Laxmi Organic Industries IPO opens: Should you subscribe?

The issue, at the higher end of price band, on FY20 earnings basis looks expensive compared to peers, the brokerages feel.

While recommending a 'subscribe' for the issue, Marwadi Shares and Finance said, the long-term prospects of the company look promising with healthy demand expectations from the end-user industry.

"Considering FY20 adjusted EPS of 2.66 on a post-issue basis, the company is going to list at a P/E of 48.82X with the market-cap of Rs 3,427.6 crore. In comparison, the peers are Aarti Industries (at P/E of 24.92x), and Fine Organics Industries (35.46X)," said the brokerage.

Also read: Laxmi Organic Industries IPO: 10 key things to know before subscribing the issue

ICICI Direct also believes valuations are on the higher side given it is a commodities business. "We believe that upcoming incremental opportunity from fluorospecialties division for next three-four years is also largely discounted in the price and thus there is limited opportunity on the table."

Incorporated in 1989, Laxmi Organic Industries is a leading manufacturer of acetyl intermediates (AI) and specialty intermediates (SI). The company's products find application in various high-growth industries, including pharmaceuticals, agrochemicals, dyes & pigments, inks & coatings, paints, printing & packaging, flavours & fragrances, adhesives and other industrial applications.

It has two manufacturing units at Mahad, Maharashtra. One with production capacity of 161,320 MTPA (AI manufacturing facility), and the other with 78,045 MTPA capacity for specialty intermediates manufacturing.

The company is the largest manufacturer of ethyl acetate with over 30 percent market share in the Indian ethyl acetate market, which is expected to increase further post the completion of the Yellowstone Chemicals (YCPL) acquisition. YCPL has a production capacity of 10,500 MTPA of acetaldehyde and 29,200 MTPA of ethyl acetate as of December 2020.

Also read: Laxmi Organic Industries raises Rs 180 cr from anchor investors ahead of IPO

It has also been the largest exporter of ethyl acetate from India in the six months ended September 2020 and in FY18-FY20 period. It is one of the largest exporters of ethyl acetate to Europe from India since 2012.

It is the only manufacturer of diketene derivatives in India, with a market share of approximately 55 percent in terms of revenue in FY20 and with a diversified customer base.

"Looking at the competitive advantage and strong growth potential we are assigning a subscribe recommendation to the issue," said Angel Broking.

Anand Rathi also advised subscribing to the issue considering the growth prospects of the company.

Meanwhile, considering the sectoral tailwinds and the aggressive valuation, Choice Broking assigned a 'subscribe with caution' rating for the issue.

In June 2019, the company acquired some assets including plant & machinery, design and operating paperwork, REACH registrations and patents of Miteni, a manufacturer of organic fluorospecialties and electrochemical fluorination.

Laxmi Organic believes it is well placed to enter into the high margin specialty fluorochemicals space through this acquisition. 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 it at a differentiated position from other chemicals manufacturers.

Its global footprint is spread across 30 countries, including China, Netherlands, Russia, Singapore, United Arab Emirates, United Kingdom and United States of America.