The IPO festival continues to attract companies to raise money in the Indian capital markets. Among the IPOs in 2021, Paras Defence and Space Technologies Ltd (NS:PRAF) shareholders made the highest listing gains of 170%. G R Infraprojects Ltd (NS:GINF) and Clean Science and Technology Ltd (NS:CLEA) came second and third with 105% and 98% listing gains. Nuvoco Vistas Corporation Ltd (NS:NUVO) was the biggest loser with a 17% listing loss followed by Kalyan Jewellers India Pvt Ltd (NS:KALN) and Macrotech Developers Ltd (BO:MACE) with 15% and 10% listing discount, respectively. Here, we will discuss the IPO case for Sigachi Industries Limited.
Sigachi Industries Limited’s IPO
Sigachi Industries Limited’s IPO will open on November 1 and close on November 3, 2021. It is offering 7,695,000 equity shares of the face value of Rs 10 with an IPO price band of Rs 161 – Rs 163 per equity share. Through the book building issue, SIL intends to raise up to Rs 125.43 crore. The market lot consists of 90 shares and the minimum order quantity is 90 shares. A retail-individual investor can apply for a minimum of one lot of 90 shares amounting to Rs 14,670 and a maximum of 13 lots of 1,170 shares amounting to Rs 190,710. The shares will be listed on both NSE and BSE on November 15, 2021. The net proceeds from the IPO will be utilized towards the expansion of production capacity for MCC at Dahej, Gujarat; for expansion of production capacity for MCC at Jhagadia, Gujarat; funding capital expenditure to manufacture CCS at the proposed unit.
Sigachi Industries’ business
Established in 1989, Sigachi Industries manufactures, exports, and supplies Microcrystalline Cellulose (or MCC). Microcrystalline has refined wood pulp and chemically inert substances. The company’s output is widely used as an excipient for finished dosages in the pharmaceutical industry. MCC has a broad range of applications in the pharmaceutical, nutraceuticals, cosmetic, and food industries. SIL manufactures MCC of various grades ranging from 15 microns to 250 microns. The major grades of MCC manufactured and marketed by it are branded as HiCel and AceCel. Currently, Sigachi manufactures 59 different grades of MCC at the manufacturing facilities, located in Gujarat and Telangana. SIL has an in-house research and development division armed with state-of-the-art facilities to perform all necessary trials to develop new molecules from concept to commissioning.
Sigachi’s 3 manufacturing units namely Unit I are situated in Hyderabad. The other two manufacturing facilities, known as Unit II and Unit III are located at Jhagadia and Dahej, in Gujarat. As of March 31, 2021, SIL's total MCC manufacturing capacity is 13,128 MTPA from three locations. The company promoters are Rabindra Prasad Sinha, Chidambarnathan Shanmuganathan, Amit Raj Sinha, and RPS Projects & Developers Private Limited.
Sigachi Industries’ financials
By looking at Sigachi Industries’ three-year financials, we notice that it has displayed a consistent growth on all parameters. Revenue growth remained 8.33% in FY2020 which exhibited a sharp uptick in FY2021 with a 36.2% year-on-year growth. In line with revenue growth, Sigachi’s profit after tax too grew 6.9% in fiscal 2020 and a robust ~49% in FY2021. The company’s PAT margin remained stable at 14% in fiscal 2019 and 2020 and expanded 100 basis points to 15% in fiscal 2021. Overall, the financials on the P&L front appear satisfactory.
Investment rationale
In India, the microcrystalline cellulose market size is projected to reach $115 million by next year with a 4-year CAGR of 6.3%. Increasing pharmaceutical production, higher demand for processed food and cosmetics, and personal care products are the main driving forces behind the MCC market’s growth. The wider application of MCC in multiple industries is a key factor propelling the global MCC market’s growth. Microcrystalline cellulose is used as an anti-caking agent in beverages, gelling agent, suspending agent, and stabilizer. It is also used as a cold and hot stabilizer, in frozen food, ice cream, and canned meat to extend the product’s shelf life. MCC is also extensively used in pharmaceuticals, due to its tasteless, odorless, and chemical inertness properties. The Indian foods and beverage market as well as the pharmaceutical market are growing rapidly. However, Sigachi has a lot of competition from the number of competitors. The key market players in the MCC market are Du Pont, DFE Pharma, FMC Corp (NYSE:FMC), Friesland Campina, Libraw Pharma, Huzhou City Linghu Xinwang Chemical Co., Shandong Xinda Biotechnology Co. Ltd., JRS Pharma, Avantor, etc.
Sigachi Industries Limited is one of the leading manufacturers of MCC in India. The company enjoys a long-standing market presence across India and abroad. Experienced management, long-term relationships with customers, government incentives, and a broad product portfolio are some of the major strengths. The agrarian base of the Indian economy, a spurt of agro-processing industries, changing lifestyle of people, higher disposable income, demographic mix of the population should drive MCC’s demand going forward.