Sound fundamentals, growth prospects and reasonable valuation make it an acceptable offer.
| SIGACHI OFFER AT A GLANCE | |
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | 76,95,000 (Rs 125 Cr) |
| Offer for Sale | Nil |
| Face Value | Rs 10 |
| Price Band | Rs 161 – 163 |
| Mkt/Bid Lot | 90 Nos. |
| Implied M-Cap | Rs 501 Cr |
| Implied Equity Cap | Rs 30.74 Cr |
| Free Float | 51.54% |
| Lead Manager | Unistone Capital |
| Registrar | Bigshare Services |
| Listing At | BSE, NSE |
| INDICATIVE ISSUE SCHEDULE | |
| Opening : 1-Nov-2021 | Closing : 3-Nov-2021 |
| Allotment : 10-Nov-2021 | Refunding : 11-Nov-2021 |
| Demat Credit : 12-Nov-2021 | Trading : 15-Nov-2021 |
The Offer
Hyderabad-based Sigachi Industries Ltd (SIL) is entering the capital market with a fresh issue of 76,95,000 shares. The offer is being made through the book-building route with a price band of Rs 161-163 for Rs 10 paid-up share. At the cap price, the value of IPO amounts to Rs 125 Cr.
Applicants should bid for a minimum lot of 90 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on November 15, 2021. Unistone Capital is acting as the lead manager to the offer and Bigshare Services has been roped in as the registrar to the issue. The bidding opens on Monday, November 1 and closes on Wednesday November 3, 2021.
The company has proposed to utilize the IPO proceeds towards expansion of its Units at Dahej (Rs 28 Cr) and Jhagadia (Rs 29 Cr) and setting up of a new Unit for the manufacture of croscarmellose sodium at Kurnool (Rs 32 Cr).
Lineage
SIL was incorporated in January 1989 by Rabindra Prasad Sinha with the object of manufacturing chlorinated paraffin and hydrochloric acid at Hyderabad. Co-promoter
Chidambarnathan Shanmuganathan became a shareholder of the company a year later in February 1990 and the company diversified into the manufacture of microcrystalline cellulose (MCC). SIL commenced export operations in the year 1996.
The company claims to manufacture 59 different grades of MCC at its manufacturing facilities situated at Hyderabad, Dahej and Jhagadia with an aggregate installed capacity of 11,880 MT. With over 30 years of standing and three manufacturing facilities SIL has become one of the leading manufacturers of MCC in India.
It has also entered into operation and management agreements with Gujarat Alkalies and Chemicals Ltd (GACL) for operating and managing the manufacturing units owned by GACL and for contract manufacturing of sodium chlorate, stable bleaching powder and poly aluminum chloride in GACL’s units.
Key Management
Promoter and one of the original signatories to the memorandum, Rabindra Prasad Sinha (71), who holds a bachelor’s degree in science (chemical engineering) from Bihar Institute of Technology and a master’s degree in chemical engineering from Banaras Hindu University, is designated as Whole-time Director.
Co-promoter Chidambarnathan Shanmuganathan (78), who holds a bachelor’s degree in science from University of Madras and postgraduate diploma in business administration from Annamalai University, is also designated as Whole-time Director.
R P Sinha’s son, Amit Raj Sinha (48), who holds a bachelor’s degree in technology with a specialization in mechanical engineering from the Jawaharlal Nehru University, New Delhi and a fellow member of the Institute of Engineers, is designated as Managing Director and Chief Executive Officer of the company.
Vijaykumar Amrutlal Bhavsar (52), whose HUF holds 3.54% equity capital of the company, has been made Whole-time Director of the company from September 28, 2021.
Stakeholders
In January 2020, the company has reclassified its promoter. Accordingly, Rabindra Prasad Sinha, Chidambarnathan Shanmuganathan, Amit Raj Sinha and RPS Projects & Developers P Ltd are presented as the promoters of the company. Whereas the R P Sinha group controls the major chunk of 52.85% (out of the total promoters’ stake of 64.64%), Chidambaranathan group holds only 11.79%. Post-IPO the promoters would collectively hold 48.46% of which 39.62% will be with Sinha group.
Business Track
SIL has a legacy of more than three decades in the cellulose-based excipient industry. It manufactures and markets under its own brand names, such as HiCel, AceCel, HiCel MCG, AceFibre, HiCel SMCC, etc. The company’s products (various grades of MCC) are widely used as an excipient for finished dosages in the pharmaceutical industry. The company derives nearly three-fourths of its revenue from overseas market.
SIL operates three manufacturing units. Unit I is situated at Hyderabad and Unit II and Unit III are located at Jhagadia and Dahej in Gujarat. Hyderabad Unit has a capacity of 6048 MT and achieved 87% utilization in fiscal 2021. Dahej Unit, having a capacity of 4380 MT, utilized 95% and Jhagadia Unit produced 85% of its capacity of 2160 MT last year. The company foresees an increase in demand of MCC and to the tap the growing market, it intends to enhance the production capacity of its existing Units at Dahej and Jhagadia.
Financial Track
Barring fiscal 2020, SIL has registered impressive growth in recent years. The company’s top line has nearly doubled in three years and its EBIDTA has tripled in this period. Margin has remained above 20% in last three years. Net profit has more than quadrupled during this period. Even on the proposed equity capital of Rs 30.74 Cr the current bottom line yields an EPS of close to Rs 10. What’s more, the company has consistently paid a dividend of 10% in last three years.
| Sigachi Industries Consolidated Financials (in Cr) | ||||
| Period Ended | Mar-21 | Mar-20 | Mar-19 | Mar-18 |
| Months | 12 | 12 | 12 | 12 |
| Revenue | 192.76 | 139.06 | 128.99 | 100.73 |
| Operating Profit | 38.79 | 24.76 | 25.96 | 11.73 |
| OPM% | 20.1 | 17.8 | 20.1 | 11.6 |
| Other Income | 3.25 | 4.89 | 3.89 | 3.05 |
| EBIDTA | 42.04 | 29.65 | 29.85 | 14.79 |
| EBIDTA % | 21.5 | 20.6 | 22.5 | 14.2 |
| Interest | 1.25 | 2.34 | 3.45 | 3.79 |
| Depreciation | 2.31 | 1.96 | 1.67 | 1.39 |
| Net Profit | 30.26 | 20.32 | 19.01 | 6.92 |
| Equity (Implied) | 30.74 | 7.68 | 3.07 | 3.07 |
| Reserves (Implied) | 198.00 | 56.90 | 41.81 | 23.27 |
| Borrowing | 20.20 | 28.94 | 23.26 | 28.35 |
| Fixed Assets | 41.40 | 34.40 | 30.40 | 26.60 |
Valuation
SIL has kept a price band of Rs 161 – 163 for Rs 10 paid up share which is quite reasonable when compared with its current earnings. Of course, the price is very steep as compared to the promoters’ average cost of holding, which is less than Rs 3 per share.
However, a noteworthy aspect of SIL’s IPO is, the promoters are not selling their shares under the IPO and the entire IPO amount will go to the company for its expansion plans. Also, when loss making companies’ promoters, founders and investors are asking huge premium for their offer for sale in these days, a price of Rs 163 for a consistently dividend paying company whose current earnings are close to Rs 10 per share even on the expanded capital is quite justified.
Moreover, since the company is on an expansion mode, one can expect a decent return when the new capacities generate profits.
|
HOW SIGACHI COMPARES WITH SELECT PHARMACHEM PLAYERS |
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|
Financials |
|||||
| (Amount in Cr) |
Sigachi Ind |
Chemcrux | Samrat | Ishita |
Roopa Ind |
| Market Cap |
501 |
195 | 64 | 14 |
13 |
| Borrowing |
20 |
1 | 9 | 0 |
13 |
| Fixed Assets |
41 |
20 | 9 | 1 |
11 |
| Revenue |
193 |
53 | 179 | 14 |
27 |
| Other Income |
3 |
1 | 0 | 0 |
2 |
| EBIDTA |
42 |
13 | 9 | 1 |
3 |
| Net Profit |
30 |
9 | 5 | 1 |
1 |
| Equity Cap |
31 |
15 | 3 | 3 |
8 |
| Reserves |
198 |
26 | 27 | 5 |
4 |
|
Stock Features |
|||||
| Current Price (Rs) |
163 |
131 | 208 | 46 |
17 |
| Face Value (Rs) |
10 |
10 | 10 | 10 |
10 |
| Book Value |
74.41 |
27.59 | 95.92 | 26.05 |
14.7 |
| Promoter Stake % |
48.46 |
72.94 | 49.3 | 47.87 |
48.03 |
|
Profitability |
|||||
| OPM % |
20.1 |
23.5 | 4.8 | 6.6 |
2.6 |
| Net Margin % |
15.4 |
16.4 | 3.0 | 5.8 |
2.5 |
| Cash EPS |
10.59 |
6.81 | 18.86 | 3.26 |
1.94 |
| Earnings Per Share |
9.84 |
6.00 | 17.26 | 2.77 |
0.91 |
|
Growth |
|||||
| CAGR 3Yr Sales % |
23.4 |
18.9 | 24.4 | 25.7 |
12.3 |
| CAGR 3Yr EBIDTA % |
41.7 |
38.5 | 13.7 | 28.6 |
11.4 |
|
Return |
|||||
| RONW % |
29.3 |
21.8 | 18 | 10.6 |
6.2 |
| ROCE % |
32.2 |
29.4 | 22.4 | 13.9 |
8.3 |
|
Discounting |
|||||
| Price/Earnings |
16.6 |
21.9 | 12.1 | 16.6 |
18.4 |
| Price/Cash EPS |
15.4 |
19.3 | 11.0 | 14.1 |
8.6 |
| Price/Book Value |
2.2 |
4.8 | 2.2 | 1.8 |
1.1 |
| Price/EBIDTA |
11.9 |
14.6 | 7.1 | 11.2 |
4.7 |
| Price/Revenue |
2.6 |
3.7 | 0.4 | 1.0 |
0.5 |
| Price/Fixed Assets |
12.1 |
9.6 | 6.9 | 13.9 |
1.3 |
|
Distribution |
|||||
| Dividend % |
10 |
20 | 0 | 0 |
0 |
| Yield % |
0.6 |
1.5 | 0 | 0 |
0 |
| Pay-out % |
10.2 |
33.3 | 0.0 | 0.0 |
0.0 |
Concern
- The estimated cost of Rs 90 Cr of the proposed expansion and addition of manufacturing facility has not been appraised by any external agency.
- The company is yet to place orders for 83% 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. Any delay in placing orders or procurement of such plant and machinery may delay the schedule of implementation and possibly increase the cost of commencing operations.
- The company had earlier engaged Saffron Capital Advisors as the Book Running Lead Manager for the IPO and filed the DRHP in September 2020. Subsequently, as the company revised the issue size upward and resolved to appoint a new issue manager, Saffron has sent a Demand Notice under the Insolvency and Bankruptcy Code, 2016 to the company and has claimed an amount of Rs. 7.90 Cr!
- In the past, there have been instances of delays and non-filings of certain forms under the Companies Act and there have also been instances where the company had inadvertently filed incorrect information with the RoC! Further, certain records and regulatory filings of the company are not traceable.