Laxmi Organic Industries (LXCHEM IN) Q3FY25 Result Update

Swarnendu Bhushan

We upgrade the rating to ‘Hold’ as the stock has corrected significantly along with increased visibility on projects, which will fuel future growth. Laxmi Organic Industries (LXCHEM) reported a topline of Rs7.8bn, up 13.4% YoY and 2% QoQ, driven by 17% volume growth across both its segments. Specialty segment continues to outperform and now constitutes 70% of the overall EBITDA. We expect this share to improve further going ahead. However, the Essentials segment, which constitutes 68% of revenue, saw a degrowth in revenue sequentially. EBITDAM for this segment also decreased by 80bps sequentially due to higher acetic acid prices. The management expects the fluorochemical segment to contribute to 10% of the Rs2bn peak revenue in FY25, and to reach a peak by FY27. The company plans to invest Rs11bn and double its revenue by FY28. Agrochem side of the company continues to remain soft, while other sub-segments like pharma, printing & packaging as well as colors and pigments have seen stable demand. The stock currently trades at 32x FY27 EPS. Using SOTP, we value it at Rs237. Upgrade to ‘Hold’ rating.

• Revenue growth driven by specialty segments: Consolidated revenue stood at Rs7.8bn (13.4% YoY/ 2% QoQ) (PLe: Rs7.5bn, Consensus: Rs 7.6bn), actual topline was higher than our estimates. Specialty segment saw revenue growth of 29% YoY/ 11% QoQ, while Essentials grew by 7% YoY. 9MFY25 revenue stood at Rs22.7bn, up 9.4% YoY. Specialty segment now constitutes 32% of overall revenue vs 28% in Q3FY24 & 29% in Q2FY25, while Essentials revenue contribution decreased to 68% vs 72% in Q3FY24 & 71% in Q2FY25.
• Sequential EBITDA remained flat: EBITDA stood at Rs748mn, up 45% YoY/ 0.1% QoQ (PLe: Rs765mn, Consensus: Rs727mn). EBITDA margin came at 9.5% (vs 7.4% in Q3FY24 and 9.7% in Q2FY25), slight decrease sequentially due to higher acetic acid prices. Specialty now constitutes 70% of overall EBITDA with an EBITDA margin of 21%, and Essentials margin at stood 4.2%, down from 5.1% in Q2FY25.
• Concall key takeaways: (1) Focus on doubling revenue by FY28. (2) Pharma, printing and packaging and coating demand remained stable QoQ, and argochem demand continued to remain weak, but is expected to improve over time. (3) Acetic acid prices moderated from $450/t in Q3FY24, to $380/t. (4) Moderate increase in acetic acid pricing expected from $380/t to $410/t in Q4FY25. (5) Ethyl acetate spreads at $130-140/t; no major change expected. (6) Total volumes increased by 17% YoY. (7) Export:import mix at 36%:64%. (8) Freight cost increased during the quarter, in Q4FY25 moderation in freight visible (9) Rs905mn capex planned to expand ethyl acetate capacity by 70ktpa, to be operational in Q4FY26, Rs914mn capex to set up 70ktpa n-butyl acetate plant to be operational in Q4FY26.  (10) Capitalized Rs2.2bn of assets in Lote, which is visible in higher depreciation during the quarter. (11) Out of Rs10.5bn capex, Rs8bn allocated for Dahej and Rs0.5bn for pending Lote capex. (12) Ethyl acetate revenue will come down from 60% to 40% of revenue. (13) Revenue mix of specialty to improve going ahead. (14) 10% of peak revenue to come in Q4FY25, 40-60% in FY26 and peak revenue of Rs2bn to be achieved in FY27 for Fluorochemical.