Why Laxmi Organic Share Price is Falling

Laxmi Organic Industries, an Indian specialty chemical company, has experienced a significant decline in its share price, extending its downtrend for the sixth consecutive session on 19 May 2023.

Over the past five days alone, the stock has fallen around 8%. Despite being part of an industry that has gained importance during the pandemic and shown substantial growth in the recent past, the chemical sector is currently facing numerous challenges.

Factors such as high energy costs, rising freight expenses, and soaring raw material prices have put immense pressure on the margins of even the strongest chemical stocks in India.

As a result, Laxmi Organic Industries has suffered a loss of more than 16% in its share price since the beginning of 2023.

Here is what triggered the recent fall.

Weak earnings performance

Laxmi Organic Industries reported weak earnings results, contributing to the decline in its share price.

In the March 2023 quarter, the company reported a 21.5% YoY decline in revenue, amounting to Rs 7.1 billion (bn) compared to Rs 9.1 bn in the same quarter the previous year.

The net profit for the quarter stood at Rs 259.5 million (m), marking a 36.7% YoY decrease from Rs 410.4 m in the corresponding quarter last year. This decline can be attributed to higher coal prices and increased depreciation during the quarter.

However, on the operating front, earnings before interest, taxes, depreciation, and amortization (EBITDA) showed improvement, reaching Rs 734.2 m, a 20.6% YoY increase from Rs 60.8 bn in the same quarter of the previous year. This improvement was driven by an enhanced product mix.

On an annual basis, the company's financial year 2023 also presented weak earnings. The revenue for the year amounted to Rs 28.1 bn, which was 9% YoY lower than the previous year due to lower realization.

The consolidated EBITDA for the year was Rs 2.6 bn, reflecting a 33% YoY decline compared to the financial year 2022. This decline was influenced by higher power and fuel costs resulting from a steep increase in coal prices, which rose nearly 40% YoY.

The profit after tax (PAT) reached Rs 1.2 bn, indicating a 52% YoY decrease due to the decline in top line and EBITDA and a Rs 240 m increase in depreciation.

Nevertheless, the company was able to counter some of the challenges through its diverse industry and customer base, effectively mitigating the impact of headwinds, particularly the drop in demand experienced in Europe during the second quarter of the previous fiscal year.

Long-term outlook

Going forward, it intends to expand its specialty intermediates business by emphasizing innovation and making substantial investments in research and development (R&D).

Further, it plans to gradually commission its newly acquired fluoro-intermediate section, obtained from Miteni, at a new facility in Maharashtra. The commissioning process will take place in phases, with Phase 1 already underway.

Furthermore, the company has identified several adjacent opportunities in their R&D pipeline that will necessitate investments in large-scale plants.

The demand is also expected to be aided by China plus one strategy of companies and the government's Atmanirbhar Bharat Abhiyan to reduce the dependence on chemical imports and make India more self-reliant.

How Laxmi Organic shares have performed recently

Laxmi Organic share price is down 17.3% in 2023 so far. In the past one year, the shares have delivered a negative return of 28.9%.

In the past month, shares of Laxmi Organic have declined by 13.8%.

Tata Steel touched its 52-week high of Rs 395.8 on 15 September 2022. Its 52-week low was Rs 220.5 touched on 29 March 2023.

It is currently trading at a PE (Price to Earnings) multiple of 50.6x, while PB (Price to Book) ratio stands at 4.6x.

About Laxmi Organic Industries

Laxmi Organic Industries is an Indian speciality chemical company that operates in the fields of agrochemicals, pharmaceuticals, and intermediates.

The company manufactures and supplies a wide range of chemical products, including ethyl acetate, acetaldehyde, speciality ketones, and other solvents.

Laxmi Organic Industries is known for its strong focus on research and development, enabling the company to develop innovative and high-quality products.

It has a diverse customer base, serving industries such as agriculture, pharmaceuticals, and flavours and fragrances. The company has a global presence and exports its products to various countries.

With a commitment to sustainability and environmental responsibility, Laxmi Organic Industries follows stringent quality standards and practices.

For more details, see the Laxmi Organic Industries company fact sheet and quarterly results.

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