Laxmi Organic IPO opens March 15, grey market premium surges over 70%; should you subscribe?

The Rs 600-crore Laxmi Organic Industries IPO will open for subscription on Monday, March 15, at a price band of Rs Rs 129-130 per share where investors can bid for 115 shares and multiples thereafter. Ahead of initial public offering, the speciality chemicals manufacturer has raised Rs 180 crore from anchor investors. According to a BSE filing, the company’s IPO committee in consultation with merchant bankers has decided to allocate 1.38 crore shares at Rs 130 to 15 anchor investors. In the grey market on Saturday, Laxmi Organic Industries shares were trading at Rs 224, implying a premium of Rs 94 or 72.3 per cent over the IPO price.

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Laxmi Organic Industries has planned to utilise the net proceeds from the issue for setting up a manufacturing facility for fluoro specialty chemicals, working capital requirement, and for the purchase of plant and machinery for augmenting infrastructure development. Analysts at Marwadi Shares and Finance Ltd said 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.34,276 million. The peers of the company namely Aarti Industries Ltd is at P/E of 24.92X and Fine Organics Industries Ltd is at 35.46X. The analysts have recommended to ‘subscribe’ to this issue as long term prospects of the stock look promising with healthy demand from the end-user industry driving revenues for this company.

Laxmi Organic Industries Ltd. is a leading manufacturer of Acetyl Intermediates and Specialty Intermediates with almost three decades of experience in the large scale manufacturing of chemicals. Ronak Kotecha, an analyst at Anand Rathi Share and Stock Brokers, has also given a ‘subscribe’ rating for long-term to it. At the upper end of the IPO price band, it is offered at 49.81x its FY20 earnings, with a market cap of Rs 3,428 crore. It also said that the company also planned to expand and optimise its capacity and product portfolio. While AR Ramachandran, Co-founder & Trainer, Tips2 Trades advised short term traders to subscribe to this issue only for listing gains even as fundamentals appear to be good.

Laxmi Organic is currently among the largest manufacturers of ethyl acetate in India with a market share of approximately 30% of the Indian ethyl acetate market. Laxmi Organic issue comprises fresh issue of shares worth Rs 300 crore and an offer for sale (OFS) worth Rs 300 crore by the promoter Yellow Stone Trust. The company in consultation with the book running lead managers to the issue undertook a private placement of 1.5 crore equity shares aggregating to Rs 200 crore. Consequently, the size of the fresh issue has been reduced from 500 crore to up to Rs 300 crore.

(The recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)