates manufacturing facility was 161,320 tonnes per annum (tpa), while the aggregate installed production capacity at the specialty intermediates manufacturing facility was 78,045 tpa.The company's manufacturing facilities are strategically located in proximity to several ports in Maharashtra including the Jawaharlal Nehru (Nhava Sheva) port located in Navi Mumbai and JSW port in Jaigarh and Mumbai port. Capacity utilization for the nine months ended December 31, 2020, of the acetyl intermediates manufacturing facility was 77.56% and of the specialty intermediates manufacturing facility was 62.82%.

The company is in the process of increasing the installed capacity of specialty intermediates manufacturing facility from 78,045 tpa to 82,525 tpa. It is also in the process of expanding its manufacturing capabilities for the acetyl intermediates by acquiring AHPL (Acetyls Holding Private Limited), which through its wholly owned subsidiary, YCPL, is engaged in the manufacturing of acetaldehyde and ethyl acetate. The aggregate installed production capacity at the YCPL facility as on December 31, 2020 is 10,500 tpa of acetaldehyde and 29,200 tpa of ethyl acetate. Further, as a single site risk mitigation initiative, the company is in the process of identifying one or more sites for the future growth of business beyond the currently committed expansion initiatives.

The primary raw materials for the manufacturing of the acetyl intermediates include ethanol and acetic acid. The primary raw materials for the manufacturing of the specialty intermediates include aniline, monomethyl amine, ortho anisidine, ortho toluidine and acetic acid. Further, the primary raw material for distilleries is molasses. The company procures raw materials from domestic and international vendors. 70.49% of the company’s total purchases on a standalone basis, for the six months ended September 30, 2020, was incurred on imported raw materials and coal. However, the company's dependence on imports from China is low, accounting for 7.56% of the total imports on a standalone basis for the six months ended September 30, 2020. While the company does not enter long-term fixed price contracts, it enters volume-based agreements with its key suppliers.

The company has a co-generation power plant, two windmills located in Maharashtra and Karnataka and a hydro-electric power project at Yedgaon (collectively, the Power Facilities). During the nine months ended December 31, 2020, 53.04% of power consumption was met from own power facilities. The manufacturing facilities were dependent on the grid for 46.96% of power consumption during the nine months ended December 31, 2020. It currently sources water requirements from MIDC (Maharashtra Industrial Development Corporation)

In June 2019, the company acquired assets including plant & machinery, design and operating paperwork, Reach registrations and patents of Miteni, a manufacturer of organic fluorospecialties and electrochemical fluorination with a view to foray into the fluorospecialty chemical business and leverage its experience, capabilities and relationships for an aggregate consideration of € 4.63 million, through its wholly owned subsidiary, Viva Lifesciences Private Limited (VLPL). The company intends to capture the market share of Miteni, given its existing chemistries and past customer base. It has also appointed a consultant in Italy to liaise for it and facilitate a speedy and successful handover, dismantling and relocation of the assets acquired as well as to obtain business development and marketing support in Europe. Further, the company is in the process of setting up the proposed facility in Lote Parshuram, Maharashtra, by its subsidiary, YFCPL (Yellowstone Fine Chemicals Private Limited) for manufacturing fluorospecialty chemicals which is proposed to commence operations by the fourth quarter of FY 2022

Over the years, the company has significantly expanded its scale of operations and global footprint with customers in over 30 countries including China, Netherlands, Russia, Singapore, United Arab Emirates, United Kingdom and United States of America.

The company has established long-standing relationships with marquee players including Syngenta Asia Pacific Pte. Ltd., Alembic Pharmaceuticals, Covestro (India), Dr. Reddy’s Laboratories, Flint Group India, Granules India, Hetero Labs, HeubachColour, Hubergroup India, Huhtamaki India, Laurus Labs, Macleods Pharmaceuticals, Mylan Laboratories, NeulandLaboratories, Parikh Packaging, Suven Pharmaceuticals, Colourtex Industries, and UPL.

The company has offices in Leiden (Netherlands), Shanghai (China) and Sharjah (United Arab Emirates), which enables it to assess international demand and increase customer outreach thereby bolstering product development initiatives. It also has arrangements with third parties for usage of storage tanks in Mumbai for storage of raw materials and finished goods and Rotterdam (Netherlands), Antwerp (Belgium) and Genoa (Italy) for storage of finished products which enables it to deliver products on short notice.

For the six months ended September 30, 2020 and FY 2020, 2019 and 2018, the company’s revenue from exports of manufactured products contributed 23.17%, 24.24%, 27.80% and 22.18%, respectively, of revenue from operations on a standalone basis. The company’s revenue from exports on a standalone basis has grown at a CAGR of 5.89% between FY 2018 and the six months ended September 30, 2020 (annualized).

The company also has two distilleries located in Satara district ( Jarandeshwar Distillery) and Kolhapur district (Panchganga Distillery) in Maharashtra for the manufacturing of ethanol or specially denatured spirit. As on December 31, 2020, the Jarandeshwar Distillery had an installed production capacity of 8,100 klpa (kilolitres per annum), while the Panchganga Distillery had an installed production capacity of 9,112 klpa. The ethanol manufactured at the distilleries is primarily consumed at the acetyl intermediates manufacturing facility and the specialty intermediates manufacturing facility for the manufacturing of fuel-grade ethanol, ethyl acetate and certain specialty intermediates including several downstream products

The company has two Department of Scientific and Industrial research, Government of India (DSIR) recognized research and development facilities, with state-of-the-art research and development infrastructure to synthesize specialty molecules and advanced intermediates

The company's top ten customers by revenue from manufactured products on a standalone basis, for the six months ended September 30, 2020 and FY 2020, 2019 and 2018, constituted 27.39%, 26.29%, 26.79% and 23.84%, respectively, of the total revenue from manufactured products on a standalone basis

The Offer and the Objects

The offer comprises fresh issue of 23076923 equity shares at upper price band of Rs 130 and 23255814 equity shares at lower price band of Rs 130 aggregating up to Rs 300 crore by the company and an offer for sale by Yellow Stone Trust of up to 23076923 equity shares at the upper price band of Rs 130 and 23255814 equity shares at the lower price band of Rs 129 and, aggregating to Rs 300 crore. The company will not receive any proceeds from the offer for sale. Yellow Stone Trust pre issue shareholding was 83.04%, which shall decrease to 67% at the upper price band of Rs 130 and 66.9% at the lower price bad of Rs 129.

The company has undertaken a pre-IPO placement of 15,503,875 equity shares aggregating to Rs 200 crore

The company proposes to utilize the net proceeds of the fresh issue and the proceeds from the pre-IPO placement for funding the following objects:

  1. Rs 60.4 crore towards investment in the wholly owned subsidiary, Yellowstone Fine Chemicals for part-financing its capital expenditure requirements in relation to the setting up of a manufacturing facility for fluorospecialty chemicals.The installed capacity of the proposed facility is proposed to be an aggregate of 13,820 tpa and is expected to commence commercial operations by last quarter of Fiscal 2022 (March 2022). The total estimated cost for setting up of the proposed facility is approximately Rs 242.03 crore.
  2. Rs 37.74 crore towards investment in YFCPL for funding its working capital requirements
  3. Rs 91.06 crore towards funding capital expenditure requirements for expansion of their specialty intermediates manufacturing facility from 78,045 tpa to 82,525 tpa. The total estimated cost for the proposed expansion is approximately Rs 136.7.09 crore
  4. Rs 35.18 crore towards funding working capital requirements of the company
  5. Rs 12.57 crore towards purchase of plant and machinery for augmenting infrastructure development at their specialty intermediates manufacturing facility
  6. Rs 179.31 crore towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and their wholly owned subsidiary, Viva Lifesciences
  7. Balance towards general corporate purposes

Strengths

The global ethyl acetate market is expected to grow at a CAGR of more than 4.5% over the next decade in terms of volume and is projected to grow from 4 mmt in calendar year 2019 to 5 mmt by calendar year 2024. In terms of revenue, the global ethyl acetate market stands approximately at US$3.5 billion globally and is expected to grow at 5.5% to 6% CAGR over the next half decade

The global market for diketene derivatives was estimated to be around US$1-1.2 billion for the year 2019 and the volume was estimated to be between 0.4-0.45 mmt in 2019 and is expected to grow to 0.5-0.55 mmt by 2024 growing at a CAGR of around 4%. The market in India was valued at US$ 150-170 million and is expected to reach around US$ 200 million by 2024, with about 40% of this demand being met by imports. Laxmi Organics is the only Indian manufacturer of diketene derivatives. The increasing demand in pharmaceuticals and agrochemicals from developing economies like India is likely to increase the consumption of diketene and its derivatives

The global fluorochemicals market was valued at US$ 22.5 billion in CY2019 and is projected to witness a significant growth at a CAGR of 5.1% to reach US$ 28.8 billion by calendar year 2024. The market for fluorochemicals in India was valued at around US$ 405 million for 2019

The company believes it is well placed to enter the high margin specialty fluorochemicals space. According to the Frost & Sullivan Report, given the company's expertise in the acetyl intermediates and the specialty intermediates segments, its entry into the fluorochemicals space will put them at a differentiated position from other chemicals manufacturers.

In 2015, Reach banned products including glues containing toluene, chloroform, or benzene. In view of health hazards, this ban might be adopted by other regions as well and according to the Frost & Sullivan Report, such ban will enhance the need to move to a green solvent like ethyl acetate which will in turn benefit Laxmi Organics Industries.

The industry in which it 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. The specialty chemicals industry is highly knowledge intensive

Weaknesses

The company operates in a competitive business environment. Competition from existing players and new entrants and consequent pricing pressures could have a material adverse effect on business growth and prospects, financial conditions, and results of operations

Certain of the raw materials such as acetic acid and methanol that it uses as well as certain finished goods such as acetic anhydride are corrosive and/or flammable and require expert handling and storage, failing which it may be exposed to fires or other industrial accidents. There is a risk of fire and other accidents, at manufacturing facilities, distilleries, and storage tanks. Any accidents may result in loss of property and/or disruption in the manufacturing processes which may have a material adverse effect on results of operations, cash flows and financial condition

In the six months ended September 30, 2020 and FY 2020 purchases of raw materials from top ten suppliers represented 75.59% and 80.84%, respectively, of total raw material purchased. Any disruption of supply of raw materials from such suppliers could adversely impact operations and business.

The company and its subsidiaries are exposed to foreign exchange fluctuations, as the company imports raw material (acetic acid and ethyl alcohol). Also, the price of acetic acid is cyclical as it is linked to crude oil prices. Similarly, the price of local ethyl alcohol, derived from sugarcane molasses, is cyclical. The company’s exports provide a natural hedge to some extent.

Valuation

For FY 2020, consolidated sales were down by 2% to Rs 1534.12 crore. OPM fell 240 bps to 7.4% which led to 26% decrease in operating profit to Rs 113.55 crore. Other income decreased 22% to 4.5 crore while interest cost fell 17% to Rs 14.02 crore while depreciation increased 11% to Rs 48.89 crore. PBT decreased 44% to Rs 55.14 crore. Tax expenses were down 57% to Rs 10.88 crore as result net profit fell 3% to Rs 70.21 crore.

In H1 of FY2021 consolidated revenues stood at Rs 813.41 crore while OPM stood at 10.5% resulting OP of Rs 85.39 crore. PBT stood at Rs 56.2 crore while net profit was Rs 45.48 crore

For FY2020, consolidated EPS on post issue equity was Rs 1.8. The upper price band of Rs 130 discounts the FY20 EPS by 71.9 times and annualized H1 of FY2021 EPS of Rs 3.4 by 38.2 times. Listed industry peers of the company are Aarti Industries, Atul, Fine Organic industries, Navin Fluorine International, Rossari Biotech and SRF.

Aarti Industries trades at 41.5 times its FY2020 consolidated EPS of Rs 30.8 and 50.3 times its H1of FY2021 annualized consolidated EPS of Rs 25.4 at the current market price of Rs 1277.

Atul trades at 30 times its FY20 consolidated EPS of Rs 224.7 and 34.2 times its H1of FY2021 annualized consolidated EPS of Rs 197 at the current market price of Rs 6738.

Fine Organic industries trades at 44.9 times its FY 2020 consolidated EPS of Rs 53.8 and 61.9 times its H1 of FY2021 annualized consolidated EPS of Rs 39 at the current market price of Rs 2416.

Navin Fluorine International trades at 32.6 times its FY 2020 consolidated EPS of Rs 82.6 and 53.7 times its H1of FY2021 annualized consolidated EPS of Rs 50.1 at the current market price of Rs 2690.

Rossari Biotech trades at 74 times its FY2020 consolidated EPS of Rs 13.4 and 69.8 times its H1of FY2021 annualized consolidated EPS of Rs 14.2 at the current market price of Rs 993.

SRF trades at 31.9 times its FY2020 consolidated EPS of Rs 177.3 and 33.1 times its H1of FY2021 annualized consolidated EPS of Rs 171.3 at the current market price of Rs 5661.

Laxmi Organic Industries: Issue Highlights

Fresh issue (in Rs crore) 300
Offer for sale (in Rs crore) 300
Offer for sale (in number of shares)  
- in Upper price band 23076923
- in Lower price band 23255814
   
Price Band (Rs) 129-130
For Fresh Issue Offer size (in no of shares )  
- in Upper price band 23076923
- in Lower price band 23255814
Pre issued capital (Rs crore) 48.12
Post issue capital (Rs crore)  
- in Upper price band 52.73
- in Lower price band 52.77
Pre issue promoter and Promoter Group shareholding (%) 89.51
Post issue Promoter and Promoter Group shareholding  
-On higher price band (%) 72.92
-On lower price band (%) 72.80
Bid Size (in No. of shares) 115
Issue open date 15/03/2021
Issue closed date 17/03/2021
Listing BSE, NSE
Rating 48/100

 

Laxmi Organic Industries: Consolidated Financials

Particulars 1803 (12) 1903 (12) 2003 (12) 2009 (06)
Total Income 1375.52 1568.52 1534.12 813.41
OPM 11.0 9.8 7.4 10.5
Operating Profits 151.39 153.29 113.55 85.39
Other Income 3.00 5.80 4.50 0.95
PBIDT 154.39 159.09 118.05 86.34
Interest 9.81 16.97 14.02 7.44
PBDT 144.58 142.12 104.03 78.90
Depreciation 31.29 44.06 48.89 22.70
PBT 113.30 98.06 55.14 56.20
Share of Profit/loss of JV 0.02 -0.47 0.00 0.00
PBT Before EO 113.31 97.59 55.14 56.20
EO 0.00 0.00 -25.66 0.00
PBT after EO 113.31 97.59 80.80 56.20
Provision for Tax 37.62 25.24 10.88 10.72
Profit after Tax 75.70 72.35 69.92 45.48
PPA 0.00 -0.05 -0.29 0.00
Net profit after PPA 75.70 72.39 70.21 45.48
EPS (Rs)* 2.9 2.7 1.8 3.4
*EPS annualized on post issue equity capital of Rs 52.73 crore of face value of Rs 2 each
Figures in Rs crore
Source: Capitaline Corporate Database