Soumya Agrawal

PRN No: 20020942063

Business Valuation Assignment

OCTOBER 7

Submitted to: Dr. Deepa Pillai Mam

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Laxmi Organics Industry Ltd
It 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

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

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 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.

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.

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

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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.

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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.

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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%.

Life cycle stage of the firm

The life cycle of a product or a service or any business is concerned mainly with
four stages:

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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.

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 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

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Key Ratios and Highlights
Growth (%) 1- Year 3 - year 5-year
Revenue 15.27 8.74 11.06 Key Ratios (%) 3- year 5- year
Operating
Operating profit 84.97 13.22 22.19 Margin 10.26 10.68
Net Profit 80.9 18.55 36.69 Net Margin 5.44 5.68
Return on
EPS 54.69 -26.62 2.55 Equity 16.97 19.87
Return on
Book Value 105.95 -13.62 0.81 Capital 18.47 20.3

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.

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 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.

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  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.

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

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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.

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 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.
Name CMP P/E Mar.Cap Yld Sales Book 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.
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 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

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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.

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 FY18 FY19 FY20 H1FY21
Revenue (in Rs
Cr.) Revenue % Total Revenue % Total Revenue % Total Revenue % Total
Sales/ Rendering:
Products 13,822.10 99.20% 15,527.70 99.00% 15,217.10 99.20% 8,060.20 99.10%
Services 26.8 0.20% 66.3 0.40% 52.3 0.30% 35.2 0.40%
13,848 99.40% 15,593 99.40% 15,269.40 99.50% 8,095.60 99.50%
Other
Operating
Revenue 81.9 0.60% 91.3 0.60% 71.8 0.50% 38.4 0.50%
Total 13,930.70 100.00% 15,685.2 100.00% 15,341.2 100% 8,134.10 100.00%

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
services 741.2 100.00% 1,351.50 100% 1,419.70 100% 1,261.60 100.00%

Geography
India 9,914.80 71.60% 10,010.00 64.20% 10,390.80 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%
Total 13,848.90 100.00% 15,593.90 100% 15,274.60 100% 8,095.60 100.00%

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 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

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  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.

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 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.

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