Laxmi Organic IPO to open today, should you subscribe to the issue?

Laxmi Organic Industries' initial public offer (IPO) will open for subscription today. The speciality chemicals manufacturer plans to raise Rs 600 crore through the IPO which will close on March 17. The price band for the issue has been fixed at Rs 129-130 per share. The firm has raised Rs 180 crore from 15 anchor investors on March 12. It allocated 1,38,46,153 shares at Rs 130 per share to anchor investors.

The IPO comprises fresh issue of equity shares of up to Rs 300 crore and an offer for sale of equity shares up to Rs 300 crore by promoter Yellow Stone Trust. A maximum of 50% of the net offer shall be available for allocation on a proportionate basis to qualified institutional buyers. 15% of the offer shall be available to non-institutional bidders and not less than 35% of the issue shall be available for allocation to retail investors.

The company undertook a private placement of 15,503,875 equity shares aggregating to Rs 200 crore. Consequently, the size of the fresh issue has been reduced from Rs 500 crore to up to Rs 300 crore.

Axis Capital and DAM Capital Advisors are the book-running lead managers to the issue. Shares of Laxmi Organics will be listed on BSE and NSE. The firm intends to use net proceeds from the issue for setting up a manufacturing facility for fluorospecialty chemicals, working capital requirements, purchase of plant and machinery and upgrading existing units. Besides, funds would be used for prepayment or repayment of all or a portion of certain outstanding, besides general corporate purposes.  

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Here's a look at the outlook brokerages have toward the IPO.

Angel Broking has given a subscribe call to the IPO. "Based on FY2020 earnings, the IPO is priced at a PE of 42x at the upper end of the price band along with a good ROE of 16.4%. The company is the largest manufacturer of ethyl acetate with over 30% market share in the Indian ethyl acetate market and 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," the brokerage said.

Choice Broking has given a subscribe with caution call to the share sale. In a report, the brokerage said, "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  demandedvaluation  P/E  comes  out  to  be  37.7x.  Considering  the  sectoral  tailwinds  and  demanded  aggressive  valuation, we assign  a "Subscribe with Caution" rating for the issue."

Incorporated in 1989, Laxmi Organic Industries operates in 2 business segments - Acetyl Intermediates (AI) and Specialty Intermediates (SI). It is the leading manufacturer of ethyl acetate with over 30 per cent market share in the Indian ethyl acetate market and the only manufacturer of diketene derivatives in India.

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