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Monday, 1 November 2021
CM RATING50/100
 

Sigachi Industries

Manufacturer of Pharma Excipients

Capex to enhance Dahej and Jhagadia production by 3,600 mtpa each and an unit at Kurnool to manufacture 4-mtpd CCS


Incorporated in 1989,Sigachi Industries, the company started its journey manufacturing chlorinated paraffin and hydrochloric acid in its manufacturing unit situated at Hyderabad. The company diversified its product portfolio in 1990 to manufacture microcrystalline cellulose (MCC). MCC 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.

Promoters of the company are Rabindra Prasad Sinha, Chidambarnathan Shanmuganathan, Amit Raj Sinha and RPS Projects & Developers Private Limited. Promoters and Whole-time Directors, Rabindra Prasad Sinha and Chidambarnathan Shanmuganathan have been associated with the company since the inception. Amit Raj Sinha is the Promoter, Managing Director and the Chief Executive Officer of the company. Corporate Promoter was incorporated on March 15, 2007, as a private limited company under the name ‘RPS Projects & Developers Private Limited. The promoters of RPS Projects & Developers Private Limited are Rabindra Prasad Sinha, Amit Raj Sinha and Nitin Raj Sinha.

The company commenced its export operations in the year 1996 by exporting its first order of MCC to Bangkok. Owing to the consistent efforts of the company, 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 (mtpa) to 1,080 mtpa. 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 mtpa.

With over 30 years of continuous growth, three multi-locational manufacturing facilities and consistent focus on delivering premium quality product, the company is one of the leading manufacturers of MCC (cellulose-based excipients) in India & Croscarmellose Sodium (CCS). It has also entered into operations and management agreements with Gujarat Alkalies and Chemicals (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.

The company 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 makesHiCel 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 various grades of MCC have varied applications in different segments like pharmaceuticals, food, nutraceuticals, cosmetics, etc. The company caters to these industries and has therefore set up an in-house research and development division to realize and explore the new facets of cellulose-based excipients. Its research and development division (R&D division) is in Unit II and Unit III with the objective to implement a performance-oriented approach with the help of technologies developed in-house. The R&D division is equipped with the necessary facilities to carry out all necessary trials to develop new molecules from concept to commissioning. A team of experts carries out various application tests in its in-house R&D laboratory on all the constituents of products, to ascertain the true nature of the constituents and ensure the quality of products as per the customer requirements and international standards. The R&D division works on specific projects along with experts in their respective fields, focusing on application research to explore new grades of MCC. This ensures that the needs and demands of the customers who desire to customize the final products suitable to their specific needs are effectively taken care of. The laboratory at Unit II R&D division has been approved and has received an accreditation from Department of Science and Industrial Research (DSIR) to undertake research and development activities. Owing to the constant efforts of R&D Division, in the year 2007, the company for the first time registered its Drug Master File (DMF) under the US FDA, enabling it to augment its export operations. In the year 2011, the company was awarded the first prize at the Innovation Award Ceremony for MSME 2011 for presenting a model on the filtration process of wet MCC cakes, which reduces the time taken for filtration and provides an optimum pH level of such cakes, for further processing. The said filtration model is being implemented by it in its manufacturing process of MCC.

The company has quality control and assurance division (Quality Division) in all its manufacturing units which carries out all the required tests on the materials received including raw materials which are used in the manufacturing process and on the final products. The quality division also carries out tests on all the stages of manufacturing processes to ensure that the quality is built through the process. The company ensure adherence to the domestic and international standards laid down for its products. The company has received various certifications for the manufacturing process, managements systems implemented, and the raw materials used during the manufacture of the products. It has received an attestation of conformity for complying with the cosmos standard of the non-organic raw materials granted by Ecocert Greenlife. It has also received a certificate of suitability from European Directorate for the Quality of Medicines and HealthCare in December 4, 2020. It has also been awarded with certifications for maintenance of quality management system in production of micro crystalline cellulose / powdered cellulose as per EXCiPACTTM, HACCP (Hazard Analysis Critical Control Points), ISO 22000:2005, ISO/TS 22002-1:2009 and ISO 9001:2015. It has received certifications for quality manufacturing process of MCC and co-processed excipients from Jamiat Ulama Halal Foundation and KenesethEliyahoo Synagogue. In 2020, the company received a certificate of registration from United Registrar of Systems for recognizing the quality management systems of all its manufacturing units, which are compliant with ISO 9001:2015.

The company 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 international customers. The company 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.

The company enjoys certain benefits of incentives under the “Merchandise Exports from India Scheme” (MEIS) and “Duty Drawback Scheme” provided by the Central Government of India. Under the MEIS scheme, a percentage of achieved FOB (Free on Board) value of 2%, 3%, or 5% of the exports is paid as incentives. The incentives are paid as the MEIS duty credit scrip that will be used to pay for numerous taxes/duties along with the excise duty/customs tax. The duty credit scrips issued under MEIS are easily transferable and are to be used to pay excise duty, service tax, and customs duty. Further, under the duty drawback scheme, the excise duty suffered on inputs, service tax paid for input service and customs duty paid on imported raw material during manufacturing of export goods are remitted after export of such goods. These incentives help the company to promote export activities and widen international global footprint.

The major raw material used during the manufacture of MCC is purified dissolving wood pulp bales. These are imported from Canada, South Africa, Thailand, Indonesia, and America from various suppliers. The chemical and physical properties of the pulp determine the final quality of finished products. The wood pulp bales are imported based on the quality and the price at which they are available with the suppliers.The company also uses hydrochloric acid and other auxiliary chemicals for converting wood pulp into MCC, these materials are sourced domestically. All its raw materials are easily available in the market.

The company majorly sells its finished products to various end users, merchants, distributors, and experts. Top 5 customers sales in FY2021 stood at Rs 87.08 crore which formed 47.93% of total sales. Top 10 customers sales in FY2021 stood at Rs 110.87 crore which formed 60.6% of total sales.

Offer and its objects

The offer comprises fresh issue of 7695000 equity shares aggregating up to Rs 125.43 crore at upper price band of Rs 163 and Rs 123.89 crore at lower price band of Rs 161.

The company proposes to utilize the net proceeds from the issue towards funding capital expenditure for expansion of production capacity for microcrystalline cellulose at Dahej Gujarat amounting Rs 28.16 crore, for expansion of production capacity for microcrystalline cellulose at Jhagadia, Gujarat amounting Rs 29.24 crore, to manufacture Croscarmellose Sodium, a modified cellulose used as excipient at Kurnool, Andhra Pradesh amounting Rs 32.3 crore and balance for general corporate purposes.

The company existing unit at Dahej which manufactures MCC has a capacity of 4680 mtpa and intends to enhance the production facilities by 3,600 mtpa to a total of 8,280 mtpa. Total estimated project cost is Rs 28.16 crore. The company expects to start commercial production from April 2023

The company existing unit at Jhagadia which manufactures MCC has an existing installed capacity to manufacture 2,400 MTPA and intends to enhance the production facilities by 3,600 mtpa to a total of 6,000 mtpa. The total estimated cost of towards the above expansion is estimated at Rs 24.78 crore.The company expects to start commercial production from January 2023

The proposed unit at Kurnool which will manufacture Croscarmellose Sodium (CCS), a modified cellulose used as an excipient with an expected installed capacity to manufacture 4 metric tonnes per day(mtpd). The total estimated cost of towards funding the selected capital expenditure at the proposed facility is estimated at Rs 32.30 crore. The company expects to start commercial production from November 2023.

Strengths

MCC market size is forecast to reach USD 1.4 billion by CY 2025, growing at a compounded annual growth rate (CAGR) of 7.25% during CY 20-25. The growth of the microcrystalline cellulose market is mainly driven by the rising demand for packaged food and the growing production of pharmaceutical and cosmetic and personal care products.

The MCC market size in India during CY 2020 is USD 38 million, estimated at USD 49 million in CY 2021 and is projected to reach USD 93 million by CY 2025, registering a CAGR of 13.84% from CY 21-25. The domestic 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.

The global CCS market during CY 2019 & CY 2020 is USD 76.46 & USD 81.96 million, estimated at USD 87.86 million in CY 2021 and is projected to reach at USD 116.04 million by CY 2025, registering a CAGR of 5.96 % from CY21-25. The growth of the CCS market is primarily triggered by the increasing demand for processed food and growing production of pharmaceutical and cosmetic & personal care products.

India being a major producer and exporter of generic drugs and with measures by the government to boost local production, a significant opportunity lies ahead for Pharma excipient companies in India with large manufacturing units. Sigachi Industries has invested in relevant expertise and capacity across three units situated in Hyderabad, Dahej and Jhagadia, to cater to the increasing demand for higher potency and niche drugs.

Owing to the increase in demand for oral solid pharmaceutical drugs and emergence of novel therapeutics, emerging markets are growing in importance for pharmaceutical excipient market. There is enormous potential for pharmaceutical excipients, and this is substantiated with growing healthcare expenditures, rising income levels, and improving health awareness amongst people. Excipient quality plays a vital role in assuring safety, quality, and efficacy of dosage forms.

The company has a legacy of more than three decades in the cellulose-based excipient industry and is 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.

The company customizes the usage and application of its products to various industries including but not limited to pharmaceutical, food, nutraceuticals and cosmetics owing to the inert non-reactive, free flowing and versatile nature of MCC.

Weaknesses

The industry faces competition from organized as well as unorganized players in the domestic market as well as in the international market. It has many competitors who manufacture products, which are same as them. Even with a diversified product portfolio, quality approach, innovative R&D facility, and modern technology it may have to face competitive pressures.

The company is highly dependent on wood pulp sheets, and it forms the most important and primary component of the manufacturing process. It majorly imports wood pulp sheets from Canada, South Africa, Thailand, Indonesia, and America. 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 FY2021, 2020 and 2019, respectively.

The company depends on a few customers for a significant portion of its revenue, and any decrease in revenues or sales from any one of key customers may adversely affect business and results of operations. The Top five customers formed 53.13%, 47.93%, 38.36% and 41.49% of total revenue from operations for the quarter ended June 30, 2021, and for FYs 2021, 2020 and 2019, respectively.

Any adverse change in the regulations governing the development of its products and their usage by customers, including the development of licensing requirements and technical standards and specifications or the imposition of onerous requirements, may have an adverse impact on its operations.

Some of the raw materials that it uses are corrosive and combustible in nature. There is a risk of fire and other accidents, at its manufacturing units and warehouses.

Valuation

In Q1 FY2022, consolidated sales were up by 25% to Rs 54.95 crore compared to Q2FY2021. This increase was primarily driven by volume increase and better realizations on MCC products due to optimal sales mix including special grades. OPM increased by 190 bps to 22.2% which led 37% growth in operating profit to Rs 12.21 crore. Other income decreased 84% to Rs 17 lakh mainly due to nil income from MEIS (Merchandise Exports from India Scheme) and duty drawback scheme.Interest cost fell 45% to Rs 24 lakh primarily on account of repayment of loans and securing lowered interest rates from its lenders and depreciation increased 20% to Rs 60 lakhprimarily due to purchase of plant and machinery to increase the production capacity. PBT was up 29% to Rs 11.55 crore. Tax expenses decrease 12% to Rs 2.56 crore. Net profit was up 48% to Rs 8.99 crore.

For FY 2021, consolidated sales were up by 39% to Rs 192.76 crore. OPM rose 230 bps to 20.1% which led to 57% increase in operating profit to Rs 38.79 crore. Other income decreased 33% to 3.25 crore while interest cost fell 47% to Rs 1.25 crore and depreciation increased 18% to Rs 2.31 crore. PBT increased 52% to Rs 38.48 crore. Tax expenses rose 64% to Rs 8.22 crore. Net profit increased 49% to Rs 30.26 crore.

At the higher price band of Rs 163, the offer is made at around 16.6 times its EPS of Rs 9.8 for the period ended March 31, 2021, on a post-issue equity share capital of Rs 30.74 crore of face value of Rs 10 each. The company has no listed industry peers similar to its line of business.

Sigachi Industries: Issue Highlights

Fresh issue (in no of shares)

7695000

Price Band (Rs)

161-163

For Fresh Issue Offer size (in Rs crore )

- in Upper price band

125.43

- in Lower price band

123.89

Pre issued capital (Rs crore)

23.05

Post issue capital (Rs crore)

30.74

Pre issue promoter shareholding (%)

64.64

Post issue Promoter shareholding

48.46

Bid Size (in No. of shares)

90

Issue open date

1/11/2021

Issue closed date

3/11/2021

Listing

BSE, NSE

Rating

50/100

Sigachi Industries: Consolidated Financials

Particulars

1903 (12)

2003 (12)

2103 (12)

2006 (03)

2106 (03)

Total Income

128.9881

139.06

192.76

43.79

54.95

OPM (%)

20.1

17.8

20.1

20.3

22.2

Operating Profits

25.96

24.76

38.79

8.89

12.21

Other Income

3.89

4.89

3.25

1.03

0.17

PBIDT

29.85

29.65

42.04

9.91

12.38

Interest

3.45

2.34

1.25

0.43

0.24

PBDT

26.40

27.30

40.79

9.48

12.15

Depreciation

1.67

1.96

2.31

0.50

0.60

PBT

24.73

25.34

38.48

8.98

11.55

Share of Profit/loss of JV

0.00

0.00

0.00

0.00

0.00

PBT

24.73

25.34

38.48

8.98

11.55

Provision for Tax

5.72

5.03

8.22

2.92

2.56

Profit after Tax

19.01

20.32

30.26

6.06

8.99

EPS (Rs)*

6.2

6.6

9.8

#

#

*EPS annualized on post issue equity capital of Rs 30.74 crore of face value of Rs 10 .each

# EPS is not annualized due to seasonality of business

Figures in Rs crore

Source: Capitaline Corporate Database