Laxmi Dental IPO review (Apply)

•    The company is one of the leading company offering comprehensive portfolio of dental products globally.
•    It posted speedy growth in its top lines from FY22 onwards.
•    It marked boosted bottom lines from FY23 onwards, indicating the future prospects.
•    Based on FY25 annualized super earnings, the issue appears aggresively priced. 
•    Investors may park funds for long term.

ABOUT COMPANY:
Laxmi Dental Ltd. (LDL) is offering a comprehensive portfolio of dental products, and is India’s only end-to-end integrated dental products company as at September, 2024. (Source: F&S Report). Its offerings include custom-made crowns and bridges, branded dental products such as clear aligners, thermoforming sheets and aligner related products as a part of aligner solutions, and pediatric dental products. It has had a presence of more than 20 years and according to the F&S Report, based on revenue for Fiscal 2024, it is amongst the top two largest Indian dental laboratories. Based on the revenue from operations and PAT Margin for Fiscal 2023 and the product offered, it is the largest and most profitable vertically integrated and indigenous B2B2C dental aligner solutions company. (Source: F&S Report). It manufactures dental products across its six manufacturing facilities spread across 147,029.63 square feet.

As per the F&S Report, in terms of retail sales, the Indian market for custom-made crowns and bridges is estimated to grow from USD 1.4 billion in 2023 to USD 3.1 billion in 2030 at a higher rate of 11.8% compared to the global market which is estimated to grow from USD 71 billion in 2023 to USD 121.6 billion in 2030 at a rate of 8.0%. The Indian dental laboratories market is characterized by the presence of fragmented and unorganized dental laboratories with less than ten technicians and a dearth of quality management standard compliant dental products. (Source: F&S Report) Changing regulatory requirements in the medical devices sector is expected to transition the fragmented and unorganized dental products and consumables market to organized and consolidated market dominated by companies focusing on quality, operational efficiency, and consumer experience. (Source: F&S Report) In terms of export revenue for the Fiscal 2023 among the Indian dental labs, it is the largest exporter for custom made dental prosthesis, catering primarily to US and UK. (Source: F&S Report) Having evolved from a dental laboratory with a few members to an integrated dental products company, it now has a presence of 20 years in the dental laboratories business with a reach of over 22,000 dental clinics, dental companies and dentists between Fiscals 2022 to September 30, 2024 (“Dental Network”).

Primary dental products offered by its laboratory include custom made dental prosthesis such as metal free crowns and bridges, including range of branded premium zirconia crowns and bridges “Illusion Zirconia”, porcelain fused to metal (“PFM”) crowns, bridges, and dentures. Metal-free products contributed to 53.70% of the total revenue from its dental laboratory business catering to the Indian market and to 36.31% of total revenue from dental laboratory business catering to international markets respectively in Fiscal 2024. It has launched iScanPro on August 9, 2024, branded intraoral scanners for digital dentistry, currently being employed by 264 dentists. Dental restoration units prepared using digital impression constituted 48.61%, by volume, of the total units sold by domestic laboratory business and constituted 55.48%, by volume, of the total units sold by international laboratory business in Fiscal 2024.

LDL has a more focused approach towards capturing the Indian aligner market share and it launched clear aligners under its brand Illusion Aligners which is the first Indian brand to receive 510(k) clearance from US FDA in 2021 to market clear aligners (Source: F&S Report). The company has adopted B2B2C business model for sale of customized clear aligner solutions while offering a flexible ‘pay as you go’ model along with the upfront payment model, making aligners more affordable to the end customers. Adoption of a B2B2C model involves sale of clear aligners through Dental Network who in turn offer dental products to end customers, which has helped it grow rapidly owing to its already established Dental Network with reach of over 22,000 dental clinics, dental companies and dentists between Fiscals 2022 to September 30, 2024. As of the said date, it had 2372 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of fresh equity shares issue worth Rs. 138.00 cr. (approx. 3224299 shares at the upper cap), and an Offer for Sale (OFS) of 13085467 shares (approx. Rs. 560.05 cr. at the upper cap). Thus the overall size of the IPO shall be of 16309766 shares worth Rs. 698.05 cr. at the upper cap. The company has announced a price band of Rs. 407 – Rs. 428 per equity shares of Rs. 2 each. The issue opens for subscription on January 13, 2025, and will close on January 15, 2025. The minimum application to be made is for 33 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 29.67% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 22.98 cr. for prepayment/repayment of certain borrowings, Rs. 4.60 cr. for investment in certain subsidiaries for repayment/prepayment of certain outstanding, Rs. 43.51 cr. for capex on new machinery, Rs. 25.00 cr. for investment in subsidiary Bizdent Devices Pvt. Ltd. for its capex on new machinery, and the rest for general corporate purposes. 

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.

The Book Running Lead Managers (BRLMs) to this issue are Nuvama Wealth Management Ltd., Motilal Oswal Investment Advisors Ltd., and SBI Capital Markets Ltd., while MUFG Intime India Pvt. Ltd. (erstwhile -  Link Intime India Pvt. Ltd.) is the registrar to the issue. Nuvama Wealth, SBI Cap Securities, Investec Capital Services, and Motilal Oswal Financial are the syndicate members.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 430 – Rs. 2618.40 (based on Rs. 2 FV) between February 2015 and December 2024. It has also issued bonus shares in the ratio of 17 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.06, Rs. 0.50, Rs. 0.73, Rs. 3.33, and Rs. 26.12 per share. 

Post-IPO, its current paid-up equity capital of Rs. 10.35 cr. will stand enhanced to Rs. 10.99 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2352.38 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 138.07 cr. / Rs. – (17.08) cr. (FY22), Rs. 163.84 cr. / Rs. – (4.45) cr. (FY23), and Rs. 195.26 cr. / Rs. 17.94 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs 18.20) cr. on a total income of Rs. 117.90 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 1.55 (for continued and discontinued operations) and an average RoNW of 22.77%. The issue is priced at a P/BV of 33 based on its NAV of Rs. 12.97 as of September 30, 2024, but the IPO ad is missing its post-IPO NAV data.

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 64.65, and based on FY24 earnings, the P/E stands at 130.87. Thus the issue is aggressively priced. 

The company reported PAT margins of – (13.65) % (FY22), - (2.58) % (FY23), 13.03% (FY24), 19.47% (H1-FY25), and RoCE margins of – (19.40) %, - (0.33) %, 19.97%, 24.64% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in August 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Poly Medicure as its listed peer. It is trading at a P/E of 92.9 (as of January 09, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
The three BRLMs associated with the offer have handled 75 pubic issues in the past three fiscals, out of which 23 issues closed below the offer price on the listing date.