Why Laxmi Organics is a strong Short to Medium term BUY
LXCHEM
TEN POINTS
1. Laxmi Organic Industries is a specialty chemical manufacturer, focused on two key business segments - Acetyl Intermediates (AI) and Specialty Intermediates (SI)..The company is currently among the largest manufacturers of ethyl acetate in India with a market share of approximately 30% of the Indian ethyl acetate market. Laxmi Organic exports about 25% of the manufactured products.
Additionally, it is the only manufacturer of diketene derivatives in India with a market share of approximately 55% of the Indian diketene derivatives market in terms of revenue in FY21 and one of the largest portfolios of diketene products
2. Stock gained 50% in one month only after listing -hitting a high of 628 and reported a significant jump in its net profit to ₹98.68 crore in the quarter ending June as compared to ₹18 crore in the corresponding quarter of the previous fiscal. Its revenue from operations also witnessed a massive jump to ₹689 crore from 354 crore in the year-ago quarter.
3. However massive rainfall in Pune factory forced the company to close one of its factories for some time during the SEP 21 quarter and Net profit tumbled from ~98 cr in SEP 21 to 10.3 cr in SEP 21 qtr.
4. Coupled with profit booking the stock tumbled to 385 levels.
5. After a 3 month consolidation the company seems to be turning around its limitations shown in the previous quarter.
6. On the positive side- India Ratings and Research (Ind-Ra) has upgraded Laxmi Organic Industries Limited’s (LOIL) Long-Term Issuer Rating to ‘IND AA-’ from
‘IND A+’. The Outlook is Stable, the ratings agency quoted
7. Despite 60% decline in SI volumes on qoq basis on account of 45 days shut down at SI Unit (Mahad) which caused heavy loss, Laxmi’s H1FY22 profits were close to FY21 performance led by rapid growth in specialty business and higher spreads in acetyl business during the first quarter and normalised acetyl spreads during the second quarter. There is a strong visibility on SI order book for H2FY22. Laxmi has acquired significant international accounts during Q2FY22, as 24% of SI sales were from exports as against 5% in Q2FY21.
8. Buying at current levels is recommended for a short to medium term target of 500-520 for the short term and 620 for the longer term.
9. Maintain stop loss around 430
10. Risk reward ratio of 1:3
Trade closed: stop reached:
This is a downtrending market and until the trend reverses of the overall market its better to book losses, however this means it'll present many opportunities to enter the stock.
Comment:
Laxmi Organics came out with really good Q3 numbers and after that the trade did play out and touched 501 today. There is further upside here over the next quarter.
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