Laxmi Organics in expansion mode; EPS at Rs 2.86

LAXMI Organics Limited is tapping the capital markets with its fresh issue of Rs 300 crore and an offer for sale of Rs 300 crore. The issue opens on Monday the 15th March and closes on Wednesday the 17th March. The price band is Rs 129-130.

The company is currently in two business verticals where the larger business is the manufacture of Acetyl Intermediates and the second vertical is Speciality intermediates. Of the total Rs 1,530 crore revenue in the year ended March 2020, roughly 60 per cent of revenues were from the acetyl business while 40 per cent were from the speciality intermediates business. On the profit front, the company earned 40 per cent from the acetyl business and 60 per cent from the speciality business. The net profit for the year ended March was Rs 70 crore. The company has acquired the unit of Miteni of Italy who is a leading global player in the fluorochemical space. The plant is in the process of being relocated to Lote Parshuram near Mahad in Maharashtra, and would be commissioned in the second quarter of FY21.

In terms of capabilities and capacities, the company is expanding its capacity of acetyl intermediates by acquiring the business of YCPL from the promoters, for which a definitive agreement has already been signed. The deal is expected to be completed by September 2021. The capacity would increase to over 2 lakh tonnes post this acquisition. Incidentally this plant has a common wall with the existing plant in Mahad. In the speciality chemicals business, the company is the only manufacturer of diketene derivatives. It had in 2010 acquired the business from Clariant Chemicals. The company was able to shift the plant from its location at Thane to Mahad in a record period of about three months. This ensured continuity of supplies to existing customers of Clariant which came with the plant and created tremendous goodwill with the clients.

Laxmi Organics has acquired the business of Miteni Italy, to venture into the business of Fluorochemical derivatives. Miteni has a highly sophisticated research and development set up and this would come as a part of the acquisition. Japanese major Mitsubishi is also a partner with the Italian firm and would be a part of the setup with Laxmi as well. This unit is being shifted to Lote Parshuram in Maharashtra, about 70 km from the present site and would be operational in the 2nd quarter of FY22 with an installed capacity of 13,820 Mts.

This division would be making high margin Fluoro Speciality chemicals and would have a library of over 100 products to start with. This is a much higher margin stream and would help the company improve its blended margins significantly. Competition in this field is fairly limited as well. Though Navin Fluorine is a player in the space it is not a competitor as the products manufactured are different.

Laxmi Organics has earned an EPS of Rs 2.86 for the year ended March 20, which has improved significantly to Rs 2.02 for the half year ended September 2020. There is virtually no seasonality in the chemical industry and typically the two halves of the year are fairly similar in nature. The PE ratio of the company is 45.10 to 45.45 based on full year March 2020 numbers.

If one were to annualise the six months results the PE ratio would drop significantly to 31.93-32.17 times. Considering the importance of speciality chemicals and fluorochemicals going forward and the stance being adopted against China where China plus one is becoming a norm, Laxmi Organics is well poised to reap the benefits going forward. It has the new fluorochemicals plant slated for production in less than six months as well as the in-operation Acetyl Intermediate plant scheduled to be integrated into Laxmi by September 21. Investment is warranted in Laxmi considering the present performance and the future of the company.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)