Laxmi Organic Industries IPO opens for subscription: Should you subscribe for listing gains?

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The Rs 600-crore initial public offering (IPO) of Laxmi Organic Industries subscribed over 80% on the first day of the offer so far. The public offer has received bids for 2.70 crore shares at around 12.30 pm against the total issue size of 3.25 crore shares.

The speciality chemicals manufacturer on Friday said it has garnered Rs 180 crore from anchor investors. The anchor investors are 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 and ICICI Prudential Mutual Fund, among others.

The initial public offer (IPO) comprises fresh issuance of shares aggregating to Rs 300 crore and an offer for sale worth Rs 300 crore by the promoter Yellow Stone Trust. The price band has been fixed at Rs 129-130 per share for the IPO, which will close on March 17.

Half of the issue has been reserved for qualified institutional buyers, 35% for retail investors and 15 % for non-institutional bidders. The Mumbai-based Laxmi Organics is a leading manufacturer of acetyl intermediates and speciality intermediates. Net proceeds from the issue will be utilised for setting up a manufacturing facility for fluorospecialty chemicals, working capital requirements, purchase of plant and machinery and upgrading existing units.

Laxmi Organic’s plans to go to market gathered steam after the recent success and fundraising by speciality chemical companies — Rossari Biotech and Chemcon Specialty Chemicals — which were subscribed almost 80 times and 149 times, respectively.

Market analysts are positive on Laxmi Organic Industries IPO. Here’s what they have to say.

Arihant Capital: Subscribe

At the upper price band, the issue is offered at P/E of 45.5 times to its FY20 EPS of Rs 2.9, the stock looks expensive given a higher share of commodity products in the product portfolio. The company is going through expansion with IPO proceeds, speciality portfolio share to increase, increased product portfolio and higher focus on R&d with niche product pipeline. The brokerage recommends booking gains post listing and re-enter at lower levels.

Choice Broking: Subscribe with caution At higher price band of Rs 130, the company is demanding a P/E valuation of 77.2x (to its restated FY20 EPS of Rs. 1.7), which is at a significant premium to the peer average of 43.4x. However, if we annualize the H1 FY21 EPS, the demanded valuation P/E comes out to be 37.7x. Considering the historical performance, the issue seems to be aggressively priced.

Motilal Oswal: Subscribe

Motilal Oswal likes Laxmi Organic given its leading position in the space present, wide product portfolio, strong client relationship and high entry barriers. The company is expected to witness strong growth for next 2-3 years given its recent completion of major capex, inorganic acquisition of YCPL which would further strengthen its position in ethyl acetate, entry into higher-margin fluorospecialty products and strong sectoral tailwinds. The issue is valued at 37.7x FY21 P/E and 1.8x FY21 EV/Sales on an annualised and post issue basis. Though, the valuation appears fully priced, in the current scenario market prefers emerging growth stories.