Sigachi Ind IPO review (Apply)

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Review By Dilip Davda on October 26, 2021

•    The company enjoys a virtual monopoly in its products and has wide demand.
•    The company has posted consistent growth in bottom lines and has paid dividends.
•    On all parameters, the issue appears reasonably priced. 
•    The listing in the "T" group may curtail speculative moves in the initial stage.
•    Investors may consider investment for the medium to long term rewards.

ABOUT COMPANY:
Sigachi Industries Ltd. (SIL) is in the business to manufacture chlorinated paraffin and hydrochloric acid in its manufacturing unit situated in Hyderabad. In the year 1990, the Company diversified its product portfolio to manufacture microcrystalline cellulose ("MCC"). SIL commenced its export operations in the year 1996 by exporting its first order of MCC to Bangkok. Owing to the consistent efforts of, the sale from export operations constituted 32% of total sales during the financial year ending March 31, 2004. In the year 2000, with an aim to diversify business activities, the Company started manufacturing premium grade microcrystalline cellulose by successfully commissioning a spray drier and a multi-fuel furnace, which in turn also increased manufacturing capacity from 720 metric tonnes per annum to 1,080 metric tonnes per annum. 

Presently, it manufactures 59 different grades of MCC at its manufacturing units, situated at Hyderabad and Gujarat with an aggregate installed capacity of 11,880 MTPY. With over 30 years of continuous growth, three multi-locational manufacturing facilities and a consistent focus on delivering premium quality products, SIL is one of the leading manufacturers of MCC (cellulose-based excipients) in India (Source: Research Report on Microcrystalline Cellulose (MCC) & Croscarmellose Sodium (CCS) Industry). The company also entered into operations and management agreements with Gujarat Alkalies and Chemicals Limited ("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 the said units.

SIL 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 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 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, tabletting properties, etc. AceCel on the other hand is manufactured through the bulk drying process. SIL 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.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for expansion at Dahej plant (Rs. 28.16 cr.), expansion of Jhagadia plant (Rs. 29.24 cr.) and funding for proposed CCS manufacturing unit at Kurnool (Rs. 32.30 cr.) and general corporate purpose, SIL is coming out with a maiden IPO of 7695000 equity share of Rs. 10 each via book building route with a price band of Rs. 161 to Rs. 163 per share. The company mulls mobilizing Rs. 125.43 cr. at the upper price band. The issue opens for subscription on November 01, 2021, and will close on November 03, 2021. Minimum application to be made for 90 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.03(on a % of the post issue paid-up capital of the company. SIL has allocated 50% for QIB, 15% for HNIs and 35% for the Retail investors. 

The issue is solely lead managed by Unistone Capital Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. 

Having issued the initial equity capital at par, the company raised further equity in the price range of Rs. 12.50 to Rs. 59 per share (based on FV of Rs. 10) between September 2008 and March 2017. It has also issued bonus shares in the ratio of 1 for 2 in March 2013, 3 for 2 in November 2019 and 2 for 1 in July 2021. 

The average cost of acquisition of shares by the promoters is Rs. 1.00, Rs. 1.41, Rs. 2.36 and Rs. 3.93 per share. Post issue, SIL's current paid-up equity capital of Rs. 23.05 cr. will stand enhanced to Rs. 30.74 cr. Based on the upper price band, the company is looking for a market cap of Rs.501.10 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, SIL has (on a consolidated basis) posted turnover/net profit of Rs. 132.88 cr. / Rs. 19.01 cr. (FY19), Rs. 143.95 cr. / Rs. 20.32 cr. (FY20) and Rs. 196.01 cr. / Rs. 30.26 cr. (FY21). For the first three months ended on June 30, 2021, of FY22, it has reported a net profit of Rs. 8.99 cr. on a turnover of Rs. 55.12 cr. Though it suffered a minor setback in top line for FY20, its bottom line has shown growth for all these periods. 

For the last three fiscals, the company has posted an average EPS of Rs. 10.88 and an average RoNW of 51.54%. The issue is priced at a P/BV of 3.64 based on its NAV of Rs. 44.79 as of June 30, 2021, and at a P/BV of 2.19 based on its NAV of Rs. 74.38 (at the upper cap). 

If we annualise FY22 earnings and attribute it to fully diluted post IPO equity capital, then the asking price is at a P/E of 13.93. Thus issue appears reasonably priced. 

DIVIDEND POLICY:
SIL has paid a dividend of 10% per year for the last three fiscals. Thus it is a dividend-paying company. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, SIL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The sole BRLM to this issue has handled 5 public issues in the past three years out of which one issue closed below the issue price on the listing date. 

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