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Laxmi Organic Industries Ltd

| Q3 & 9M FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤4th Feb 26

Summary : Laxmi Organic faced Q3 FY26 revenue and EBITDA declines due to challenging chemical markets and feedstock prices, but new capacities and projects are on track for future growth.

Management Perspective neutral : Management acknowledges the 'challenging' global chemical industry and 'subdued' spreads, but emphasizes 'self-help measures,' 'projects on track,' and 'early green shoots' in feedstock prices, indicating cautious optimism.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 revenues decreased by nearly 9% quarter-on-quarter.
  2. EBITDA was INR 50 crores, down 33% year-on-year, with PAT at INR 25 crores.
  3. Performance was impacted by subdued ethyl acetate spreads and a decline in Specialties business.
  4. One-time items included a INR 407 million litigation settlement gain and INR 38 million labor code provision.
  5. Essentials revenue declined 6% due to acetic acid prices, while Specialties revenue dropped 30% from price moderation and agro product phase-out.

Future Growth Prospects

  1. New capacities in Essentials and Specialties are coming online in Q4 and next financial year.
  2. Dahej facility Phase 1 is operational, with Phase 2 for diketene derivatives on track for Q4 completion.
  3. Lote fluoro intermediates operation is on track to achieve FY26 targets.
  4. FY27 will be the first year for Dahej diketene derivatives qualification and ramp-up, with faster ramp-up in FY28.
  5. Focus on new product development, especially for the specialty segment.

Management Insights

  1. Management is focusing on self-help measures, including productivity, commercial excellence, and cost discipline.
  2. Projects are being executed on time, within budget, and scope.
  3. The Lote facility operates in compliance with all Indian requirements and has no hazardous effluent discharge.
  4. Acetic acid prices, a key feedstock, have dropped over 20% in the last two years but showed a positive reversal in December.
  5. Dahej capex of INR 710 crores, with 65% dedicated to diketene and its derivatives, is linked to multiyear contracts.

Signs of Skepticism

  1. Management repeatedly states the need to navigate the chemical industry 'quarter-on-quarter' despite some positive signs.
  2. Specific volume data for Dahej operations was withheld, citing customer confidentiality.
  3. The recovery of Specialties EBITDA margins to 20-22% is anticipated but without a clear timeline.
  4. The impact of new capacities ramping up is expected to be gradual, with significant ramp-up in FY28.

Risk Factors

  1. Global chemical industry continues to be challenging with cost optimization efforts.
  2. Feedstock prices, like acetic acid, have seen deflationary trends, impacting spreads.
  3. One-time agro product campaign from FY25 did not repeat, causing a 5-6% decline in Specialties.
  4. Phase-out of an agrochemical intermediate contributed to a 10% decline in Specialties.
  5. Supply-demand dynamics in the commodity chemical space remain long-term.

Good To Know

  1. Employee costs increased due to additional headcounts at Lote and Dahej and annual increments.
  2. The company adopted a straight-line depreciation method, impacting financials.
  3. The Hitachi relationship is a lead partner arrangement for IP and know-how, not a joint venture.
  4. Laxmi's exposure to the U.S. market is only 10% of top-line revenue, with minimal direct tariff impact.
  5. The company has the largest portfolio of 50+ diketene derivatives globally.

Key Drivers

  1. Dahej Phase 2 completion will boost capacity.
  2. Lote fluorination operations are on track.
  3. Acetic acid prices show positive reversal.
  4. EU-India FTA offers export opportunities.

Key Analyst Discussions

Competitive Environment

  1. Discussion on the sustainability of acetic acid price rebound and its impact on ethyl acetate spreads.
  2. Inquiries about the medium-term supply-demand dynamics for acetic acid, given new capacities.
  3. Questions on the potential for Indian companies to export more to Europe due to EU-India FTA.

Market Trends & Consumer Behavior

  1. Questions about the current and foreseen trends for ethyl acetate spreads in Q4 and FY27.
  2. Inquiries about the impact of Chinese New Year on acetic acid capacities and prices.
  3. Discussion on the broader global chemical industry landscape and demand signals.

Financial Highlights

  1. Analysts questioned the recovery of Specialties EBITDA margins from 12-13% to 20-22%.
  2. Queries on the impact of one-time agro product phase-out on Specialties revenue decline.
  3. Questions regarding the current and expected volume from the Dahej facility.

Product Composition

  1. Questions on the breakup of fluorochemical business and other Specialties revenue.
  2. Inquiries about volumetric growth or degrowth in Specialties over 9 months.
  3. Clarification on whether new products will be from Mahad or Dahej facilities.

Strategic Considerations

  1. Questions on the ramp-up timeline for Dahej Phase 2 and its revenue contribution in FY27-FY28.
  2. Inquiries about the company's capacity utilization and plans for volume growth in Essentials.
  3. Questions about the progress and top-line contribution of the fluorochem project in FY26.