Sigachi Industries
Sigachi Industries is coming out with a 100% book building; initial public offering (IPO) of 76,95,000 shares of Rs 10 each in a price band Rs 161-163 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on November 01, 2021 and will close on November 03, 2021.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 16.10 times of its face value on the lower side and 16.30 times on the higher side.
Book running lead manager to the issue is Unistone Capital.
Compliance Officer for the issue is Shreya Mitra.
Profile of the company
The company is engaged in manufacturing microcrystalline cellulose (MCC) which is widely used as an excipient for finished dosages in the pharmaceutical industry. The inert non-reactive, free flowing and versatile nature of MCC has varied applications in the pharmaceutical, food, nutraceuticals and the cosmetic industries. It manufactures MCC of various grades ranging from 15 microns to 250 microns. The major grades of MCC manufactured and marketed by the company are branded as HiCel and AceCel. These products are distinguished with the help of different drying techniques employed by the company during the manufacturing process. HiCel is a spray dried product and is considered premium in quality due to the physical properties of the product such as particle size, density, flow, tableting properties, etc. AceCel on the other hand is manufactured through bulk drying process. It also 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 three manufacturing units namely, Unit I situated at Hyderabad and two manufacturing units, Unit II and Unit III are situated at Jhagadia and Dahej, respectively located in Gujarat. Unit I manufacture both HiCel and AceCel and caters to the domestic and international customers such as end users, merchants, distributors and exporters. Unit II manufactures AceCel and supplements the sale in the domestic market. Unit III is situated at Special Economic Zone (SEZ) at Dahej and is engaged in the manufacture of HiCel and special grades which is exported to overseas customers and distributors. The company foresees an increase in demand of MCC and to the tap the growing market, it intends to utilize the Net Proceeds of this Issue to enhance the production capacity of MCC by increasing the existing capacity of its Unit II and Unit III and manufacturing of CCS in the Proposed Unit at Kurnool.
Proceed is being used for:
Funding capital expenditure for expansion of production capacity for MCC at Dahej, Gujarat; for expansion of production capacity for MCC at Jhagadia, Gujarat; and to manufacture Croscarmellose Sodium (CCS), a modified cellulose used as excipient at Kurnool, Andhra Pradesh.
General corporate purposes.
Industry overview
The microcrystalline cellulose (MCC) market size in India during CY 2020 is $38 million, estimated at $49 million in CY 2021 and is projected to reach $93 million by CY 2025, registering a CAGR of 13.84% from CY 2021 to CY 2025. The growth of the MCC market is primarily triggered by the increasing demand for processed food and growing production of pharmaceutical and cosmetic & personal care products. In line with the global trend, pharmaceutical will be major growth segment followed by food & beverages and cosmetic for MCC Market in India. Croscarmellose sodium is modified sodium carboxymethyl cellulose and is also known as cross- linked sodium carboxymethylcellulose or modified cellulose gum. CCS is a grayish white or white powder and has no odor. It is used as a disintegrant in the pharmaceutical formulation and provides long term stability & also used in the formulation of pharmaceutical tablets, pellets, and capsules which are manufactured by dry granulation, wet granulation or by direct compression. It is an insoluble and hydrophilic polymer which aids in the dissolution of the dietary supplements and pharmaceutical tablets, granules, and capsules. CCS is used in various industries such as pharmaceutical, food, nutraceutical, textile, etc.
Indian pharmaceutical sector supplies over 50% of the global demand for various vaccines, 40% of the generic demand for US and 25% of all medicines for UK. India contributes the second- largest share of pharmaceutical and biotech workforce in the world. According to the Indian Economic Survey CY 2021, the domestic market is expected to grow 3x in the next decade. India’s domestic pharmaceutical market is estimated at $44 billion in CY 2021 and likely to reach $64 billion by CY 2025 and further expand to reach Rs $120-130 billion by CY 2030. Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value. The domestic pharmaceutical industry includes a network of 3,000 drug companies and 10,500 manufacturing units. Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of genericmedicines globally. It is expected to expand even further in the coming years.
Pros and strengths
One of the leading manufacturers of MCC in India: The company has a legacy of more than three decades in the cellulose-based excipient industry. It manufactures MCC of various grades and markets them under its brand names, such as HiCel, AceCel, HiCel MCG, AceFibre, HiCel SMCC, etc. Consumers have a strong loyalty to its brands, which has enabled its growth. The R&D Division is augmented by niche research skills along with promoters’ extensive experience and technical capabilities. It has made advancements in development of MCC and are positioned as one of the key manufacturing players globally in manufacturing of MCC based excipients. In the domestic market, the company is one of the leading manufacturers of MCC. This along with its technical capabilities, capable R&D Division and manufacturing infrastructure, gives it a first mover advantage in India.
Pan India and international market presence: With the help of the company’s premium quality products, it has been able to create a long-standing market presence in India and internationally. Its foreign wholly owned subsidiary namely Sigachi U.S. Inc. has been incorporated in Virginia, USA which helps it cater to the needs and requirements of its international customers. It caters to various end users, merchants, distributors and exporters. It exports its products to forty-one (41) countries including Australia, USA, South America, U.K., Poland, Italy, Denmark, China, Colombia, Bangladesh, to name a few.
Comprehensive product portfolio: Owing to the inert non-reactive, free flowing and versatile nature of MCC, the company is in a position to customize the usage and application of its products to various industries including but not limited to pharmaceutical, food, nutraceuticals and cosmetics. MCC is a white, insoluble, neutral, non-reactive, free flowing, versatile excipient. Its physical, chemical and rheological properties dictate its performance in a broad range of applications in food, pharmaceuticals, nutraceuticals, cosmetic and other industries. To serve these diverse industries, the polymer is available in several grades which varies in their average particle size and bulk density. It manufactures MCC in various grades ranging from 15 microns to 250 microns. It has an in-house R&D Division, which is responsible for expanding its product portfolio and its application across industries by regularly interacting with customers to understand demand for new products.
Presence across diverse industry verticals with long standing relationship with customers: The company has developed long-term relationships with its customers in various sectors including pharmaceutical, nutraceuticals, food, nutraceuticals and cosmetics. Its business with some of its more recent customers has increased, since it added them to its customer portfolio, reflecting its ability to develop and strengthen relationships with customers. It attribute the strength of its customer relationships to its ability to customize its products based on customer specifications and requirements, as well as its track record of consistent delivery of quality and cost-effective products and solutions through its strategic alignment with its key customers’ goals and specifications over the years. It customers have unique requirements and preferences, and its R&D Division strives to fulfill such requirements and preferences by conducting various application tests in the in-house laboratories.
Risks and concerns
Reliant on demand from pharmaceutical industry: The company’s primary product MCC is used as a raw material in the pharmaceutical, food, nutraceuticals and the cosmetic industries, with supplies to the pharmaceutical industry at approximately 75% of its revenues for the quarter ended June 30, 2021 and for the Financial Years 2019, 2020 and 2021. Its revenues generated with supplies to the pharmaceutical industry for the quarter ended June 30, 2021 and for the fiscals 2019, 2020 and 2021 are Rs 3785.77 lakh, Rs 8,914.65 lakh, Rs 9,637.41 lakh and Rs 13,181.26 lakh respectively. Its revenues are highly dependent on its customers from the pharmaceutical industry and the loss of any of its customers from any industry which it cater to may adversely affect its sales and consequently on its business and results of operations.
Highly depend on major raw materials: The company is engaged in the business of manufacturing MCC of various grades and wood pulp in the form of wood pulp sheets is used as the primary raw material during its manufacturing process. Therefore, it is highly dependent on wood pulp sheets and it forms the most important and primary component of its manufacturing process. It majorly imports wood pulp sheets from Canada, South Africa, Thailand, Indonesia and America. Its top five suppliers accounted for 73.74%, 65.98%, 75.46% and 77.92% of its expenses towards the purchase of raw materials for the quarter ended June 30, 2021 and for the Fiscals 2021, 2020 and 2019, respectively. Thus, if the company experience significant increase in demand, or need to replace an existing supplier, it cannot assure you that it will be able to meet such demand or find suitable substitutes, in a timely manner and at reasonable costs, or at all.
Depend on few customers of product: While the company typically have long term relationships with its customers, it has not entered into long terms agreements with its customers and the success of its business is accordingly significantly dependent on it maintaining good relationships with its customers and suppliers. The actual sales by the company may differ from the estimates of its management due to the absence of long-term agreements. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtain from them could have an adverse effect on its business, results of operations, financial condition and cash flows. It cannot assure you that it will be able to maintain historic levels of business and/or negotiate and execute long term contracts on terms that are commercially viable with its significant customers or that it will be able to significantly reduce customer concentration in the future.
Requires significant amount of working capital: The company’s business requires a significant amount of working capital. As per its settled business terms, it require its customers to pay the full amount of the consideration only after they receive the order, as a result, significant amounts of its working capital are often required to finance the purchase of raw material and execution of manufacturing processes before payment is received from its customers. Further, it is also required to meet the increasing demand and for achieving the same, adequate stocks have to be maintained which requires sufficient working capital. In these times where the world is facing a health crisis due to the ongoing pandemic, the pharmaceutical industry all over the world is expecting an increase in demand which would directly increase the demand of its products due to their usage as an excipient for finished dosages in this industry.
Outlook
Incorporated in 1989, Sigachi Industries 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. The company manufactures MCC of various 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. Presently, the company manufactures 59 different grades of MCC at the manufacturing units, situated in Hyderabad and Gujarat. The company has an in-house R&D division equipped with the necessary facilities to carry out all necessary trials to develop new molecules from concept to commissioning. All its manufacturing facilities have a fully equipped Quality Division with experienced and qualified staff to carry out quality checks and inspections at all the stages of its manufacturing process. On the concern side, the company is yet to place orders for 83.00% of the equipment, plant and machinery for expansion at existing facilities situated at Dahej and Jhagadia as well as for installation at the Proposed Unit. The commercial success of its products depends to a large extent on the success of the products of its end use customers. If the demand for the end use products in which its products are used as a raw material decline, it could have a material adverse effect on its business, financial condition and results of operations.
The issue has been offered in a price band of Rs 161-163 per equity share. The aggregate size of the offer is around Rs 123.88 crore to Rs 125.42 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue increased by Rs 5,206.15 lakh, or by 36.17%, from Rs 14,394.90 lakh in the Financial Year 2020, to Rs 19,601.05 lacs in the Financial Year 2021. It recorded an increase in its profit by Rs 994.48 lakh or by 48.95% from Rs 2,031.55 lakh in Financial Year 2020 to Rs 3,026.03 lakh in Financial Year 2021. Profit after tax as a percentage of total revenue stood at 15.44% for Financial Year 2021 versus 13.97% for Financial Year 2020. The company intends to expand the production capacity of MCC by increasing the manufacturing capacity of its units situated in Dahej and Jhagadia as well as setting up of the Proposed Unit which will result in an increase in revenues and profitability. The strategic decision to expand its manufacturing units will increase its ability to cater to the expected increase in demand of its products. It intends to increase its market share by exploring untapped markets by offering innovative value-added products, as part of its strategy to widen growth prospects. It shall also continue to explore opportunities in different regions and countries abroad to enhance its geographical reach.
