Laxmi Organic IPO: Laxmi Organic IPO opens on Monday. Should you go for it?
Laxmi Organic has fixed the price band for its issue at Rs 129-130 per share. The Rs 600-crore issue would comprise issuance of fresh equity shares aggregating Rs 300 crore and an offer for sale (OFS) of shares aggregating up to Rs 300 crore.
“At Rs 130, the stock is available at 48.8 times FY20 EPS. We believe valuations are on the higher side, given it is a commodity business. We also believe that upcoming incremental opportunity from fluoro specialties division for three/four years forward is also largely discounted in the price and thus leaves limited opportunity on the table,” said Mitesh Shah and Dhavan Shah of ICICI Securities.
Many of its peers are available at cheaper valuations.
is trading at a PE of 24.92 times and Fine Organic Industries is at 35.46 times. However, investors are unfazed.
Dinesh Gupta of Unlisted Zone, a dealer of unlisted shares, said the stock is trading at Rs 232-235 range, meaning a premium of 81 per cent over the upper limit of the band price.
Laxmi Organic is among the largest manufacturers of ethyl acetate in India with a market share of nearly 30 percent of the Indian ethyl acetate market. Post completion of the Yellowstone Chemicals acquisition, its market share in the ethyl acetate market is seen expanding further.
The company’s products find application in end user industries such as pharmaceuticals, agrochemicals, dyes, inks, coatings, paints, printing, packaging, flavors, fragrances and adhesives.
While the company will not be receiving any of the proceeds from the offer for sale, it will use the proceeds of the fresh issue for expanding its specialty intermediaries, manufacturing capacities and also for venturing into the manufacturing of fluorochemicals compounds.
Not all analysts are sceptical and some have advised to subscribe to the issue.
“We believe (the price) is reasonable. The company is 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,” said Jyoti Roy – DVP- Equity Strategist, Angel Broking.
The company on Friday said it has raised Rs 180 crore from 15 anchor investors which include 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, SBI Mutual Fund, ICICI Prudential Mutual Fund and Aditya Birla Mutual Fund.
Saurabh Joshi and Sagar Shah of Marwadi Financial Services, also have ‘subscribe’ rating on the issue. They said long-term prospects of this stock look promising with healthy demand from the end user industry driving revenues for this company.
Counting the risks, analysts at ICICI Securities said higher volatility in raw material may impact gross margins and increase in competition in end products could affect financial performance.
