About the company:
IPOs are back in the space after some time with many
IPOs coming in the month. Another IPO that will be hitting the markets the next
week is Sigachi Industries Limited (Sigachi). The IPO has an
issue size of Rs. 125.43 Crores which entirely comprises of fresh issue.
Issue Details:
·
Dates:
November 1, 2021 to November 3, 2021
· Price Band: Rs. 161 to Rs. 163 per share
· Minimum Lot: 90 shares
·
Minimum
Application Amount: Rs. 14,670
Objects of the Issue
The proceeds of the fresh issue are expected to be
utilized towards:
· Expansion of production facilities for
microcrystalline cellulose (MCC) at Dahej – Rs 22.57 crores
· Expansion of production facilities for
microcrystalline cellulose (MCC) at Jhagadia – Rs 24.78 crores
· Rest of the amount will be used for
general corporate purposes
Company Overview
Sigachi Industries Limited was incorporated as a
private limited company in 1989, with the business to manufacture chlorinated
paraffin and hydrochloric acid in our manufacturing unit situated at Hyderabad.
In the year 1990, Company diversified its product portfolio to manufacture
microcrystalline cellulose (MCC). Sigachi commenced its export operations in
the year 1996 by exporting its first order of MCC to Bangkok.
They are engaged in MCC which is widely used as an
excipient for finished dosages in the pharmaceutical industry. It is also used
in food, nutraceuticals, and the cosmetic industries. The company operates
three manufacturing units namely, Unit – I situated at Hyderabad and two
manufacturing units, Unit – II and Unit – III are situated in Gujarat at
Jhagadia and Dahej respectively.
Key Strengths
· The MCC market globally is projected to
grow at a CAGR of 7% between 2019 and 2024. The MCC market in India is
projected to reach USD 115 million by 2022, registering a CAGR of 6.25% from
2018 to 2022. The growth of the MCC market is primarily triggered by the
increasing demand for processed food and the growing production of
pharmaceutical and cosmetic & personal care products. MCC manufactured from
non-wood sources is an emerging trend in the market and is projected to grow at
a healthy pace. Since the macro-level growth is taking pace, the demand will
likely grow from here onwards and thus provide the company opportunities to
grow.
· The company has a well-experienced
management team with proven project management and implementation skill. The
company is one of the leading manufacturers of the cellulose-based excipient
industry in India with over 30 years of experience and multiple applications
across industries.
· The company shows healthy financial
growth and track record. The total revenue grew at a CAGR of 22.24% between
FY2020 and FY2021, while PAT grew at a CAGR of 26.16% between the same periods.
They also have a low debt-to-equity ratio of 0.69.
Key Risks
·
Among
the key business risks the company has stated that its commercial success is
largely dependent upon our ability to develop and devise innovative grades of
cellulose-based excipients and the company is unable to innovate making the
portfolio redundant.
·
The
company is highly dependent on the major raw materials and has only a few key
suppliers. Therefore, it faces supplier concentration risk. They have not
entered into long-term agreements with their suppliers for the supply of raw
materials. Also, there are only a few customers which increases the customers'
bargaining power.
·
The
key risk in the statement is that the receivables of the company are increasing
and comprise more than 25% of the assets.
·
Lastly,
the company is not that confident in the success of the expansion of its
manufacturing units using the funds raised in the IPO.
Samco's Stance
Sigachi has sound financial growth and margins
coupled with decent growth opportunities. However, they do not hold a dominant
position in any of the space which increases the overall risk of the company.
Further, there are no listed entities similar to Sigachi's line of business and
comparable to their scale of operations and hence, it is not possible to make a
fair assessment of its valuation on a comparative basis.
On the other hand, due to the small issue size of the
IPO, it is highly likely to get oversubscribed. Thus, only investors
with a healthy risk appetite are recommended to SUBSCRIBE to the IPO from a
listing gains perspective only.
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