IPO Analysis: Sigachi Industries Ltd
IPO Rating: Invest for long-term
About the issue:
Sigachi Industries is engaged in the manufacturing and export of microcrystalline cellulose (MCC) and croscarmellose sodium (CCS) which primarily find application in pharmaceuticals as an excipient. The company is coming out with its Initial Public Offering (IPO) of equity shares with a face value of Rs 10 per equity share. The issue size of the company is Rs 125.43 crore according to its red herring prospectus. The price band of the issue has been fixed at Rs 161 to Rs 163 per equity share. The IPO opening date is November 1, 2021, while it will close on November 3, 2021. The tentative date for listing on the Exchanges is November 15, 2021. The IPO market lot size is 90 shares. A retail-individual investor can apply up to a maximum of 13 lots (1170 shares or Rs 1,90,710). The net proceeds generated from the IPO will be utilized to fund the capex for the manufacturing units expansion for MCC as well as CCS.
Sigachi Industries IPO Details:
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IPO Opening Date
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Nov 1, 2021
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IPO Closing Date
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Nov 3, 2021
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Issue Type
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Book Built Issue IPO
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Face Value
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₹10 per equity share
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IPO Price
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₹161 to ₹163 per equity share
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Market Lot
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90 Shares
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Min Order Quantity
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90 Shares
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Listing At
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BSE, NSE
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Issue Size
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7,695,000 Eq Shares of ₹10
(aggregating up to ₹125.43 Cr)
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About the company:
Incorporated in 1989, Sigachi Industries is engaged in the manufacturing of Microcrystalline Cellulose (MCC) which is widely used as an excipient for finished dosages in the pharmaceutical industry. MCC has varied applications in the pharmaceutical, food, nutraceuticals, and cosmetic industries. The company manufactures MCC of various grades ranging from 15 microns to 250 microns and the major grades of MCC manufactured and marketed by the company are branded as HiCel and AceCel. Presently, the company manufactures 59 different grades of MCC at the manufacturing units, situated in Hyderabad and Gujarat. The company has an in-house R&D division equipped with the necessary facilities to carry out all necessary trials to develop new molecules from concept to commissioning.
The company has received various quality certifications and operates 3 manufacturing units namely, Unit I situated at Hyderabad, and two manufacturing units, Unit II and Unit III situated at Jhagadia and Dahej, in Gujarat. As of March 31, 2021, the company's total MCC manufacturing capacity is 13,128 MTPA from three locations.
Competitive Strengths:
One of the leading manufacturers of MCC in India.
Long-standing market presence in Pan India and Internationally.
Experienced management team.
Wide product portfolio and ability to serve diverse end-use applications.
Long-term relationships with customers in diverse industry verticals
Investments and a strong focus on R&D.
Quality assurance and quality control in products and facilities.
Strategically located, multi-locational manufacturing facilities.
Government incentives
Company Financials:
The operating profit margin stood at 20.13 per cent in FY21 as against 17.8 per cent in FY20. That’s a growth of about 233 bps. The net profit margin declined by over 300 bps to 15.4 per cent in FY21.
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Particulars
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For the year/period ended (₹ in Millions)
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30-Jun-21
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30-Jun-20
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31-Mar-21
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31-Mar-20
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31-Mar-19
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Total Assets
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1,514.19
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1,155.59
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1,334.07
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1,091.43
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914.62
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Total Revenue
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551.22
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448.16
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1,960.10
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1,439.49
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1,328.77
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Profit After Tax
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89.89
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60.59
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302.60
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203.15
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190.12
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Recommendation
The company is engaged in the manufacturing of MCC which is widely used as an excipient for finished dosages in the pharmaceutical industry, as a stabilizer, anti-caking agent, fat substitute and emulsifier in the food industry and as a fat substitute, thickener and binder in cosmetics.
Majority of the sales is in the pharmaceutical segment as shown in the table below.
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Particulars
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Fiscal 2021
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Share
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Pharmaceuticals
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14,095.68
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75%
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Foods
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1,879.42
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10%
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Cosmetics
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1,879.42
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10%
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Nutraceuticals
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939.71
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5%
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As these segments are essentials in nature, the growing demand is likely sustainable for the company. The company is intending to utilize the IPO funds towards the capex for capacity expansion in three of its manufacturing units, which is further expected to boost the productions and revenues as well. Also, the company has seen huge growth in the export business. Exports have grown with a CAGR of 31.28% since 2019 and now contribute about 73% to its revenues. The key risk for the company is raw material prices. There are few suppliers, and the company does not have long-term contracts for the supply of the same. It is heavily dependent on imports. Any rise in raw material prices can hurt the company. On the positive side, the management is focused on strengthening its core business.
Considering all such factors, we recommend our reader-investors to invest in the IPO for the long term.