Fortune Scrip

Published: Sep 30, 2022
Updated: Sep 30, 2022

LAXMI ORGANIC INDUSTRIES

Favoured by global pharma

The Indian speciality chemicals industry is passing through a golden period with not only domestic demand on the rise but overseas demand too steadily going up. The prime factor behind for this happy state of affairs is a sharp drop in supplies from China, the world’s largest manufacturer of speciality chemicals. The reasons for the drop in supplies from China are two-fold: that government’s stress on environmental protection has seen several factories shut down, while alongside the Indian government has started restricting imports from China. As a result, Indian customers who were depending on Chinese speciality chemicals have no other go but to turn to Indian manufacturers, thus pushing up the domestic demand for speciality chemicals. On the global front, with China being seen as the ‘villain of the piece’ for the worldwide spread of the coronavirus, a majority of multinationals have resorted to a ‘China+1’ policy to cut their dependence on that country. This has been a windfall for the Indian speciality chemicals industry, as Indian products are of international standards and come at competitive prices due to the low cost of production on account of cheap labour. Little wonder that Indian speciality chemicals manufacturers have started spreading their footprint overseas markets and are augmenting their production capacity.

Joining the bandwagon is Laxmi Organic Industries which focuses on two business segments – Acetyl Intermediates and Speciality Intermediates. Laxmi is a signatory to ‘Responsible Care’ – a voluntary commitment by the global chemical industry to achieve excellence in environmental health and safety. Since its inception over three decades ago, the company has maintained a constant focus on innovation, creativity and speed which have enabled it to meet new challenges and service new opportunities worldwide. Laxmi’s manufacturing facilities are located in a chemical park in Raigarh, Maharashtra – around 150 km south of Mumbai, where the company’s corporate office is situated. All its plants are state-ofthe-art and have the relevant ISO accreditations.

UP VALUE CHAIN

Starting with the manufacture of alcohol-based bulk chemicals, the company subsequently progressed up the value chain and started producing ethanol downstream while also pioneering the manufacturing of solvents in India. Due to its focus on quality and customer satisfaction, it became one of the preferred partners for pharmaceutical companies and ink manufacturers. In view of the rising demand for its products, the company has during the last decade expanded its capabilities. It also added diketine to its portfolio by acquiring the diketine division of Clariant Chemicals.

Laxmi, which initially started manufacturing acetaldehyde and acetic acid in 1992, took up the manufacturing of ethyl acetate in 1996. Its domestic marketshare is around 30 per cent. At the same time, it is the only manufacturer of diketine derivatives and has one of the largest portfolios of diketine products in the country, with a hefty 55 per cent marketshare in diketine derivatives. In 2019, the company acquired the assets, including plant and machinery design and operating paperwork, REACH registrations and patents of Miteni, a manufacturer of organic fluorospecialities and electrochemical fluorination, with a view to foraying into the fluorospeciality chemicals business. The company has also acquired the patents, 41 REACH registrations and formulations, production and maintenance data and R&D data through this acquisition.

The company is going from strength to strength on the financial front. During the last eight years, its consolidated sales turnover has almost trebled from Rs 1,074 crore in fiscal 2015 to Rs 3,084 crore in fiscal 2022, with operating profit during this period spurting by over four times – from Rs 86 crore to Rs 371 crore — and the profit at net level shooting up over 10 times – from Rs 21 crore to Rs 219 crore. Laxmi’s financial position is very strong, with reserves at the end of March 2022 standing at Rs 1,248 crore – over 23 times its equity capital of Rs 53 crore. The company’s debt is on the decline, coming down from Rs 215 crore in fiscal 2018 to Rs 139 crore in fiscal 2022. If the borrowings continue to decline at this rate, the company can be a debt-free entity within the next five years.

However we have not selected Laxmi as the Fortune Scrip this fortnight on its past laurels. Future prospects for the company are all the more promising. Consider:

• The outlook for acetyl is quite strong. This speciality chemical is used as an intermediate in a wide range of applications such as solvents, adhesives, water-based paints, pharmaceuticals, dyestuffs and emulsifiers. The global acetyl market is projected to grow at 6.4 per cent CAGR over the next five years owing to strong demand from end-use applications. The acetyl market was valued at $ 13.4 billion in 2019 and is expected to reach $ 18.3 billion by the end of 2024. The primary demand drivers of the global acetyl market include increased demand for acetyls from the drug delivery system, and increased packaging consumption throughout the globe. Today, Laxmi has clients in as many as 30 countries.
• Almost 80 per cent of global ethyl acetate demand is catered by Asia, with the region 20 Corporate India September 30, 2022 also being the largest demand centre. The North American and Europe regions are also among the large consumers. China is the largest producer of ethyl acetate followed by North East Asia and India. As China faces curbs on exports on account of environmental issues, and more and more MNCs adopt a ‘China+1’ policy for importing their requirements, there is very good chance for Indian companies like Laxmi Organics to emerge as leading suppliers. Today, India is a large exporter of ethyl acetate, mainly to Europe and MEA. What is more, overseas demand is on the rise.
• The company has a diversified customer base across high-growth industries and long-standing relationships with marquee customers. Its products find applications in a number of high- growth industries, including pharmaceuticals, agrochemicals, dyes and pigments, inks and coatings, paints, printing and packaging, flavours and fragments, adhesives and other industrial applications. Laxmi has long-standing relationships with renowned customers like Alembic Pharmacetuticals, Dr Reddy’s Laboratories, Laureus Labs, Macleods Pharmaceuticals, Mylan Laboratories, Neuland Laboratories, Suven, UPL Ltd, Syngenta Asia Pacific and Sudarshan Chemical. Its diversified customer base across various industries has enabled Laxmi to minimise the impact of industry- specific disruptions on its business. The management believes that the company’s speedy execution and timely response to customer needs, coupled with its high-quality products and innovation, have enabled it to successfully establish its market presence and nurtured its customer relationships.

EXPANSION PLAN

With a view to meeting the rising demand for its products, the company has chalked out an expansion plan. To begin with, it has acquired YCPL, which through its wholly owned subsidiary is engaged in the manufacture of acetaldehyde and ethyl acetate, with an installed capacity of 10,000 mtpa of acetaldehyde and 29,200 mtpa of ethy acetate. Further, it is in the process of increasing the installed capacity at another facility from 78,045 mtpa to 82,525 mtpa. The company proposes to set up a new manufacturing facility at Lote Parshuram in Maharashtra.

The company, which has established a strong foothold in the Indian market, has also started doing well on the export front and with increased production capacity will be able to meet rising demand in the near future. Though till today China is the largest manufacturer and exporter of ethyl acetate, it has cut its exports on account of environmental issues at home and the rising MNC trend to reduce dependence on China. At present, Laxmi exports its products to as many as 30 countries, including Russia, China, the Netherlands, Singapore, United Arab Emirates, the UK and the US. Its international operations are supported by offices in Leiden (Netherlands), Shanghai (China) and Sharjah (UAE). The company’s presence in these markets facilitates its sales marketing and business development activities and provides the company with timely insights into the product requirements and regulator environments in such markets. It also has a strong presence in Rotterdam (Netherlands), Antwerp (Belgium) and Genoa (Italy), enabling it to deliver its products at short notice.

Product-wise, Laxmi is the largest manufacturer of ethyl acetate, with a marketshare of 30 per cent of the Indian ethyl acetate market. It is also one of the largest Indian exporters of ethyl acetate to Europe since 2012. In the case of diketene derivatives, Laxmi is the only manufacturer in India, with the market valued at $ 160-170 million and expected to reach $ 200 million by fiscal 2024. Laxmi enjoys a significant marketshare (around 60 per cent) while the remaining 40 per cent is met by imports. The company has emerged as the one of the largest suppliers of diketene-based speciality intermediates in Europe. Today, Laxmi offers a very strong basket of more than 34 speciality derivatives products. Hence, the company is poised to capture the growing demand for diketene derivatives globally.