Laxmi Dental aligns well in its niche and is building scale, but offer pricing aggressive

Synopsis

The Mumbai-based company has six manufacturing facilities and has a reach across 22,000 dental clinics, dental companies and dentists.

ET Intelligence Group: OrbiMed-backed Laxmi Dental is an integrated dental products company with presence in India and overseas. It is rolling out an initial public offering of ₹698 crore comprising a fresh issue of ₹138 crore and an offer for sale of ₹560 crore that dilutes the promoter shareholding from 46.5% to 42.6%. Of the issue proceeds, ₹27.5 crore will be used to repay borrowings and ₹68.3 crore for funding capex.

Business: Incorporated in 2004, the company manufactures a range of branded dental products ranging from crowns, bridges, and aligners to thermoforming sheets, intraoral scanners and paediatric dental products. It is the largest and most profitable vertically integrated and indigenous B2B2C dental aligner solutions company.

The Mumbai-based company has six manufacturing facilities and has a reach across 22,000 dental clinics, dental companies and dentists. For the six months ended September, its two main business segments of laboratory products contributed 63% to its total revenues and aligner solutions 31%. The company earns 67% of its revenues from India, 19% from the United States, 7% from the United Kingdom and the remaining from other countries.

Agencies

Financials and Growth Prospects: The company's financial performance was impacted during the pandemic years, with the business posting losses in FY22 and FY23. However, since then, the company's performance has improved smartly with revenues rising by 20% and the operating profit before interest and taxes (Ebitda) more than doubling from FY23 to FY24. The company's profitability has been steadily improving - with Ebitda margin standing at 19.4% for the six months ending September 2024. The return on capital employed stood at 24.6%.

A dental products company in India has good growth prospects given the ongoing shift from unorganised to organised labs, rising exports of dental lab products and increased adoption of digital dentistry in the country.

Valuations & Risk Factors: At an implied market capitalisation of around ₹2,352 crore, the IPO values the company at 10 times its annualised revenues for FY25 and 51 times its annualised earnings for FY25. These are very aggressive valuations for the small-sized company with no listed peer.

Long-term investors interested in a niche business model in the fast-growing consumer health segment of dentistry can look at investing in the company after reviewing its performance a few quarters after its listing.

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