Sigachi Industries Review: IPO Opens on 01.11.21, Price Band, Lot Size & Latest News

Sigachi Industries Limited’s (SIL) IPO opens for subscription on 1st November. The company is looking to raise up to Rs 125.43 crore through the public issue. Here are the details:

About the IPO

Sigachi Industries Limited IPO Date: 1 November - 3 November 2021

Sigachi Industries Limited IPO Price band: Rs 161 - Rs 163

Issue Size: Rs 125.43 crore (Fresh Issue of Equity shares aggregating up to Rs 125.43 crore)

Reservation: QIB 50%, Retail - 35%, NII 15%

Bid lot: 90 shares, and in multiples of 90 shares

The company is expected to be listed in the ‘T’ segment, given that it will have a post-issue mcap of less than Rs 500 crore. 

Objectives of the issue

The company will be using the funds for below - 

• meeting general corporate purposes
• for expansion of production capacity for MCC at Dahej, Gujarat - Rs 28.15 crore
• for expansion of production capacity for MCC at Jhagadia, Gujarat - Rs 29.24 crore
• funding capital expenditure to manufacture CCS at the Proposed Unit - Rs 32.29 crores

About Sigachi Industries

• Sigachi Industries was incorporated in 1989 and is engaged in the manufacturing of Microcrystalline Cellulose (MCC).
• Microcrystalline Cellulose is widely used as an excipient for finished dosages in the pharmaceutical industry. It finds application in the pharmaceutical, food, nutraceuticals, and cosmetic industries. 
• SIL manufactures MCC of various grades that range from 15 microns to 250 microns. The major grades that are manufactured and marketed by the company are branded as HiCel and AceCel.
• It manufactures 59 different grades of MCC at the manufacturing units situated in Gujarat and Hyderabad.
• SIL also 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 started its export operations in the year 1996 by exporting its first order of MCC to Bangkok.

Product/MCC details

• SIL is engaged in the manufacturing of microcrystalline cellulose (MCC) - a purified depolymerized cellulose, obtained as a pulp from plants.
• It is considered as a diluent having self-binding properties, and it is one of the preferred direct compressible binders owing to its dry binding properties. 
• It has distinguished chemical and physical properties from other excipients and has a broad range of applications in food, pharmaceutical, cosmetic, nutraceuticals, and other industries.
• Due to its chemically inert nature and strong binding properties, MCC is compatible with most active pharmaceutical ingredients. 

Industry Peers

There are no listed entities similar to the line of business and comparable to SIL’s scale of operations, hence the comparison is not possible.

Financials

• The company's revenue for FY19, FY20, and FY21 has been Rs 1328.77 crore, Rs 1439.49 crore, and Rs 1960.10 crore, respectively. The revenue has grown at a CAGR of 21.5%.
• The profit after tax (PAT) has increased from Rs 190.12 crore in FY19 to Rs 302.60 crore in FY21, which is exceptional growth even in the tough time of Covid.
• For the last three fiscal years, the company has posted an average EPS of 10.88 and an average RoNW of 51.54%. 
• The company’s PAT margin remained stable at 14% in FY19 and FY20 and expanded 100 basis points to 15% in FY21. 
• The revenue from the export operations for FY20 and FY19 is Rs 84 crore and Rs 76 crore, respectively.
• It is a dividend-paying company and has paid a dividend of 10% per year in the last three fiscal years.

USPs

Well experienced management - SIL is led by a group of individuals who have a strong background and extensive experience in the pharmaceutical and excipient industry. The team comprises personnel having technical, operational, and business development experience.

Pan India Presence - The company has a Pan India market presence and one of the leading excipient manufacturers among the market leaders of cellulose-based excipients in India. They have an exceptional quality control and quality assurance team, which ensures that we manufacture superior quality products. They have a competitive advantage being an integrated manufacturer who can customize products with variations as per the specific requirements of customers. It distinguishes them from the other players in the industry.

Leading manufacturers of cellulose - SIL is Leading manufacturers of cellulose-based excipient industry in India with over 30 years experience and multiple applications across industries. The consumers have a strong loyalty to its brands, which has enabled growth. They have made advancements in the development of MCC. SIL is positioned amongst the top 10 players globally in the manufacturing of MCC-based excipients. 

Presence across diverse industry verticals - SIL has a presence across diverse industry verticals with a long-standing relationship with our customers. It has developed long-term relationships with customers in various sectors including pharmaceutical, food, nutraceuticals, and cosmetics.

Growth Potential

Increasing manufacturing capacity - The company is increasing its manufacturing capacity to focus on the growing demand for its core products. It plans to increase the capacity of units situated in Dahej and Jhagadia. It will result in increased revenues and profit margins.

Focus on the core business segment - SIL intends to focus its efforts towards the core business of manufacturing MCC and its various grades for various industries or applications. It foresees an increase in demand for MCC and plans to tap the growing market. They intend to fully utilize its resources in its own manufacturing units.

Increasing global presence - SIL currently exports products to 41 countries including Australia, the USA, South America, the U.K., Poland, Italy, Denmark, China, Colombia, Bangladesh, etc. It plans to expand its export operations globally. Through a combination of increased capacities, reduced costs, a wider range of product specifications and services, it intends to expand its global footprint.

Strengthen marketing network - It will continue to enhance its business operations by ensuring that customer base increases through marketing efforts. It plans to strengthen its existing

marketing team by inducting qualified and experienced personnel, who will supplement their existing marketing strategies in the domestic and international markets.

Risks

Fail to innovate - If the company fails to innovate new products, it would make its existing product portfolio redundant. It may hurt the utility of its products and lead to impacting its revenue and profitability. 

Over-dependence on the pharmaceutical industry - SIL is reliant on the demand from the pharmaceutical industry for a significant portion of its revenue. For the past three financial years, 75% of its revenue has come from the pharmaceutical industry. Any downturn in the pharmaceutical industry or an inability to increase or effectively manage sales could affect the company's growth.

Raw material dependency - SIL depends on its major raw materials and a few key suppliers who procure the same. The company has not entered into long-term agreements with its suppliers for the supply of raw materials. The top 5 suppliers account for approximately 75% of their expenses towards the purchase of raw materials. In the event they are unable to procure adequate amounts of raw materials at competitive prices, it will impact the financial condition.

INDmoney Analysis

Sigachi Industries has reported a healthy 22% CAGR rise in revenues over FY19 to 21 to Rs 193 crore. During the same period, the bottomline has grown at 26% CAGR. Sigachi has also posted strong EBITDA margins and return ratios during this period. The company’s PAT  has remained in the range of 14-15%. 

According to estimates, the microcrystalline cellulose market size is projected to reach $115 million by next year driven by increasing pharmaceutical production, higher demand for processed food and cosmetics, and personal care products. Sigachi Industries, being one of the leading players, is well positioned to take advantage of the rising demand. 

At the higher end of the price band, Sigachi Industries is attractively priced at ~12.4 times FY21 EPS. The company does not have any listed peers. Given factors such as robust topline and bottomline growth, healthy margins, strong return ratios and good runway for growth, we remain ‘positive’ on the prospects of the issue.