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Sigachi Industries Limited IPO Details

Add to Calendar 2021-11-01 12:00 AM 2021-11-03 12:00 AM Asia/Kolkata Sigachi Industries Limited IPO Details Sigachi Industries Limited India

IPOs are back in the space after some time with many IPOs coming in the month. Another IPO that will be hitting the markets the next week is Sigachi Industries Limited (Sigachi). The IPO has an issue size of Rs. 125.43 Crores which entirely comprises of fresh issue.

 Issue Details:

·       Dates: November 1, 2021 to November 3, 2021

·       Price Band: Rs. 161 to Rs. 163 per share

·       Minimum Lot: 90 shares

·       Minimum Application Amount: Rs. 14,670

 Objects of the Issue

The proceeds of the fresh issue are expected to be utilized towards:

·       Expansion of production facilities for microcrystalline cellulose (MCC) at Dahej – Rs 22.57 crores

·       Expansion of production facilities for microcrystalline cellulose (MCC) at Jhagadia – Rs 24.78 crores

·       Rest of the amount will be used for general corporate purposes

 Company Overview

Sigachi Industries Limited was incorporated as a private limited company in 1989, with the business to manufacture chlorinated paraffin and hydrochloric acid in our manufacturing unit situated at Hyderabad. In the year 1990, Company diversified its product portfolio to manufacture microcrystalline cellulose (MCC). Sigachi commenced its export operations in the year 1996 by exporting its first order of MCC to Bangkok.

They are engaged in MCC which is widely used as an excipient for finished dosages in the pharmaceutical industry. It is also used in food, nutraceuticals, and the cosmetic industries. The company operates three manufacturing units namely, Unit – I situated at Hyderabad and two manufacturing units, Unit – II and Unit – III are situated in Gujarat at Jhagadia and Dahej respectively.

 Key Strengths

·       The MCC market globally is projected to grow at a CAGR of 7% between 2019 and 2024. The MCC market in India is projected to reach USD 115 million by 2022, registering a CAGR of 6.25% from 2018 to 2022. The growth of the MCC market is primarily triggered by the increasing demand for processed food and the growing production of pharmaceutical and cosmetic & personal care products. MCC manufactured from non-wood sources is an emerging trend in the market and is projected to grow at a healthy pace. Since the macro-level growth is taking pace, the demand will likely grow from here onwards and thus provide the company opportunities to grow.

·       The company has a well-experienced management team with proven project management and implementation skill. The company is one of the leading manufacturers of the cellulose-based excipient industry in India with over 30 years of experience and multiple applications across industries.

·       The company shows healthy financial growth and track record. The total revenue grew at a CAGR of 22.24% between FY2020 and FY2021, while PAT grew at a CAGR of 26.16% between the same periods. They also have a low debt-to-equity ratio of 0.69.

 

Key Risks

·       Among the key business risks the company has stated that its commercial success is largely dependent upon our ability to develop and devise innovative grades of cellulose-based excipients and the company is unable to innovate making the portfolio redundant.

·       The company is highly dependent on the major raw materials and has only a few key suppliers. Therefore, it faces supplier concentration risk. They have not entered into long-term agreements with their suppliers for the supply of raw materials. Also, there are only a few customers which increases the customers' bargaining power.

·       The key risk in the statement is that the receivables of the company are increasing and comprise more than 25% of the assets.

·       Lastly, the company is not that confident in the success of the expansion of its manufacturing units using the funds raised in the IPO.

Samco's Stance

Sigachi has sound financial growth and margins coupled with decent growth opportunities. However, they do not hold a dominant position in any of the space which increases the overall risk of the company. Further, there are no listed entities similar to Sigachi's line of business and comparable to their scale of operations and hence, it is not possible to make a fair assessment of its valuation on a comparative basis.

On the other hand, due to the small issue size of the IPO, it is highly likely to get oversubscribed. Thus, only investors with a healthy risk appetite are recommended to SUBSCRIBE to the IPO from a listing gains perspective only.

Issue Detail

  • Issue Open: Nov 01, 2021
  • Issue Close: Nov 03, 2021
  • Issue Type: Book Built Issue IPO
  • Face Value: Rs. 10 per equity share
  • Price Band: Rs. 161 to Rs. 163 per equity share
  • Bid Lot:1 Shares
  • Minimum Order Quantity:90 Shares
  • Listing At: BSE, NSE
  • Issue Size: Rs. 125.43 Cr

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