Sigachi Industries IPO Review and Analysis in Detail
Basis Structure of Sigachi Industries IPO
Another company which has lined up in this IPO fest is Sigachi Industries. This IPO is expected to hit the primary markets in early 2021.
The company filed its draft papers in January 2020 and it intends to raise about Rs. 60 crore.
The Sigachi Industries IPO is of the book-building nature. This means the shares that are being offered are quoted with a price band. The other kind of offering is called fixed price offering, and this is characterized by a fixed price for the shares that are on offer.
The company will be diluting 27% of its stake. The IPO will see the sale of 28.4 lakh equity shares in the fresh issue segment. This amount will be used in the expansion of the company’s production facilities.
The offer for sale segment includes those shares which are sold by the existing shareholders. However, in this IPO, no shares are being offered in the offer for sale segment.
The table below summarizes the details about the Sigachi Industries IPO. Details about the Sigachi Industries IPO share price, Sigachi Industries IPO GMP, Sigachi Industries date 2020, Sigachi Industries IPO listing date and more have been included.
After the IPO, the Sigachi Industries shares will be listed on both NSE and BSE.
About the Company
Sigachi Industries was formed in 1989 in Hyderabad. It was originally incorporated with the intention of manufacturing hydrochloric acid and chlorinated paraffin.
Over the years, the company has diversified its product portfolio and the scale of its operations significantly.
Currently, Sigachi operates three manufacturing facilities in Hyderabad and Gujarat. It has a combined manufacturing capacity of 11,880 million tonnes per year.
Apart from that, the company has also entered into strategic partnerships with Gujarat Alkalies and Chemicals Limited (GACL) to expand the scope of its operations.
Sigachi Industries operates a B2B business model.
The company has clients across India. Apart from that, it also exports its products to 41 countries like US, UK, Australia, China, Poland and others.
The graph below shows the split-up in the revenue received from domestic sales and export sales.
Products & Services
Sigachi’s primary product is the microcrystalline cellulose (MCC). This chemical finds utilization in the manufacture of pharmaceuticals, cosmetics and certain food items.
MCC is manufactured in different grades and variations which range from 15 microns to 250 microns. Some of the most popular products manufactured by Sigachi are called HiCel and AceCel. HiCel is a spray dried product and AceCel is created through a bulk drying process.
Promoter Shareholding Pattern
The table below shows the shareholding pattern prior to the Sigachi Industries IPO.
Financial Overview of Sigachi Industries IPO
The table below shows the main financial figures of Sigachi Industries over the past five years. All the figures given below are in Rs. Crores.
As we can see from the table, the company shows clear growth trends. Between 2016 and 2020, the total revenue grew at a CAGR of 17.07%. During that same period, the total assets grew at a CAGR of 33.02%.
Most of the revenue that Sigachi earns comes from the pharmaceuticals sector. The graph below shows the revenue split-up in terms of demand from different industries.
It is interesting to observe that although the revenue has been growing consistently, the net profit earned by Sigachi has not shown a similar trend. From 2016 to 2018, the profits declined steadily. It is only in the last three years that we have seen a growing stream of net profit.
There is also the matter of the long-term debt burden of the company. As the table shows, there was a distinct jump in 2018, following which the debt burden has declined slightly. As of August 2020, the total outstanding borrowings for Sigachi amounted to Rs. 27.99 crores.
Microcrystalline refers to a chemically non-reactive substance which is obtained from wood pulp. It is used as a raw material in the manufacture of pharmaceuticals, cosmetics and food substances.
The global market for MCC is expected to grow at a CAGR of 7% and reach $ 1.3 billion by 2024. This projected increase is backed by the rising demand for pharmaceuticals, cosmetics and food products. The pharmaceutical demand is the highest in this case and accounts for the majority of MCC demand.
With regard to the global demand for MCC, the highest demand comes from Europe. In FY 2018, Europe accounted for 32.96% of the global market. North America came in at second place with 29% and the Asia Pacific region accounted for 22% of the total market demand.
Now, coming to the Indian market, in 2018, the market was estimated to be around $ 85 million. It is expected to reach $ 115 million by 2022.
Here too, the maximum demand for MCC comes from the pharmaceuticals sector. The graph below shows the split-up of the market share.
The Indian pharmaceuticals industry is booming at the moment. Size at $ 39 billion in 2019, it is expected to grow to $ 55 billion by 2022.
Domestic demand is expected to grow due to increased health insurance penetration and the general rise in chronic diseases. As the export demand, that is expected to rise due to increasing demand for niche raw materials and complex products.
The food and beverages industry in India was valued at $ 30.12 billion in 2015. The expected market value in 2020 is $ 142 billion, which means an average CAGR of 36.34%.
This market has evolved over the past decade, but it is still dominated by traditional operators.
As for the cosmetics industry, it is currently sized at $ 6.5 billion. It is expected to reach $ 20 billion by 2025.
The expected CAGR, in this case, is about 25%. In comparison, the expected CAGR in the global cosmetics market is about 3.7%. By 2025, India will be one of the top five global consumers of cosmetics.
Peer Comparison of Sigachi Industries IPO
There aren’t any listed companies in India which manufacture MCC. This is why peer comparison of Sigachi Industries is not possible.
Strengths of Sigachi Industries IPO
Over the years, Sigachi has built up a pan-India presence. Its clients span the entire country. Apart from that, Sigachi’s export demand is also noteworthy. In 2020, over 61% of the total revenue came from the export of products. This means Sigachi also has a significant presence in the global market for MCC.
In fact, Sigachi has a subsidiary manufacturing facility in Virginia, US, in order to better cater to the needs of its overseas clients.
When it comes to the client portfolio, Sigachi has a healthy mix of long-standing business relationships with its older clients as well as newer customers.
Weaknesses of Sigachi Industries IPO
While Sigachi has a diversified client base, the fact remains that most of their clients are concentrated in the pharmaceuticals industry. Over 75% of its revenue comes from this sector.
The company imports raw materials for the production process from Canada, South Africa, Thailand, Indonesia and the US. The top five suppliers accounted for 75.46% of the supply in 2020. If there is any change in these supply chains, it will have a significant adverse impact on Sigachi’s business.
Although there is a growing market for MCC in India, Sigachi concentrates more on its foreign operations. 61.8% of the operating revenue in 2020 came from exports.
Valuation of Sigachi Industries IPO
Due to an absence of listed peers in the market for MCC, a peer valuation is difficult. Instead, we will use the formula derived by Benjamin Graham in his book The Intelligent Investor, to calculate the intrinsic valuation of the company.
FY20 Profit = ₹20.31 crore
Growth Rate = 7%
Value = 20.31 * (8.5 + (2*7)) = ₹456.97 crore
If we consider a 10% margin of safety, the value = 456.97 – 10% = ₹411.27 crore
The value derived above is the intrinsic value of the company. If the market capitalization of the company is lower than this, it will be safe to conclude that the Sigachi Industries IPO is undervalued.
Frequently Asked Questions
1. How to apply in Sigachi Industries IPO through Zerodha?
Simply log onto the Zerodha website or the Zerodha mobile app. Select the Sigachi Industries IPO from the IPO menu. Select the number of lots and submit your bid.
2. When Sigachi Industries IPO will open?
The subscription window for the Sigachi Industries IPO has not yet been released.
3. What is the lot size of Sigachi Industries IPO?
The Sigachi Industries shares will be available in lots of 10. This means you have to bid on a minimum of 10 shares. If you want to bid on more than 10 shares, you will have to do so in multiples of 10 – that is, 2 lots for 20 shares, 3 lots for 30 shares and so on.
4. How to apply for Sigachi Industries IPO?
There are two ways to apply for an IPO. You can apply either through UPI or through ASBA (net-banking).
In order to apply, simply log on to your brokerage house’s website, select the IPO for which you want to apply, select the number of lots that you want to bid for, and submit your bid.
5. When is Sigachi Industries IPO listing date?
The listing date for Sigachi Industries shares has not yet been released.