Laxmi Organics IPO Note - 140321 - Emkay

Laxmi Organics
India Equity Research | Speciality Chemicals

March 14, 2021
IPO Note Emkay
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Refer to important disclosures at the end of this report
Capital raise to help diversify into

high-margin fluorospecialities
 Capital raise to help expand capacity and solidify balance sheet: Laxmi Organics (LO) Issue Details
is looking to raise Rs6bn through a mix of fresh issue (Rs3bn, 23.25mn shares) and Offer Price Band Rs 129-130
th
for Sale (Rs3bn). Large part of the proceeds (including Rs2bn raised in pre-IPO placement Issue Opens 15 March 2021
as part of fresh issue) shall be utilized for 1) debt repayment (~Rs1.8bn), 2) establishing Issue Closes 17th March 2021
Fluorospecialty assets (~Rs1bn), and 3) capacity expansion (~Rs1bn). Issue size 23.25mn shares
 Fluorospecialty chemistry to provide superior growth opportunities, aid margin Issue Size Rs6bn.
expansion: In 2019, LO’s subsidiary Viva Lifesciences (VLPL) acquired assets of Italy- No. of Shares Pre-issue 240.5mn
based Miteni SPA (EUR4.6mn), which manufactures fluorospecialities and No. of shares Post issue 263.6mn
electrochemicals. LO plans to establish these assets in India by Q4FY22 (13.8ktpa), which Post issue market cap Rs34.04-34.28bn
can add ~Rs3.5bn revenue (~22% of the current topline) at peak utilization. Given the high
EBITDA margin profile (~24-26% in fluoro space vs. 8-9% current margin of LO) and large Issue Structure
export potential (from previous customers of Miteni), LO can improve its operating margins QIBs 50%
substantially in the long term. Non-Institutional Category 15%
 Sole manufacturer for Diketene Derivatives (DKD) in India; import substitution Retail 33%
possibilities: With a ~55% market share in India’s DKD market and the rest being
imported into India (40%, implying ~Rs4bn additional market opportunity), LO is in a sweet Objects of the Issue
spot to gain further market share in the wake of the import substitution trend and ‘Make in
Fund capacity expansion and working
India’ thrust. The Pharma/Agro industries make up 36%/15% of LO’s standalone sales.
capital needs along with debt reduction
 Capacity addition and long-term contracts boost topline visibility: LO operates under
two verticals, Acetyl Intermediates (AI) and Specialty Intermediates (SI). AI accounts for
59% of total sales, while SI accounts for 32% of total sales. The planned capacity Shareholding Pattern (%) Post Issue
expansion at the SI division (~4.5ktpa with a cost of ~Rs820mn) and the AI division (~40
ktpa at a cost of ~Rs400mn) will be operational by FY22-end and will aid revenue growth
Others,
in FY23, given strong demand in both the segments. LO has recently entered into a long- 27.08%
term agreement for the sale of an agro intermediate to a large crop sciences company,
which will provide sustainable revenue growth.
Promoter
 Outlook and valuation: We believe that LO will report better growth than the industry in group,
72.92%
both the divisions (AI & SI), driven by increasing capacities, strong customer relations,
long-term intermediate contracts, favorable product mix and better demand environment.
Entry into the complex high-margin fluorochemicals space will open up new growth
avenues for the company along with margin expansion. At the upper price band of Rs130, Source: Bloomberg
the stock is available at 77x FY20 Adj. EPS post issuance. LO recorded a 17% EPS CAGR
during FY16-20.
Please see our sector model portfolio (Emkay Alpha Portfolio): Speciality Chemicals (Page 20)
Financials snapshot
(Rs mn) FY16 FY17 FY18 FY19 FY20
Net Sales 10,466 10,759 13,930 15,685 15,341
EBITDA 805 1,192 1,515 1,534 1,136
EBITDA Margin (%) 7.7% 11.1% 10.9% 9.8% 7.4%
APAT 266 716 758 725 445
EPS* (Rs) 1.1 2.9 3.0 2.9 2.0
EPS (% chg) 26% 169% 6% -4% -32%
This report is solely produced by Emkay Global. The
ROE (%) 12.0% 26.5% 22.1% 17.5% 10.1% following person(s) are responsible for the production of
the recommendation:
P/E (x) 122.3 45.5 42.9 44.9 65.8
Rohit Sinha
EV/EBITDA (x) 45.2 29.4 24.0 23.2 31.2
rohit.sinha@emkayglobal.com
P/BV (x) 13.7 10.6 8.5 7.2 6.8
+91 22 6612 1306
Source: RHP, Emkay Research, *Pre-issue EPS
Emkay Research is also available on www.emkayglobal.com and Bloomberg EMKAY<GO>. Please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited
Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.
Laxmi Organics India Equity Research | IPO Note
Exhibit 1: Laxmi Organics: Shareholding structure

Before pre-IPO After pre-IPO Post-IPO
mn shares (%) mn shares (%) mn shares (%)
Promoters 215.34 95.7 215.3 89.5 192.3 72.9

Public 9.7 4.3 25.2 10.5 71.4 27.1
Nishant Agarwal 4.8 2.1 5.2 2.1 5.2 2.0
Hansa K. Agarwal and Kailash K. Agarwal 1.0 0.4 1.0 0.4 1.0 0.4
IIFL Special Opportunity Fund 0.0 0.0 5.5 2.3 5.5 2.1
Malabar India Fund 0.0 0.0 4.2 1.8 4.2 1.6
Ashoka India Eq. Investment Trust 0.0 0.0 2.7 1.1 2.7 1.0
GMO Emerging Domestic Opportunities Fund 0.0 0.0 1.1 0.5 1.1 0.4
One Up Financial Consultant Pvt Ltd 0.0 0.0 1.0 0.4 1.0 0.4
Malabar Value Fund 0.0 0.0 0.8 0.3 0.8 0.3
Others 4.0 1.8 3.8 1.6 50.0 19.0
Total 225.1 100.0 240.6 100.0 263.7 100.0
Free float (%) 4.3 4.1 21.3
Source: RHP, Emkay Research
Exhibit 2: Snapshot of share capital structure and capital raise

Particulars Details
Share price (Rs.) 129-130
Fresh Issue (FI) of Rs3bn

Shares issued in FI (mn) (Face value of Rs. 2 each) 23.25
OFS of 23.25mn shares

Amount raised in OFS (Rs bn) 3.0
Total amount raised (Rs bn) 6.0
Total shares issued to public (mn) 46.5
Pre issue shares outstanding 240.5mn (including pre-IPO private

placement of Rs2bn @Rs129/share)
Post issue shares O/S (mn) 263.6
Market cap post issue (Rs bn) 34.04-34.28
Promoter and promoter group

Post FI & OFS promoter holding 72.92%
Source: Emkay Research, RHP
Exhibit 3: Timetable for listing

Particulars Date
Issue opens on 15th Mar 2021
Issue closes on 17th Mar 2021
Indicative Timetable Activity On or about
Finalization of Basis of Allotment 22-03-2021
Refunds/Unblocking ASBA Fund 23-03-2021
Credit of equity shares to DP A/c 24-03-2021
Trading commences 25-03-2021
March 14, 2021 | 2

Exhibit 4: Objects of the issue

Particulars Rs (mn)
Investment in YFCPL for part-financing its capital expenditure requirements in relation to the
604
setting up of the Proposed Facility
Investment in YFCPL for funding its working capital requirements of YFCPL 377
Expansion for SI manufacturing capacities 911
Working Capital needs of Laxmi Organics 352
PP&E/ Infrastructure spending on SI facility 126
Debt repayment for Laxmi Organics and certain subsidiaries 1,793
Total 4,163
March 14, 2021 | 3

Story in Charts
Exhibit 5: Revenue growth to benefit from capacity expansion and Exhibit 6: Higher proportion of better-margin SI business should
improved penetration from key markets certainly aid operating margins
20,000 35% 2,000 12%

15,685 15,341 30% 1,515 1,534
14,106 10%
15,000 25% 1,500
11,133 11,423 1,192 1,136
20% 8%
10,000 15% 1,000 805
10% 6%
5,000 5% 500
4%
0%
0 -5% - 2%
FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20
Revenues (Rsmn) Growth % EBITDA (Rsmn) EBITDA margin %
Source: Emkay Research, RHP Source: Emkay Research, RHP
Exhibit 7: Balance sheet to further strengthen after debt repayment Exhibit 8: Improving operating levels and better product mix shall
elevate return ratios
1.0 0.9 30.0 26.5

0.8 25.0 22.1
0.6 20.0 17.5

0.6
15.0 12.0
0.4 10.1
0.3 0.3 0.3 10.0
0.2 5.0
10.7 20.3 22.9 16.9 10.2
0.0 0.0
FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20
Net Debt/Equity RoCE RoE
Exhibit 9: Healthy asset turnover (x) ratio maintained over the years Exhibit 10: Utilization levels to elevate from current levels, driven by
higher capacity and customer reach
6,000 5.02 2,70,000 2,37,550 2,39,365 2,39,365 80%

4,875
5,000 3,521 4,476 2,20,000 70%
4,120 4.02 1,71,810 1,81,753
3,926 60%
4,000 3.92 1,70,000 1,48,504
3.02 50%
3,000 3.28 1,20,000
2.71 2.67 3.65 2.02 40%
2,000 70,000 30%
1,000 1.02
20,000 20%
0 0.02 FY18 FY19 FY20
FY16 FY17 FY18 FY19 FY20
Capacity (mtpa) Production (mtpa)
Gross block (Rsmn) Fixed Asset turnover Utilization levels %
Exhibit 11: Pharmaceuticals remains one of the core markets Exhibit 12: Exports stand at 24% of total sales as of FY20
Middle East,
Distributors, Europe, 4%
26% Pharmaceutic 14%
als, 36%
Africa, 2%
Other
Industrials, 9% China, 1%
Colour
India, 76%
Rest of Asia,
and
3%
Printing and pigment
packaging, 8% s, 15% Agrochemicals
, 14% RoW, 1%
March 14, 2021 | 4

Investment rationale
Sole player for Diketene & diketene derivatives (Specialty Intermediates division)
in India with large import substitution possibilities
With a major 55% market share in India’s DKD market and the rest being imported into India
(40%, implying ~Rs4bn untouched revenue potential in India itself), LO is the only manufacturer
of DKD in India (post purchase of Diketene portfolio from Clariant Chemicals in 2011) and one
of the few players in the world to hold such technology. It caters to high growth end-user
industries such as Pharmaceuticals (36% of overall standalone sales) and Agrochemicals (15%),
among others. Additionally, it is currently one of the largest suppliers of Diketene derivatives to
Europe. Major competitors for DKD in India and export markets are Lonza Group, Eastman
Chemicals and Nantong Acetic Acid.
Exhibit 13: India Diketene market share breakdown by company (2019, USD150mn market size of
which ~40% is imported into India, implying an approx. Rs4bn import substitution opportunity)
Others, 6%
Nantong Acetic
Acid, 5%
Laxmi Organics,
Lonza, 34% 55%
The domestic Diketene market was valued to be ~USD150mn in 2019, of which 55% is catered
by LO (~USD80mn or ~Rs5bn), while 40% is imported into India (~USD60mn). This means that
LO has the potential to almost double its revenue size in its SI division from ~Rs4.3bn, assuming
that it is able to garner market share from competitors that are large international corporations.
Management is keen on ramping up export sales, which will lead to better realization and
improved margin in the SI division.
Exhibit 14: Approved capacity for Specialty Intermediates portfolio, out of which operationalized
capacity is ~78kmtpa (as per our understanding)
Products Capacity (mtpa)
Diketene Derivatives 32,460
Esters/Esters Derivatives 15,600
Amides/Amides Derivatives 7,500
Arylides/Arylides Derivatives 9,360
Diketene 22,200
Acetic Anhydride 36,000
Total approved capacity 90,660
March 14, 2021 | 5

Superior opportunities post commercial establishment of Miteni Assets

In June’19, Viva Lifesciences Pvt Ltd (VLPL, subsidiary of LO) acquired PP&E of Miteni SPA, a
manufacturer of fluorospecialities and electrochemical fluorination in Italy, for EUR4.63mn. LO
plans to establish these assets in India (subject to further transactions). This purchase has
granted LO access to 100+ products (including R&D), 14 patents, 41 REACH registrations and
a valuable knowledge base.
Given the high margin nature of such complex chemistries and broad-based applications of
fluorospecialty products in numerous verticals, LO will certainly benefit from both commercial
and R&D space and would see improving return ratios in the longer term from current mid-teens.
The proposed facility (capacity of 13.8ktpa) is expected to commercialize by Q4FY22. LO also
plans to set up a dedicated R&D unit for the fluorospecialty business, which shall be used for the
development of new products that have applications in high-growth industries.
The planned products will cater to industries such as pharmaceuticals, agrochemicals,

aerospace and automobile, and shall be used to capture the market share of Miteni. The planned
fluorospecialty chemistry is, as per management, synergistic with the company’s existing
diketene manufacturing process, thereby enabling a cost effective business structure.
Exhibit 15: India Fluorochemicals market share split by company (CY19, USD415mn market size
expected to grow at ~11% CAGR to reach USD705mn in CY24)
Others,
11%
SRF, 36%
NFIL, 19%
GFL, 34%
Exhibit 16: India Fluorochemicals market share split end-user industry (CY19). At anticipated
CAGR of ~11%, pharmaceuticals is anticipated to become the largest consumer by CY24
Pharmaceuticals
API
Others
18%
15%
Refrigeration
Electrical & 8%
Electronics
15%
Air Conditioning
11%
Agrochemical &
Fertilizers Automobiles
12% 21%
March 14, 2021 | 6

Capacity addition and long-term contracts boost topline visibility

LO currently operates under two revenue verticals, Acetyl Intermediates (59% of total sales; 27%
domestic market share) and Specialty Intermediates (32% of total sales). The company is
planning to enhance its installed capacity in the SI division by adding ~4.5ktpa to its existing
~78ktpa at a cost ~Rs1bn (expected to come online by Nov’21). It also plans to increase its
Acetaldehyde (+10ktpa) and Ethyl Acetate (+30ktpa) capacities by acquiring AHPL.
The planned expansion in the SI division shall be targeted toward two chemistries, one of which
is esters (capacities shall be fungible in nature). With regards to one product, the company has
entered into a long-term off-take agreement with a prominent crop sciences company, resulting
in steady cash flows and improved capacity utilization for the business.
Exhibit 17: Specialty Intermediates capacity and capacity post expansion in Nov’21; H1FY21
capacity utilization stood at 60%
Particulars (mtpa) FY18 FY19 FY20 FY21E FY22E
Capacity 76230 78045 78045 78045 82525
Production 44558 42941 46937 - -
Utilization 58% 55% 60% - -
Source: RHP, Emkay Research, FY22E capacity as per announced plans
Exhibit 18: Acetyl Intermediates capacity and capacity post expansion in FY22, accounting for
incremental capacities of Acetaldehyde and Ethyl Acetate through subsidiary acquisition; H1FY21
capacity utilization stood at 76%
Particulars (mtpa) FY18 FY19 FY20 FY21E FY22E
Capacity 161320 161320 161320 161320 201020
Production 103946 128869 134816 - -
Utilization 64% 80% 84% - -
Source: RHP, Emkay Research, FY22E capacity as per announced plans
Exhibit 19: Ethanol capacities operated by Laxmi Organics. Some part of ethanol is used captively
to produce Acetic Acid, Acetaldehyde and Ethyl Acetate. These capacities act as feeder plants for
both the Acetyls and Specialty Intermediates
Panchganga Distillery (mtpa) FY18 FY19 FY20
Capacity 9112 9112 9112
Production 5134 9423 2328
Utilization 56% 103% 26%
Jarandeshwar Distillery FY18 FY19 FY20

Capacity 8100 8100 8100
Production 952 3711 3916
Utilization 12% 46% 48%
LO has also launched a new intermediate, which can be used for an HIV drug. Some of the
major HIV drug players in India are Cipla, Aurobindo Pharma and Laurus Labs.
March 14, 2021 | 7

Exhibit 20: Top 5 selling HIV/AIDS drugs company wise, globally (USD bn). Global market size for
HIV stood at USD25.3bn in 2018. Indian Anti retro-viral therapy market was valued at ~USD29mn
(2018).
4.62
3.36
3.00
2.08 1.96
Genvoya, Gilead Triumeq, GSK Truvada, Gilead Tivicay, GSK Prezista, J&J
Source: Statista, Emkay Research, Industry
Exhibit 21: Over 80% of Anti-Retro Viral drugs consumed globally to combat aids are supplied by
Indian Pharmaceutical Companies
Others, 20%
ARV Drugs
supplied by
IPM, 80%
Source: Aarti Industries A.R. 2019, Emkay Research
March 14, 2021 | 8

Leading domestic producer for Ethyl Acetate, much safer alternative solvent
LO is one of the largest manufacturers of Ethyl Acetate (EA) in India (30% market share) and
holds a key presence as an exporter to Europe. Ethyl Acetate is derived from Ethanol
(independent of the crude chain), which makes EA a much safer alternative to traditional
solvents, making it highly versatile across industries such as pharmaceuticals API, packaging,
paints, adhesives and sealants. This would allow for increased adoption of EA, as a solvent, in
various international markets following the ban enacted by REACH in Europe in 2015. The
company has received USDA Certified Biobased label for EA from US Department of Agriculture,
possibly opening additional growth avenues. Another point worth mentioning is that
Pharmaceuticals and Packaging segments, both benefitted during Covid-19, required higher
amounts of EA for respective finished goods production.
Exhibit 22: Ethyl Acetate, due to its sustainable source Ethanol, is a green solvent and is poised to
replace certain crude derivatives, globally
MEK
Acetone Toleune
Ethyl
Acetate
Cyclohex
MIBK
ane
Exhibit 23: End-user industry split for Ethyl Acetate, globally. Highest growth rate for EA is
expected in flexible packaging, pharmaceuticals and home & personal care industries
Adhesives, 11%
Flexible
Packaging,
17%
Pharmaceuticals
(API), 7%
Paints &
Coating and Flavor &
Printing, 49% Fragrances, 8%
Others (Cosmetics,
etc.), 8%
Exhibit 24: Combined capacity for Ethyl Acetate would stand at ~157kmtpa post completion of
YCPL acquisition, significantly enhancing company’s domestic market share (mtpa).
2,50,000
2,01,020
2,00,000
1,50,000 1,27,000
1,00,000
50,000 34,320 10,500 29,200
0
Ethyl Acetate Others Acetaldehyde Ethyl Acetate Acetyl
Intermediates
March 14, 2021 | 9

Upside on margin post asset expansion

Once the fluorospecialty business is commercialized in Q4FY22 and utilization levels for high-
value Diketene derivatives (SI division) improves from current ~55-60% levels on import
substitution opportunities, the overall product mix of the business will improve, margin profile will
expand leading to better return ratios and cash generation capabilities.
Exhibit 25: Improvement in operating levels of both divisions should certainly help in improving
the return ratios (utilization levels)
100% 25%
22% 80% 84%
80%
64% 20%
58% 60%
55%
60%
17% 15%
40%
11%
10%
20%
0% 5%
FY18 FY19 FY20
AI division SI division RoE %
Exhibit 26: Firm pricing environment for Acetic Acid remains crucial to the profitability of the
business, as Acetic Acid is a common input for both the divisions
70 12%
60 10%
50
8%
40
6%
30
20 4%
10 2%
FY16 FY17 FY18 FY19 FY20 H1FY21
Glacial Acetic Acid (Rs/kg) EBITDA margins %
Source: RHP, Emkay Research, Bloomberg
March 14, 2021| 10

Segment-wise commentary
Fluorine adoption in pharmaceuticals and agrochemicals key tailwind
LO had plans to enter into a JV with Miteni in Italy. Miteni was controlled by International
Chemicals Investors Group (ICIG), which bought Miteni from Japanese Mitsubishi Corp in 2009.
However, due to unforeseen circumstances related to environment issues, the JV could not be
formed and consequently LO through its subsidiary VLPL bought certain assets of Miteni at a
cost of EUR4.63mn. LO, through its subsidiary YFCPL, will purchase these assets from VLPL at
EUR8.87mn. The company plans to commercialize capacity of 13.8ktpa by the end of Q4FY22.
It would initially start serving agrochemicals and pharmaceuticals and gradually move into
industries such as aerospace and automotive. This may be similar to Navin Fluorine’s new high
performance product segment, which commands margins above ~25%, as per our
understanding.
The fluorospec chemistry has synergies with the company’s existing diketene business (SI
division), thereby enabling cost efficiencies and large product portfolio. In the initial phase of the
business, management would focus on existing customer penetration and going ahead, would
expand market share with Miteni’s ex-customers in export markets as they have shown keen
interest in sourcing the Fluorine-based intermediates from LO. The company has also taken
support of Miteni’s human capital in establishing the business at a quick pace.
LO further plans to set up a dedicated R&D kilo lab, which shall allow the firm to develop new
molecules, significantly enhancing its product offering base. Operating levels gradually move
upward on improving market penetration, new capacities and debottlenecking possibilities, as
per our expectation.
Exhibit 27: Out of total blockbuster drugs globally, almost half of them contain fluorine element
Drugs containing
Others, 50% fluorine molecule,
50%
Source: Industry, Emkay Research
Exhibit 28: Globally, up to 20% of all pharmaceutical drugs, marketed or in R&D phase, and 50% of
recently developed agrochemical molecules contain fluorine element. Total market size of
fluorochemicals in India stood at USD405mn in 2019
100%
80%
50%
60% 80%
40%
20% 50%
20%
0%
Pharmaceuticals (in market or R&D) Agrochemicals (recently developed)
Fluorine based Others
Source: Industry, Emkay Research, RHP
March 14, 2021| 11

Acetyl Intermediates is a volume-driven segment

This division currently contributes ~52% of consolidated sales (FY20). It manufactures products
such as Ethyl Acetate, Acetaldehyde, fuel grade Ethanol and other customized solvents to meet
customer needs. This division currently is single-digit margin in nature, although RoCE is higher
due to the low working capital requirement of the business. Growth in the business is largely a
function of volumes and pricing environment.
Exhibit 29: Sales for the division grew at a CAGR of 13.6% (FY18-FY20). Drop of 9% in FY20 sales
was primarily due to reduction in realizations for ETAC and Acetyl Intermediates by ~16%, partially
offset by higher volumes, ~6%.
10,000 1,60,000
1,40,000
8,000
1,20,000
6,000 1,00,000
4,000 80,000
60,000
2,000
40,000
0 20,000
FY18 FY19 FY20
AI sales (Rsmn) AI production (mtpa)
Exhibit 30: India Acetyls market size (USD bn) is expected to grow at CAGR of 6.6% (2019-24E)
2.06
1.94
1.82
1.70
1.60
1.5
2019 2020 2021E 2022E 2023E 2024E
Exhibit 31: India Acetyls market split by competitors based on volumes (excludes Acetic Acid)
Others
(IOL,
Dhampur,
Sipchem,
etc.), 18%
Jubilant
Industries, 30%
GNFC, 12%
Laxmi Organic,
27%
Godavari
Biorefineries, 13%
March 14, 2021| 12

Specialty Intermediates, product mix to drive margin gains

This segment contributes ~32% of total consolidated sales. The company manufactures many
products under this division such as Acetic Anhydride, Ketene, Diketene and derivatives. This is
a high-margin business for the company and management plans to increase the proportion of
this business by driving penetration in both, domestic and export markets.
With a domestic market share of ~55%, the company is the only manufacturer of Diketene and
Diketene derivatives (DKD) in India, while ~40% is imported into India. It had purchased the
diketene business from Clariant Chemicals India in 2010, as the international firm was reluctant
to continue the business in India. At the time, the portfolio was limited to 12-14 products and was
catering to only the dyes and pigments industry. Through extensive R&D, LO has added 20 new
products in the portfolio for a total of 34 products and now caters to pharma, agro and colors. It
has also, over the last decade, added five new chemistries within the division, strengthening its
capabilities.
The planned expansion in SI division (~4ktmpa) shall be targeted toward two chemistries, one
of which is esters (capacities shall be fungible in nature). With regards to one product, the
company has entered into a long-term off-take agreement with a prominent crop sciences
company, resulting in steady cash flows and improved capacity utilization for the business.
Exhibit 32: Sales for the division has grown at CAGR of 3.2% (FY18-FY20)
4,600 48,000
4,500 47,000
4,400 46,000
4,300 45,000
4,200 44,000
4,100 43,000
4,000 42,000
3,900 41,000
3,800 40,000
FY18 FY19 FY20
SI sales (Rsmn) SI production (mtpa)
Exhibit 33: Sales from new products added by LO through R&D has almost doubled its SI revenue
base, since acquisition of the business from Clariant in 2010, indicating conceptual to
commercialization success
51%
46% 44%
42%
FY18 FY19 FY20 H1FY21
New product sales contribution (as % of SI sales)
March 14, 2021| 13

Background
With almost three decades of experience, Laxmi Organics is one of the largest producers of
Acetyl Intermediates and Specialty Intermediates. The company started manufacturing
Acetaldehyde and Acetic Acid in 1992 and then moved downstream to manufacture Ethyl
Acetate in 1996 and currently holds ~30% domestic market share. In FY10, Laxmi Organics
acquired the Diketene portfolio and PPE from Clariant in India, which were used in products
largely catering to dyes and pigments. It then added additional chemistries in order to cater to
high-growth industries such as agrochemicals and pharmaceuticals. The company currently has
one of the largest portfolio of Diketene derivatives and holds close to 55% domestic market
share, with the rest being imported into India. The company plans to diversify into manufacturing
specialty fluorochemicals and has already acquired assets of Miteni sPA, Italy, through its
subsidiary.
Exhibit 34: Some of the marquee customers
Source: Company presentation, Emkay Research
Exhibit 35: Milestones achieved
Source: Company presentation, Emkay Research
March 14, 2021| 14

Exhibit 36: Key management personnel and Directors

Name Designation Details
He has been associated with the company since inception, and has approximately 30 years of
experience in the chemicals and paper industries, 16 years of experience in the education industry,
Ravi Goenka Promoter, Chairman and MD
and 21 years in the power industry. He is a director on the board of International Knowledge Park
Pvt. Ltd. which established Ecole Mondiale World School and Russell Square International College
He has been associated with the company since April 1, 2020 and has around 31 years of
experience in the chemicals industry and has handled numerous functions including, sales and
marketing, corporate strategy, innovation and manufacturing. Prior to joining the company, he was
Satej Nabar ED, CEO associated with Atul Ltd. as president – polymers business; Styrolution ABS (India) Ltd. as head –
sales and marketing; BASF South East Asia Pte Ltd. as manager- Asia Pacific, Styrolux
Market/Business Development; Reliance Industries Ltd. as deputy general manager- technical (PE)
amongst others.
He has been associated with the company since March 30, 2012 and has 13 years of experience
in the securities market. Prior to joining the company, he was the director of Enam Securities Pvt.
Manish Chokhani Independent Director Ltd. from 2006 to 2019. He served as the managing director and chief executive officer of Axis
Capital Ltd from 2012 to 2013. He served as chairman of TPG Growth India during 2015-2016, and
as senior advisor to TPG Growth during 2013 to 2019.
He has more than 31 years of experience in building and leading businesses through complex
Partha Roy operational issues, financial restructuring, international expansion and capital market transactions.
CFO
Chowdhury In the past, he has been associated with Arvind Mafatlal Group, Indian Oxygen Ltd., ESAB India
Ltd. and Navin Fluorine International Ltd
He joined the company on November 26, 2019. He has approximately 30 years of experience in
TCN Sai Krishnan COO manufacturing, projects, procurement & supply chain with speciality chemicals, petro chemicals,
paints, inks & FMCG industries.
He joined the company on December 9, 2013, and is responsible for synthesis and analytical
developments of old and new molecules and intermediates of future prospects for the company at
Dr. Ajay Audi Senior VP, R&D
the R&D centres. He has over 16 years of experience in the field of process developments and
scale ups of Agro –AIs and pharma – active pharmaceutical ingredients
Source: RHP, Emkay Research
March 14, 2021| 15

Key risks
Concentrated location of manufacturing facilities: LO’s manufacturing facilities, including AI
and SI manufacturing units along with the two distilleries for producing ethanol, are based out of
Maharashtra. Any external risk or unexpected negative event in the region could severely impact
the day-to-day operations of the company. Additionally, new facilities are proposed to be set up
in Maharashtra in the near future.
Relocating Miteni assets and starting fluorospecialties business: LO has been in the
process of shifting the assets of Italy (Miteni sPA), although the same has been delayed for more
than six months for now. This also impacts the progress of establishing the fluorospecialties
business. The fluorochemicals business is an entirely new space for LO in terms of chemistry
and industry to enter into and the success will be critical for the long-term health of the overall
business. The company has also filed for the transfer of Environmental Clearance from LO to
YFCPL (subsidiary), which is still pending.
Volatility in prices and availability of core raw materials: The company is dependent on
various raw materials, acetic acid being one of the core inputs. Historically, acetic acid prices
have been volatile in nature. Also, prices of ethanol, which the company produces, are very much
seasonal in domestic environment depending on monsoon. In FY20, LO incurred ~76% of total
raw material costs on importing some of the critical raw materials and coal.
Global competitiveness may give way to pricing pressures: The company holds dominant
position in diketene derivatives and is the only domestic manufacturer of it (55% of domestic
market share). LO is also the largest exporter of Ethyl Acetate from India, as well as to Europe.
This exposes LO to competition from larger international players, which may be relatively better
placed to compete on the pricing front and requires LO to constantly innovate its portfolio to stay
ahead of the curve.
Working capital cycle stretched due to high receivables: As of H1FY21, the receivables of
the company stood at ~Rs3.3bn (close to 30% of the balance sheet size). The debtors’ level has
remained above Rs3bn from FY18 onward and this has impacted the working capital days cycle
for the company. Additionally, LO is cautious on clearing these accounts as soon as possible.
March 14, 2021| 16

Outlook and valuation

We believe that LO will report better growth than the industry in both the divisions (AI & SI),
driven by increasing capacities, strong customer relations, long-term intermediate contracts,
favorable product mix and better demand environment. Entry into the complex high-margin
fluorochemicals space will open up new growth avenues for the company along with margin
expansion. At the upper price band of Rs130, the stock is available at 77x FY20 Adj. EPS post
issuance. LO recorded a 17% EPS CAGR during FY16-20.
Exhibit 37: Peer comparison

Sales (Rs mn) EBITDA margin (%) PAT Margin (%) PE (x) ROE %
Peers
FY20 FY20 FY20 FY20 FY20
Laxmi Organics 15,341 7.4 2.9 48.4* 10.1
SRF 72,094 20.2 12.7 36.1 20.2
Fine Organics 10,381 23.2 15.9 44.9 29.5
Galaxy Surfactants 25,964 14.2 8.9 29.4 23.0
Navin Fluorine 10,616 24.8 16.7 72.0 14.9
Aarti Industries 41,863 23.2 13.1 40.5 19.1
Atul Ltd. 40,931 22.0 16.3 27.3 22.7
Source: Industry, Emkay Research, *as per our calculation (based on reported PAT), post issuance
March 14, 2021| 17

Key Financials (Consolidated)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19 FY20
Net Sales 10466 10759 13930 15685 15341
Expenditure 9661 9568 12415 14151 14205
EBITDA 805 1192 1515 1534 1136
Depreciation 291 280 313 441 489
EBIT 514 912 1202 1093 648
Other Income 18 18 30 58 45
Interest expenses 188 110 98 169 140
PBT 343 821 1134 982 552
Tax 77 104 376 252 106
Extraordinary Items 0 0 0 0 257
Minority Int. /Income from Assoc. 1 1 0 0 1
Reported Net Income 266 717 758 730 703
Adjusted PAT 266 716 758 725 445
Balance Sheet
Equity share capital 100 100 100 501 450
Reserves & surplus 2247 2955 3693 3998 3819
Net worth 2347 3055 3793 4499 4269
Minority Interest 3 1 2 4 4
Loan Funds 2210 1038 2151 1753 1589
Net deferred tax liability 190 112 160 171 120
Total Liabilities 6333 6493 8991 10192 10756
Net block 2146 2024 2933 3457 3377
Investment 0 0 0 0 0
Current Assets 3257 3296 4753 5437 5560
Cash & bank balance 139 234 52 467 447
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 1561 2271 2694 3590 4600
Net current assets 1696 1025 2058 1847 959
Misc. exp 0 0 0 0 0
Total Assets 6333 6493 8991 10192 10755
Cash Flow
Opening Cash 165 139 234 52 467
Net Cash from Operations 716 1533 -51 1895 1968
Net Cash Used in Investing -223 -351 -883 -1220 -557
Net Cash Used in Financing -518 -1088 772 -250 -1402
Net Inc/(Dec) in Cash -26 95 -162 425 9
Closing Cash 140 234 73 498 506
March 14, 2021| 18

Key Ratios
Profitability (%) FY16 FY17 FY18 FY19 FY20
EBITDA Margin 7.7 11.1 10.9 9.8 7.4
EBIT Margin 4.9 8.5 8.6 7.0 4.2
Effective Tax Rate 22.4 12.7 33.2 25.7 13.1
Net Margin 2.5 6.7 5.4 4.6 2.9
ROCE 10.7 20.3 22.9 16.9 10.2
ROE 12.0 26.5 22.1 17.5 10.1
Gearing Ratio (x) FY16 FY17 FY18 FY19 FY20

Net Debt/ Equity 0.9 0.3 0.6 0.3 0.3
Net Debt/EBIDTA 2.6 0.7 1.4 0.8 1.0
Working Cap Cycle (days) 59.0 45.3 65.2 39.7 21.1
Growth (%) FY16 FY17 FY18 FY19 FY20

Revenue -2.5 2.8 29.5 12.6 -2.2
EBITDA -6.5 48.1 27.1 1.2 -25.9
PAT 25.9 169.0 5.7 -3.7 -3.7
March 14, 2021| 19

Emkay Alpha Portfolio – Speciality Chemicals

EAP sector portfolio
BSE200 EAP OW/UW OW/UW EAP Weight
Company Name
Weight Weight (%) (bps) (Normalised)
Speciality Chemicals 0.19 0.19 -1% 0 100.00
Advanced Enzyme Tech 0.00 0.00 NA 0 1.95
Apcotex Industries 0.00 0.00 NA 0 1.88
BASF India 0.00 0.00 NA 0 1.11
Camlin Fine Sciences 0.00 0.02 NA 2 9.18
GHCL 0.00 0.01 NA 1 5.35
Navin Fluorine 0.00 0.04 NA 4 22.88
Orient Refractories 0.00 0.01 NA 1 3.49
SRF 0.19 0.09 -55% -10 45.38
Tata Chemicals 0.00 0.01 NA 1 3.98
Vinati Organics 0.00 0.01 NA 1 3.36
Cash 0.00 0.00 NA 0 1.45
Source: Emkay Research
Analyst: Rohit Sinha
* Not under coverage: Equal Weight
Contact Details
rohit.sinha@emkayglobal.com  High Conviction/Strong Over Weight  High Conviction/Strong Under Weight
+91 22 6612 1306 Sector portfolio NAV

Sector Base Latest
Speciality Chemicals 01-Apr-19 09-Mar-20 09-Sep-20 09-Dec-20 08-Feb-21 10-Mar-21
Analyst bio EAP - Speciality Chemicals 100.0 133.2 151.4 200.7 203.4 219.3
Rohit Sinha holds a CFA degree and BSE200 Neutral Weighted Portfolio (ETF) 100.0 132.1 146.7 192.7 200.3 201.3
comes with total four years of experience *Performance measurement base date 1st April 2019
in the Specialty Chemicals sector. He Source: Emkay Research
currently covers nine stocks in the Price Performance (%)

Specialty Chemicals space. 1m 3m 6m 12m
EAP - Speciality Chemicals 7.8% 9.3% 44.9% 64.6%
BSE200 Neutral Weighted Portfolio (ETF) 0.5% 4.4% 37.2% 52.4%
NAV chart
NAV
225
198
171
144
117
90
Apr-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21
EAP - Speciality Chemicals BSE200 Neutral Weighted Portfolio (ETF)

Please see our model portfolio (Emkay Alpha Portfolio): Nifty

Please see our model portfolio (Emkay Alpha Portfolio): SMID
“Emkay Alpha Portfolio – SMID and Nifty are a supporting document to the Emkay Alpha
Portfolios Report and is updated on regular intervals”
March 14, 2021| 20

Emkay Rating Distribution

Ratings Expected Return within the next 12-18 months.
BUY Over 15%
HOLD Between -5% to 15%
SELL Below -5%
Completed Date: 14 Mar 2021 16:53:41 (SGT)

Dissemination Date: 14 Mar 2021 16:54:41 (SGT)
Sources for all charts and tables are Emkay Research unless otherwise specified.
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Laxmi Organics IPO Note - 140321 - Emkay

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Laxmi Organics

India Equity Research | Speciality Chemicals

Refer to important disclosures at the end of this report

Capital raise to help diversify into

Exhibit 1: Laxmi Organics: Shareholding structure

Promoters 215.34 95.7 215.3 89.5 192.3 72.9

Exhibit 2: Snapshot of share capital structure and capital raise

Fresh Issue (FI) of Rs3bn

OFS of 23.25mn shares

Pre issue shares outstanding 240.5mn (including pre-IPO private

Promoter and promoter group

Exhibit 3: Timetable for listing

March 14, 2021 | 2

Exhibit 4: Objects of the issue

March 14, 2021 | 3

20,000 35% 2,000 12%

Revenues (Rsmn) Growth % EBITDA (Rsmn) EBITDA margin %

Source: Emkay Research, RHP Source: Emkay Research, RHP

1.0 0.9 30.0 26.5

0.6 20.0 17.5

Net Debt/Equity RoCE RoE

Source: Emkay Research, RHP Source: Emkay Research, RHP

6,000 5.02 2,70,000 2,37,550 2,39,365 2,39,365 80%

Source: Emkay Research, RHP Source: Emkay Research, RHP

Source: Emkay Research, RHP Source: Emkay Research, RHP

March 14, 2021 | 4

Source: Emkay Research, RHP

March 14, 2021 | 5

Superior opportunities post commercial establishment of Miteni Assets

The planned products will cater to industries such as pharmaceuticals, agrochemicals,

Source: Emkay Research, RHP

Source: Emkay Research, RHP

March 14, 2021 | 6

Capacity addition and long-term contracts boost topline visibility

Jarandeshwar Distillery FY18 FY19 FY20

March 14, 2021 | 7

Source: Statista, Emkay Research, Industry

Source: Aarti Industries A.R. 2019, Emkay Research

March 14, 2021 | 8

Source: Emkay Research, RHP

50,000 34,320 10,500 29,200

Source: Emkay Research, RHP

March 14, 2021 | 9

Upside on margin post asset expansion

AI division SI division RoE %

Source: Emkay Research, RHP

Glacial Acetic Acid (Rs/kg) EBITDA margins %

Source: RHP, Emkay Research, Bloomberg

March 14, 2021| 10

Source: Industry, Emkay Research

Fluorine based Others

Source: Industry, Emkay Research, RHP

March 14, 2021| 11

Acetyl Intermediates is a volume-driven segment

Source: Emkay Research, RHP

2019 2020 2021E 2022E 2023E 2024E

Source: Emkay Research, RHP

Source: Emkay Research, RHP

March 14, 2021| 12

Specialty Intermediates, product mix to drive margin gains

SI sales (Rsmn) SI production (mtpa)

Source: Emkay Research, RHP

FY18 FY19 FY20 H1FY21