PL Stock Report: Laxmi Organic Industries (LXCHEM IN) - Q2FY24 Result Update – Performance disappoints yet again - REDUCE

Laxmi Organic Industries (LXCHEM IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: REDUCE | CMP: Rs254 | TP: Rs220

Q2FY24 Result Update – Performance disappoints yet again

Quick Pointers:

§ EBITDA at Rs389mn (missed estimates by 22%), while bottomline impacted by higher depreciation and tax expense.

§ Fluorochemicals (FI) Phase 2 & 3 to be commissioned from FY24 end.

Laxmi Organic Industries (LXCHEM) reported weak performance across business segments sequentially (Rev/EBITDA/PAT down 11%/49%/72%) primarily led by drop in realisations. We have cut EPS estimates by 20.9%/10.3% for FY24E & FY25E as we anticipate near term headwinds given (1) delayed revenue generation from Fluorochemicals project (2) slower than expected growth in Specialty Intermediates (SI) on persisting demand weakness in key applications, and (3) continued pain in agrochemicals business. Specialty Intermediates and Acetyls will remain LXCHEM’s core businesses in the medium term, while Fluorochemicals will be a long term earnings driver, in our view. Maintain ‘Reduce’ rating with SOTP based TP revised lower to Rs220 (Rs252 earlier; implied consol FY25E EV/EBITDA of 10x and PE of 25x).

§ Consolidated revenue at Rs6.5bn (0% YoY/ -11% QoQ; PLe ~Rs7.4bn), declined due to lower RM acetic acid. Volumes across business grew 30% YoY. In H1FY24, robust volume growth mitigated the impact of drop in realizations for essentials business (acetyl business), while product mix of specialty improved profitability for the period.

§ EBITDA margin declined 6% (vs 10.5% in Q1FY24; PLe 9.9%), on account of drop in gross margins. Margins improved to 6% vs 4.4% in Q2FY23 due to drop in overheads (-10.9% YoY). EBITDA stood at Rs389mn (+36% YoY/ -49% QoQ).

§ PAT at Rs108mn (+25% YoY/ -72% QoQ; PLe Rs356mn) was impacted by higher depreciation (+62% YoY/ +31% QoQ) and higher effective tax rate at 39% in the quarter vs 15% for Q2FY23 and 31% in Q1FY24.

§ Net debt to Equity improved to 0.11x (not including QIP amount) from 0.19x & 0.28x in Q1FY23 & FY23 respectively.

§ Concall takeaways: (1) Specialties business accounted for 28% of revenues in Q2FY24 vs 35% in FY23, while Essentials business contributed 72% in the same period. (2) For the quarter, topline was driven by volume growth both YoY & QoQ while realizations impacted the business. (3) Higher imports help in improving cash-flow from operations. (3) Working capital days improved in H1FY24 on account of lower inventory days and higher payable days. (4) Market share from Diketene derivatives in India is retained at ~50% (5) Essentials business impacted by RM, while specialties business margins was impacted by destocking & change in product mix (6) CFO for H1FY24 stood at Rs 3.1bn driven by improvement in Working capital days and unlocking of assets (7) For the Dahej facility, revenues to come from FY25E end while for FY26E it will see 75% utilizations (7) For H1FY24, volume growth stood at 20% YoY primarily from domestic markets; Exports markets for eg: European market had weak demand, while in North American market construction sector remains impacted. (8) Management expects FI revenue to be ~Rs 2bn in FY26E.

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