Sigachi Industries IPO Review – Should you invest in this IPO?
Sigachi Industries IPO (Sigachi Industries Limited IPO) Details
Hyderabad based Sigachi Industries is coming up with IPO that would open for subscription on 1st November 2021. Sigachi Industries is a leading manufacturer of Microcrystalline Cellulose (MCC) which is widely used as an excipient for finished dosages in the pharmaceutical industry. Should you invest in Sigachi Industries IPO? What are the risk factors in this IPO? Let me do IPO review and indicate whether investors should buy or not.
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About Sigachi Industries Limited
Hyderabad based Sigachi Industries is incorporated in 1989. It is engaged in 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. It manufactures MCC of different 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.
Currently it manufactures 59 different grades of MCC at the manufacturing units, situated in Hyderabad and Gujarat.
It has in-house R&D division equipped with the necessary facilities to carry out all necessary trials to develop new molecules from concept to commissioning.
Company 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 31st March, 2021, it has total MCC manufacturing capacity is 13,128 MTPA from these 3 locations.
Sigachi Industries IPO details
|IPO Opening Date||01-Nov-21|
|IPO Closing Date||03-Nov-21|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 10 per equity share|
|IPO Price band||Rs 161 to Rs 163 per equity share|
|Lot Size||90 Shares|
|Min Order Quantity||90 Shares|
|Listing at||BSE and NSE|
|Issue Size||Rs 125.43 Crores|
|Book Running Lead Managers||Axis Capital, CLSA India, ICICI Securities and Nomura Financial Services|
Sigachi Industries IPO RHP Prospectus
What are Sigachi Industries strengths?
1) It is one of the leading manufacturers of MCC in India.
2) Company has long-standing market presence in Pan India and Internationally.
3) Company has experienced management team.
3) It has wide product portfolio and ability to serve diverse end-use applications.
4) It has long-term relationships with customers in diverse industry verticals
5) Investments and a strong focus on R&D.
6) Company with quality assurance and quality control in products and facilities.
7) Strategically located, multi-locational manufacturing facilities.
8) Company gets government incentives
What are the Objects of the Offer?
Here are the objects of the IPO offer.
1) Funding capital expenditure:
i) For expansion of production capacity for MCC at Dahej, Gujarat Rs 28.15 crores
ii) For expansion of production capacity for MCC at Jhagadia, Gujarat Rs 29.24 crores
iii) Funding capital expenditure to manufacture CCS at the Proposed Unit Rs 32.29 crores
2) General corporate purposes
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Who is the promoter of Sigachi Industries Limited?
Rabindra Prasad Sinha, Chidambarnathan Shanmuganathan, Amit Raj Sinha and RPS Projects & Developers Private Limited are the promoters of the company.
How is the company financial track record?
Here are the total assets, revenues and profits of the company in the last 3 years (Amounts in Millions)
|Particulars||FY19||FY20||FY21||Qtr ending 30-Jun-21|
|Profit After Tax||190.1||203.2||302.6||89.9|
Why to invest in Sigachi Industries IPO?
Here are the positive factors in this company.
1) Company is one of the leading manufacturers of Microcrystalline Cellulose (MCC) which is widely used as an excipient for finished dosages in the pharmaceutical industry.
2) Company with wide portfolio and ability to serve diverse end use applications. It has long standing market presence in PAN India. Company has strong focus on R&D with quality assurance and quality control in products and facilities.
3) Company has generated strong revenue growth in the last 3 years. Its revenues increased from Rs 132.8 Crore in FY19 to Rs 196 Crores in FY21.
4) Company is generating consistent margins. The margins are growing year on year. It generated profits of Rs 19 Crores (14.3%) for FY19 Vs Rs 30.2 Crores (15.4%). Even its margins for Q1 FY2022 is Rs 8.99 Crores (16.3%) indicates that company is consistent performer.
Risk Factors in Sigachi Industries IPO
1) Company intends to utilize a portion of the IPO proceeds to setup additional production unit at Kurnool, Andhra Pradesh. They are yet to place orders for plant and machinery and apply for requisite approvals for the proposed manufacturing unit. Any delay in getting approvals can impact the business growth.
2) Its commercial success is largely dependent on their ability to develop and devise innovative grades of cellulose based excipients. Its inability to innovate new products would make their existing product portfolio redundant and can impact the revenue and profitability.
3) Company plans to place orders for 83% of equipment, plant and machinery at existing facilities situated at Dahej and Jhagadia as well as proposed unit. Any delay in placing orders may delay the implementation and possible increase in cost of commencing operations.
4) Company is reliant on the demand from pharma industry for the majority of its revenue. Any down turn in pharma industry can affect company sales and results of operations.
5) Company highly depends on its major raw materials and few key suppliers who help them to procure the same. Company has not entered long term agreement with its suppliers for supply of raw materials. In the even if they are unable to procure adequate amounts of raw materials at competitive prices, it can have impact on financial condition of the company.
6) Company depends on a few customers of its products for significant portion of its revenue. Any loss of such customers or reduction in sales from such customers can impact business.
7) Investors should read complete risk factors indicated in the RHP of the IPO document before investing in this IPO.
Sigachi Industries IPO dates for subscription, Allotment and Listing
|Finalization of Allotment||10-Nov-21|
|Initiation of Refunds||11-Nov-21|
|Credit to Demat Account||12-Nov-21|
|IPO Shares Listing Date||15-Nov-21|
Is Sigachi Industries IPO Price is underpriced or overpriced?
Sigachi Industries share price band is Rs 161 to Rs 163 per share.
1) If we take last 3 years weighted average EPS of Rs 10.88 and upper price band of Rs 163, the P/E ratio works out to 15x.
2) If we take FY21 EPS of Rs 13.13 and upper price band of Rs 163, the P/E ratio works out to 12.4x.
3) If we take Q1 FY22 EPS of Rs 3.9 and annualize for FY22, the P/E works out to be 10.5x.
4) Means company is asking IPO price in the P/E range of 10.5x to 15x.
5) There are no listed peers who are doing similar business of manufacturing MCC, hence cannot ascertain whether the issue price is overpriced or underpriced.
However, if we consider 10.5x to 15x P/E in general, it is reasonably priced (Pharma industry P/E is between 7x to 500x)
What is Sigachi Industries IPO Grey Market Premium?
GMP is nothing but the premium at which the shares are trading in offline market. This is just an indication about IPO price as it is unorganized market.
Currently Sigachi Industries IPO GMP is not available as there are no trading’s happening as of the day of writing the article.
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Sigachi Industries Limited IPO – Review and Conclusion
Is it good or bad to invest in Sigachi Industries IPO?
Sigachi Industries is leading manufacturer of MCC in India. It has wide portfolio of products with strong R&D focus.
Company’s revenues have grown significantly in the last 3 years. Company is generating consistent margins + improved margins year on year in the last 3 years.
The issue price is reasonably priced.
Considering all these factors, investors can invest in this IPO for medium to long term perspective.
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Thank you Sureshji for yet another in depth analysis. As Sigachi IPO size is very low 125cr its getting 50% premium opening at 270 making its PE 16 to 24. As there are no peers to compare, how much PE you think is good to invest for company like this with 15-20% profit margin? I think 30 if there is no debt. Appreciate your thoughts and also any idea about its Debt to Equity ratio(Great addition for future articles). Thanks again Sir
Thank you for the review. In the financial track record , please mention the unit in million for easy understanding.
if possible kindly comment about promotor’s stake in the company.
Thanks and regards
Thanks for pointing this. I have updated (looks some reason these are not appearing even for earlier posts).
Regd promoter stake, it is 64.64% pre-issue.
brand transferred to personal name before IPO – will charge royalty to the company!!
If the brand(s) have been transferred in the personal names of the promoters, then, it is a serious issue. Not only that the Company will be charged royalty for the use of the brand name, but, the valuation of the brands will remain with the owner/promoters, which is not good for the company. Similar issues could be wrt any proprietary technology or some technical arrangement with somebody, if any.
Basically it means only that all knowledge, technology, etc. should be wholly and exclusively “owned” by the Company and not by anybody else including promoters/owners.
I think this needs to be detailed out and should remain as a key risk factor for the company.
There is no brand transfer to person name except for one risk factor indicated in the RHP
Further our Company vide
a deed of assignment has assigned majority of our trademarks to Amit Raj Sinha Family Trust, one of
our promoter group entities. In the event, any actions of our Company qualify as a breach of any of the
clauses of this deed, it could have a material impact on our goodwill, business operations, financial
condition and results of operations.
Thats the reason I keep indicating that investors should read complete risk factors of RHP