IPO Size: Rs. 698 cr

• Fresh Issue of Rs. 138 cr for (i) capex Rs. 69 cr (ii) debt repayment Rs. 28 cr
• Offer for Sale (OFS) of Rs. 560 cr, mainly by PE OrbiMed (reducing 46% stake held for 10 years, to 22%) and promoter (47% to shrink to 43%)

Price band: Rs. 407-428 per share

M cap: Rs. 2,352 cr, implying 30% dilution

• Only 10% retail, as company reported loss for FY23 and FY24

IPO Date: Mon 13^th Jan to Wed 15^th Jan 2025, Listing Mon 20^th Jan 2025

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Mumbai-based Dental Products Company

Laxmi Dental is a 20 year old manufacturer of ‘low-risk category’ dental products such as crown, bridges, clear aligners, serving 22,000 of 2 lakh dental clinics in India. It is a marginal player in the Rs. 16,000 cr fragmented custom-made crown and orthodontics domestic industry, with <1% market share. Exports, mainly to US and UK, accounts for 35% of topline.

Brownfield Capex

Current utilization across 6 facilities stands at ~88%. It plans Rs. 69 cr capex to more than double capacity, which is likely to come on stream in FY27E. The entire capex will be funded from fresh issue proceeds, as cash balance is barley at Rs. 1.2 cr, as of 30.9.24.

High Margin Business but Patchy Track Record

FY24 topline stood at Rs. 194 cr, split 2:1 between crowns and aligners, with aligners (particularly ‘Illusion’ brand) growing at 50% YoY, against 18% growth for crowns. While gross margin is healthy at 75%, low absorption of fixed costs led to EBITDA margin of only 13% in FY24 and a PBT margin of 4%. FY24 PAT of Rs. 18 cr includes a one-time Rs. 11 cr deferred tax adjustment. In FY23 and FY22, company clocked a net loss of Rs.4 cr and Rs. 17 cr respectively.

H1FY25 posted a turnaround in performance, with 76% gross margin on Rs. 117 cr revenue, EBITDA expanding to 26%, with 18% PBT margin. H1FY25 PAT stood at Rs. 18 cr, implying 15.5% net margin and an EPS of Rs. 4.5, against an EPS of Rs. 5 for FY24.

Expensively Priced

Mcap of Rs. 2,352 cr is steep for annual PAT of about Rs. 45 cr (FY25E).

Laxmi Dental IPO is priced at a one year forward revenue multiple of 8x and a PE multiple of 53x, on FY26E topline of Rs. 290 cr and an EPS of approximately Rs. 8. There is no exact comparable listed in India - Poly Medicure does not do dental products, with its scale and fundamentals also seen very different – Poly’s topline is 6x Laxmi’s, 70% revenue from exports, enjoying PLI benefits, 21% net margin, resilient product portfolio (did not clock loss in covid) and is therefore ruling at 68x PE. 

Laxmi can be compared with US-listed peer Align Technology, a leader in clear aligners under Invisalign brand, ruling at 4x revenue multiple and 35x PE multiple, despite USD 4 billion topline, growing annually with an established profitability track record even during covid.

Thus, for Laxmi Dental’s small size of operations and 20% expected growth, the IPO pricing offers little room for expansion.

OrbiMed had invested in the company in 2015 at <3x revenue multiple while the current ask is at 10x. Moreover, the investor’s 22% balance stake cause an overhang on stock price, post expiry of lock-in, in mid-Jul 2025.