Laxmi Organic targets earnings growth from Dahej ramp-up, specialty mix and new capacities

Investment View and Recommendation

Deven Choksey Research’s July 31, 2026 result update changes its recommendation on Laxmi Organic Industries Ltd. to HOLD. The target price of Rs 187 offers 3.3 per cent upside from the current market price of Rs 181.

The broker remains constructive on a recovery supported by Dahej Phase II, a better specialty chemicals mix, new ethyl acetate capacity and normalising customer inventories in pharmaceutical and agrochemical markets. However, it notes that the strong Q1 FY27 earnings were materially helped by unusually favourable ethyl acetate spreads, which management expects to normalise.

Q1 FY27 Financial Performance

Laxmi Organic reported Q1 FY27 revenue of Rs 9,683 million, up 39.7 per cent year on year and 31.7 per cent quarter on quarter. Exports contributed 35 per cent of revenue. Around 10 per cent volume growth, higher realisations and an improved product mix supported the performance.

Gross margin expanded to 37.5 per cent from 30.8 per cent in Q1 FY26 and 33.6 per cent in Q4 FY26, aided by inventory gains and favourable work-in-progress movements. EBITDA rose 271.8 per cent year on year and 113.2 per cent quarter on quarter to Rs 1,143 million, while EBITDA margin expanded to 11.8 per cent from 4.4 per cent a year earlier and 7.3 per cent in Q4 FY26. PAT was Rs 677 million, up 216.6 per cent year on year, and PAT margin reached 7.0 per cent.

Segment Performance and Margin Outlook

The Essentials business generated Q1 FY27 revenue of Rs 7,265 million, up 50 per cent year on year, while Specialty Chemicals revenue was Rs 2,418 million, up 17 per cent. Essentials accounted for 72 per cent of EBITDA and Specialty Chemicals for 28 per cent.

Management attributed the strong Essentials performance to pricing, procurement efficiencies and ethyl acetate spreads of about US$215 to US$220 per tonne, above the 12-year average. Essentials EBITDA margin was around 11-12 per cent compared with low single-digit margins during the downcycle. Management cautioned that spreads have moderated since May and should normalise as geopolitical disruptions ease. Essentials margins should therefore be assessed over the cycle rather than by extrapolating Q1 levels.

Specialty operating margin declined to about 13 per cent from about 24 per cent in the previous year because of higher input costs and product mix. The phased-out agrochemical intermediate, which previously represented about 10 per cent of specialty revenue, made no contribution in the quarter.

Capacity Expansion and Growth Drivers

• Management expects fluorochemicals to reach full ramp-up during FY27.
• The world-scale ethyl acetate capacity at Lote has been commissioned and is contributing to growth.
• Mahad specialty capacity remains fully utilised. Products constrained at Mahad are expected to shift gradually to Dahej.
• The Dahej expansion is expected to double diketene derivative capacity, making Laxmi Organic the third-largest global producer of diketene derivatives.
• Around 85 per cent of Dahej Phase II capital expenditure is expected to be capitalised in Q2 FY27, followed by customer qualification in Q3 FY27 and commercial ramp-up in Q4 FY27.
• Dahej is expected to become the main growth driver from FY28, with meaningful ramp-up through FY29.
• Project Vayu, the Hitachi project, is expected to achieve mechanical completion in early Q3 FY27 and begin contributing revenue in FY28.
• FY27 capital expenditure guidance is Rs 125-150 crore.

Broker Forecasts and Valuation

The broker forecasts revenue, EBITDA and PAT CAGRs of 19 per cent, 53 per cent and 62 per cent, respectively, over FY26-FY28.

The target price of Rs 187 is based on 25 times FY28E EPS of Rs 7.5, representing a one-standard-deviation premium to the prevailing 24 times FY28E EPS valuation.

Term debt has peaked at about Rs 610 crore, while net debt-to-equity is around 0.3 times. Debt repayment is scheduled to begin in FY28 over five years.

Key Risks

• Prolonged weakness in specialty chemical demand.
• Delayed ramp-up of new projects.
• Volatility in ethyl acetate and acetic acid spreads.
• Slower recovery in high-margin specialty products.
• Pressure on realisations.