Soumya Agrawal

PRN No: 20020942063

Business Valuation Assignment

Laxmi Organics Industry Ltd is a specialty chemical manufacturer that operates

majorly in two business segment one is Acetyl Intermediates (AI) and other is
Specialty Intermediates. It is the leading manufacturer of ethyl acetate with
over 30% market share and only manufacturer of diketene derivatives in India.
Laxmi Organic Industries is a leading manufacturer of Acetyl intermediates
include ethyl acetate, acetaldehyde, ethanol in petroleum and other solvents
during specialized intermediaries form ketene, diketene derivatives which
include esters, acetic anhydride, amides, arylides and some other chemicals.
This company products find application in a variety of high-growth industries,
including pharmaceuticals, agrochemicals, dyes and pigments, inks and
coatings, paint, printing and packaging, flavors and perfumes, pastes and used
in other industries applications.

Business: Manufacture of basic chemicals

Incorporated: 1989

Chairman: Ravi Goenka

Managing Director: Ravi Goenka

Listing: NSE: LXCHEM, BSE: 543277

Headquarters: Raigad, Maharashtra

a) Analyze mission and vision of the company
The Vision statement of the company states that in the long run is to
become a leading manufacturer of coordinators and API in India by
providing high quality of innovative products. To become a growth
partner, you can choose from in the life sciences, health sciences and
pigment industries.
The Mission statement of the company states that it wants to provide
customers complete satisfaction has gained leadership in selected
markets, products and services in the domestic and international
markets with new technologies.
b) Management structure
Laxmi Organic's organizers are Ravi Goenka and the Yellow Stone Trust,
which held a total of 19,99,38,282 shares in total, it nearly represents
83.10 percent of the company's total revenue.

 Goenka is the Chairman and CEO of the company.

 Satej Nabar is the CEO and Chief Executive Officer of the company.

 Harshvardhan Goenka is the Managing Director - business development

and company strategy.

 Rajeev Goenka is the Managing Director of the Company, while Mansh

Chokhani, OV Bundellu, Sangeeta Singh and Rajeev Vaidya are
independent directors on the board.
 Partha Roy Chowdhury is the CFO and President – Corporate.

c) Product mix
Company’s products are currently divided into 2 broad categories,
namely the Acetyl Intermediates (AI) and the Specialty Intermediates
(SI). The Acetyl Intermediates include ethyl acetate, acetaldehyde, fuel-
grade ethanol and other proprietary solvents, while the Specialty
Intermediates comprises of ketene, diketene derivatives namely esters,
acetic anhydride, amides, arylides and other chemicals. They have
dedicated manufacturing facilities especially available for each AI & SI
with combined installed capacity of 239,365 MTPA.
Acetyls are used as intermediaries for many types of applications such as
solvents, adhesives, water-based paints, wood, dyestuff, emulsifiers, etc.
The global acetyl market is currently looking at the present estimates
expected to grow by 6.4% CAGR over the next five years due to a strong
demand arising from final use. The acetyl market is estimated at US $
13.4 billion by 2019. Looking at the current trends it is expected reached
US $ 18.3 billion by the 2024.

Ethanol is used as a basic raw material or platform for the production of

acetyls and is made extensively by the fermentation route, another
route to perform gasification. Ethanol acetyls include several similar
products acetic acid, acetaldehyde, ethyl acetate, etc.
Acetyls market value chain
The acetyl series forms the various building blocks used production of
acetyl intermediates used in the manufacture special products used in
many industrial applications and business segments.

Global acetyl market by end use application

The Asia-Pacific market dominated the global acetyls market in 2019 due
to in increasing demand from end use as inclusion, adhesives, sealants
and elastomers, food and beverage and parts of medicines.

Ethyl Acetate
The global ethyl acetate market is expected to grow at a higher CAGR
 4.5% over the next ten years in terms of volume. Ether ethyl acetate
The market is expected to grow from ~ 4 MMT in 2019 to ~ 5 MMT by
2024E, Regarding the use that led to the search from the APAC region.
Ether ethylthe acetate content was ~ 5 MMT in 2019 with energy
consumption at ~ 80%.
Ketene derivatives market: Acetic anhydride
Acid anhydride is a clear, colorless liquid fragrance and is widely used in
the manufacture of pharmaceuticals, industrial chemicals, polymers,
flavors and perfumes, dyes, etc.
Diketene derivatives market
The global market for duct products is estimated to be close
US $ 1-1.2 billion in 2019. The volume was approximately estimated to
be around between 0.4 MMT and 0.45 MMT in 2019 and is expected to
grow around 0.5-0.55 MMT by 2024 grows at CAGR of ~ 4%.

d) Life cycle stage of the firm

The life cycle of a product or a service or any business is concerned
mainly with four stages:
1. Introduction: when the product or the service is introduced in the
market after development for consumption or usage
2. Growth: the stage after the introduction of the product or the service
where the consumer is aware is of the same, where advertising and
promotion come into the mix to keep the product or service relevant in
the market and a part of the conversation
3. Maturity: the stage where the product adapts to competitive pricing,
distribution and promotion of competitor’s product differences are
intensely taken up.
4. Decline: last stage of a product if it’s not able to redesign itself.
1989 – Incorporated as Laxmi Organic Industries Limited, a limited public
company.
1992-Export of the first plant to Raigad for production glacial acetic acid
1996- initiated production of ethyl acetate.
2004-Investment in a renewable energy source for the exploitation.
2008- Increasing investment by the river used in Jarandeshwar.
Expansion of ethyl acetate capacity over 50,000 MT.
2010- entered the Specialty Intermediate business by acquiring the
business of Clariant’s diketene.
2011-acetate volume increased by more than 120,000 MT. Diketene's
acquisition capacity has grown to more than 13,000 MT.
Set up an DSIR-approved R&D center in our SI production facility.
2012-Investment by International Finance Corporation in
Equality and debt.
2013- Services in the Netherlands and Dubai and construction of stock
points in Europe.
2018-Investment in energy project at Yedgaon.
2019-Set DSIR accredited Rabale Establishment Center.
2021-Ethyl acetate energy expansion by acquiring Yellowstone Chemical.
 a) Past 10 years growth trends
Market cap Rs. 14,866.63 Cr
Revenue (TTM): Rs. 1,768.5 Cr
Earnings (TTM): Rs 127.06 Cr
Cash: Rs 541 Cr.
Total Debt: Rs. 141.09
Promoters’ ownership: 72.92%
Liquidity: High
52 Week range: Rs. 143.25-628.05
Face value: Rs. 2
Shares outstanding: 26,36,62,773
Key Ratios and Highlights

Growth (%) 1- Year 3 - year 5-year

Key Ratios (%) 3- year 5- year
Revenue 15.27 8.74 11.06
Operating
Margin 10.26 10.68
Operating profit 84.97 13.22 22.19
Net Margin 5.44 5.68
Net Profit 80.9 18.55 36.69
Return on
Equity 16.97 19.87
EPS 54.69 -26.62 2.55
Return on
Capital 18.47 20.3
Book Value 105.95 -13.62 0.81

10 years Aggregate:
CFO – 318.06 Cr
EBITDA: 1,135.62 Cr
Net Profit: 534.04 Cr
 Company is beating 3 Year Revenue CAGR – annual growth of
15.24%
It outperformed its 3-year CAGR of 8.66%
Company has spent less than 1% of its operating revenues
towards interest expenses and 5.25% towards employee cost in
year ending Mar 31,2021.
Company has good profit growth of 36.77% CAGR over last 5
years.
The company has carried a poor sales growth of 11.06% over past
five years.

b) Prospects and challenges – based on various reports

 The ongoing impact of the COVID-19 outbreak could have a
significant impact on LOIL's performance, and could have a
negative impact it affects its business, revenue, financial status
and operating results were also affected due pandemic situation
across the country.
 Most of the LOIL production facilities are located in one place,
therefore, any social, environmental disturbances disaster or
service breakdown or any other natural disaster in Mahad and
surrounding areas, Maharashtra or any other product disruption,
or the closure, of its Manufacturing Areas could have a material
impact on the business and financial state.
 LOIL is in the process of establishing a proposed fluorosppecialty
chemical manufacturing facility. Such fluorosppecialty chemical
new product line, cannot be accepted by customers and / or may
not be profitable or profitable protects its investment, which
 could have a negative impact on expectations, growth,
performance results and financial conditions.
 Any failure on the part of LOIL to manage growth or implement
strategies effectively may have a negative impact on business,
performance results and financial situation.
 If LoIL's research and development efforts fail, it may not be able
to improve its existing products and / or introduce new ones.
 Any increase in the cost of raw materials or other purchases or
shortages of supply of goods, may affect prices and supply of LOIL
products and have a negative impact on business, operating
results and financial position.
 The bulk of the income and expenses and other LOIL loans are
defined in foreign currencies. Like as a result, it is exposed to
foreign exchange risks that could adversely affect performance
results. Most profit depends on global prices for LOIL products.
Any significant decline in world prices for its products could
negative effects on its business, performance results and financial
situation.
 Any failure or delay in payment by a significant portion of LOIL's
customers, may have a negative impact on cash flow, results
performance and financial situation.
 The global scope of LOIL activities exposes you to the risks of
doing business abroad, including constantly changing economic,
regulatory, social and political conditions in the areas in which
they operate and want to work, which may work adversely affects
business, financial status and performance results.
c) Demand and supply analysis, comparative analysis with its peer group,
Competitive analysis, Major competitors
Leading producer of ethyl acetate with significant market share: Global
ethyl acetate market is expected growth rate more than 4.5% CAGR over
the next decade in volume and is expected to grow from ~ 4 MMT in the
calendar year 2019 to ~ 5 MMT for the calendar year 2024.
The only Indian manufactured manufacturer of diketene with a large
market share and one of the largest production positions of diketene
products is estimated to be between 0.4-0.45 MMT in 2019 and
according to the current estimates it is expected to grow to 0.5-0.55
MMT by 2024 growing in the CAGR ~ 4%.
Various customer domains in growing industries and long-term
customer relationships: LOIL products find application in a wide range of
growth industries including pharmaceuticals, agrochemicals, dyes and
piglets, inks and packaging, paint, printing and packaging, flavours and
perfumes, packaging and other applications industrial applications.
Strategically located manufacturing facilities, vertical integration and
supply chain efficiencies: LOIL currently has two high-end production
facilities for Acetyl Intermediates and Specialty Intermediates and is able
to quickly import raw materials and export its products thus providing
cost and operational resources.
In-house research and development capabilities and steady track
record of technology interest: Research and development of new
products to meet customers’ requirements is a key growth driver of
LOIL’s business.
 Global presence and low geographical concentration: In addition to
India, Laxmi Organics has customers globally over 30 countries including
China, Netherlands, Russia, Singapore, United Arab Emirates, United
Kingdom and United States of America.
Differentiated business model, asset base, product mix and experience
in handling complex chemistries create high entry barriers: LOIL's
industry has high barriers to entry due to some complex chemical
involvement in the manufacture of its products and the need to register
as a supplier after the proper suitability of certain products and
customers, especially customers in the pharmaceutical and agricultural
industries.
Experienced promoter, board of directors and key managerial
personnel: LOIL has a strong and knowledgeable Board, supported by
highly efficient heads and key management executives who participate
and participate in their strategies, operations and business
development.
Peer Comparison
Given below is the competitor analysis of Laxmi Organics between
Pidilite Industries Ltd., SRF Ltd, Aarti Industries Ltd, Deepak Nitrite Ltd,
Atul Ltd on various parameters like Current market price, Price to
Earnings Ratio, Market Capitalization, Dividend Yield, Sales and Book
Value respectively.

Div. Book
Name CMP P/E Mar.Cap Yld Sales Value
(NSE) (Crs) (%) (Crs) (Rs)
PIDILITIND 2,461 95.17 1,25,011 0.35 1,626 109
SRF 11,577 61.67 68,637 0.21 2,180 1,062
AARIIND 1,081 65.94 39,201 0.13 1,314 127
DEEPAKNTR 2,868 91.85 39,136 0.19 527 135
ATUL 10,446 45.99 30,813 0.19 1,038 1,254

Pidilite Industries Ltd- An adhesive monopoly strength lies making innovative

adhesive products according to needs of customer.

SRF limited – multi business chemicals conglomerate engaged in

manufacturing industrial and specialty intermediates.

Aarti Industries Ltd-It has global footprint and leading Indian manufacturer of
specialty chemicals and pharmaceuticals.

Deepak Nitrite Ltd- produces a spectrum of chemicals, including

Agrochemicals, Colourants, Rubber, Pharmaceuticals, Speciality & Fine
chemicals.

Atul Ltd- manufacturing dyes and dye intermediates agro-chemicals aromatic

like para-Anisaldehyde epoxy resins and pharma intermediates.

Segment wise revenue

Key plant capacities of Ethyl Acetate in India
Revenue from Operations:

The Company earns revenue primarily from sale of Chemicals. Laxmi Organic
Industries is a specialty chemical manufacturer, focusing on two key areas
Acetyl Intermediates and Specialty Intermediates. Revenue is recognized when
transferring control over products or services promised to customers at a price
that reflects the Company's consideration for exchanging those products or
services. Revenue is recognized to the extent that economic benefits will flow
to the Company and revenue can be measured reliably, regardless of when the
payment is made.
Revenue is recognized in the period in which the obligation to act in
connection with the sale of chemicals or the provision of services to the
Customer is the period during which the customer receives the goods and
services. Revenue from related entities is recognized based on their fair value.
Revenue is measured at the fair value of the consideration received or
receivable, after deducting any trade discounts, volume discounts, refunds for
transfer of controls in respect of ownership to the consumer who normally
sends goods or any other taxes or services. Collected in the name of the
Government levied on sale as Income Tax (GST). Discounts offered include
discounts, discounts and other benefits offered to customers. No financial item
is currently taken as the sale is made at the time of payment that is consistent
with market performance. Income from employment is recognized when all
relevant activities have been completed and the right to earn money has been
established. This applies in the case of service services provided by the
Company to customers. A company divides revenue from the sale of goods or
the provision of services to customers according to product categories,
environment and customer category.

FY18 FY19 FY20 H1FY21

Revenue (in Rs Revenu
Cr.) Revenue % Total Revenue % Total Revenue % Total e % Total
Sales/ Rendering:
15,527.7 15,217.1
Products 13,822.10 99.20% 0 99.00% 0 99.20% 8,060.20 99.10%
Services 26.8 0.20% 66.3 0.40% 52.3 0.30% 35.2 0.40%
15,269.4 8,095.6
13,848 99.40% 15,593 99.40% 0 99.50% 0 99.50%
Other
Operating
Revenue 81.9 0.60% 91.3 0.60% 71.8 0.50% 38.4 0.50%
100.00 100.00 8,134.1 100.00
Total 13,930.70 % 15,685.2 % 15,341.2 100% 0 %

Product
Segments
Acetyl
Intermediates 410.4 55.40% 801.9 59.30% 883.6 62.20% 621 49.20%
Specialty
Intermediates 224 30.20% 434.7 32.20% 452.7 31.90% 408.5 32.40%
Others
(including
traded goods) 106.9 14.20% 115 8.50% 83.4 5.90% 232.2 18.40%
Revenue from
sale of
manufactured
products and 100.00 1,261.6 100.00
services 741.2 % 1,351.50 100% 1,419.70 100% 0 %

Geography
10,010.0 10,390.8
India 9,914.80 71.60% 0 64.20% 0 68.00% 4,979.40 61.50%
International 3,934.10 28.40% 5,583.90 35.80% 4,883.80 32.00% 3,116.20 38.50%
100.00 15,593.9 15,274.6 8,095.6 100.00
Total 13,848.90 % 0 100% 0 100% 0 %

Swot analysis
Strengths
 Growing Net Profit with Increasing Margin Profit (QoQ)
 Quarterly Profit Growth in Increasing Margin Profit (YoY)
 Low debt company
 Rising Income Quarterly in the last four quarters
 Company with Zero Promoter Pledge
 Companies with rising profit margins - quarterly and TTM

Weakness
  The shareholders have decreased their MFs last quarter over 190% for
the 6.4 years.
 The company has declining Net Cash Flow i.e., companies are not able to
generate net cash.
 Companies with growing costs Year on Year for long term.

Opportunities
 Rising Delivery Percentages compared to previous day.
 Highest Recovery from 52 Week low.
 Companies with a 10% increase in stock prices over three months,
with a growing profit margin.
 Companies that have seen improvements in total profit, operating
income limit and revenue in the last quarter.
Threats
 Increasing trend in non-core Income
 Stocks with high PE (PE>40)

Potters five forces model

1. Rivalry among existing players – When the competition is intense it becomes

difficult for existing players such as Deepak Nitrate, Aarti industries etc to get a
sustainable profit. High rivalry in market share. Scale economies are high, so there is
a lot of competition in price strategies. Maintenance costs are high and current costs
also are high.
2. Threat of new entrants - If there is a strong threat of new entrants then current
players will agree to earn a small revenue to reduce the threats. New Chemical
Entrepreneurs - Major Diversified introduces new products, innovations and
pressures to Laxmi Organics through a low-cost strategy, cost reduction, and offering
value propositions to customers. Laxmi Organics must manage all these challenges
and create effective barriers to protect its competitive edge.

3. Bargaining power of suppliers of Laxmi Organics - If suppliers have a strong

bargaining power, then they will issue a higher value to Laxmi Organics. All
companies in the Chemical - Major diversified industry buy their raw materials from
many suppliers. Top providers can reduce the number of Laxmi Organics genes it can
find on the market. Powerful suppliers in the field of basic materials use their
bargaining power to produce high prices in the Chemicals - Major Diversified field.
The general effect of the high power of the supplier transaction is that it reduces the
overall profitability of the Chemicals - Major diversified.

4. Threat of substitute products and services - If the risk of replacement is high

then Laxmi Organic should continue to invest in R&D or risk losing out to disruptors
in the industry. Consumers need the same type of chemicals to use them. Changing
the chemical composition involves a lot of R&D costs.

5. Bargaining power of buyers of Laxmi Organics – If buyers have more

bargaining power, then they tend to lower prices and thus reduce the ability of
Laxmi Organics to achieve sustainable profits. Chemicals are a major
contributor to the company. The switching costs of providers are high, due to
long-term contracts. Chemical products are not extremely distinguished. The
chemical industry has many end users.

Long term prospects for the firm

In June 2019, the company acquired assets including plant and
equipment, paperwork and registration, REACH registration and
copyright in Miten, manufacturer of organic fluorosppecialties and
electrochemical fluorination for the purpose of entering the chemical
business of fluorosppecialty and leverage its experience and skills. The
company too secured 14 patents, 41 REACH registrations and all
formats, production and storage data and research and development
data through this discovery. It aims to take stock of the given Mitati
market existing chemicals and past customer base. A capex of 230-The
250 crore and turnover of this business will be about 1.3x. This plant is
expected to be shipped by Q4FY22.