One of the leading manufacturers of MCC in India:
Sigachi is one of the early participants in the MCC industry in India. Since entering the market, the company has developed 50 grades of MCC, ranging from 15 microns to 250 microns having varied applications. A comprehensive product portfolio enables the company to serve diverse end-use applications.
Being an integrated manufacturer, the company has a competitive advantage to customize the products as per customer requirements. This distinguishes it from the other players in the industry and has been able to create a presence in India as well as in the export market.
The company exports its products to 41 countries including Australia, the USA, South America, the UK, Poland, Italy, Denmark, China, Colombia and Bangladesh.
Diversification in Croscarmellose Sodium (CCS) will be margin accretive:
Company is further diversifying its product portfolio by adding Croscarmellose Sodium (CCS), which is used as a disintegrant in pharmaceutical formulations and provides long term stability. It is also used in the formulation of pharmaceutical tablets, pellets, and capsules which are manufactured by dry granulation, wet granulation or by direct compression.
CCS generates better EBITDA margins of 24-25%, compared to 20-21% EBITDA margins in MCC. With the commencement of the new capacity in FY25. We expect better blended margins post the expansion.
Strategically located manufacturing facilities:
With three units located across Gujarat and Telangana, Sigachi has an aggregate installed capacity of 11,880 MTPA. The facilities house equipment and systems and comply with the norms of USFDA and WHO-GMP. The production facility at Dahej – SEZ, with next door ‘Dahej Port’, gives added advantages in terms of tax benefits, reduced transportation costs and faster turn-around of raw material to finished goods.
Established supplier and customer network with diversified mix of export and domestic
Sigachi has established relationships with its key suppliers which enables the company to procure its raw materials at competitive prices. Conversely, the company faces concentration of suppliers and procures nearly 100% of its raw material from overseas owing to the unavailability of standard refined wood pulp in the domestic market. The company imports wood pulp from Hong Kong, Switzerland, USA, Germany, Canada etc. Sigachi is dependent on a few suppliers for raw materials. The top five suppliers accounted for 75% of the purchases of raw materials in FY21. Further, the company has been associated with some clients in the industry for more than two decades on an average. The top 10 customers contributed 46% of the total sales during FY21. Usually, ~70% of the order book comprises of repeat orders from its long standing clients. Sigachi exports to 41 countries, which primarily includes Australia, USA, U.K., Poland, Iran, Denmark, China, Spain etc.
Sigachi Industries Ltd, incorporated in 1989, is engaged in the manufacturing of Microcrystalline Cellulose (MCC) which is widely used in pharmaceutical, food & beverages, nutraceuticals, and cosmetic industries. The company manufactures MCC of various grades ranging from 15 microns to 250 microns. MCC is manufactured and marketed by the Company under the brand name HiCel and AceCel for both domestic and export markets. Export contributes 70-75% of revenue which has increased from 55% in FY18 and rest is coming from the domestic market.
Company is one of the leading manufacturers of cellulose based excipients in India, in terms of volumes. The company manufactures various grades of this product in combination with various chemicals like colloidal silicon dioxide, carboxy cellulose sodium, mannitol etc. to cater to the growing market of the co-processed excipients.
The company operates in 3 manufacturing units located at Hyderabad (capacity: 6,048 MTPA), Jhagadia (capacity: 2,400 MTPA) and Dahej (capacity: 4,680 MTPA).
Sigachi Industries Limited (SIL) is engaged in manufacturing microcrystalline cellulose (“MCC”) which is widely used as an excipient for finished dosages in the pharmaceutical industry. The future growth trajectory for the company is uncertain as the sectors they cater to are facing headwinds. Another issue with the company is they do not hold a dominant position in the area where they are present which intensifies the risk for the company. And looking at the Risk-Reward Ratio does not seem to be in favour given the risks such as higher commodity prices, customer concentration. At the higher price band of Rs163, issue is valued at P/E of 16.6x on post issue FY21 EPS basis. Looking at the above mentioned parameters the investors can give the issue a pass. We recommend AVOID on this issue.
Use of Proceeds:
Book running lead managers:
Unistone Capital Pvt Ltd
Mr. Swami Das Nigam is the Chairman and Non-Executive Director of the company. He holds a bachelor’s degree in Engineering (Electrical) from Birla Engineering College, Pilani. He has been associated with the company since 2014.
|Particulars (Rs. in Crores)||FY19||FY20||FY21|
|Revenue from Operations||128.99||139.06||192.76|
|Employee Benefit Expenses||12.37||14.91||17.38|
|Total operating expenses||103.03||114.30||153.97|
|EBITDA Margin (%)||20.13%||17.80%||20.12%|
|Depreciation and Amortization||1.67||1.96||2.31|
|Profit Before Exceptional Items and Tax||24.73||25.34||38.48|
|Profit Before Tax||24.73||25.34||38.48|
|Effective Tax Rate (%)||23.11%||19.84%||21.37%|
|Profit After Tax||19.01||20.32||30.26|
|PAT Margin (%)||14.74%||14.61%||15.70%|