IPO update: Sigachi Industries

Sigachi Industries came out with its IPO four months ago, and you can find our detailed analysis of the issue here. In this update, we will look at the company's market performance and business performance post issue.

Our analysis of the IPO
Sigachi Industries manufactures MCC (Microcrystalline Cellulose), which is primarily used as an additive in the pharmaceutical industry for finished doses. The company manufactures MCC in 59 grades, from 15 microns to 250 microns, depending on its usage. This enables MCC to be used as an additive in various industries such as food, nutraceuticals, and cosmetics. The company has three manufacturing facilities, two units in Gujarat and one unit in Hyderabad, with a total capacity of 12,588 million tons per annum in all three facilities. We gave the company a score of 15 out of 26 based on its leadership in MCC production with no competition in the organised space and consistent growth in financial performance. Some of the concerns we had were its highly replicable business, dependence on few suppliers, and revenue concentration from the pharmaceutical industry.

Our rating of the company was based on the following factors:

• Out of 11 business metrics, the company did well only on three.
• Out of six management-related metrics, the company did well on all of them.
• Out of eight financial metrics, the company did well on six.
• On the only valuation-related metric, the company failed to perform well.

Stock performance since listing
Sigachi Industries had a great reception from the investors as it was subscribed by 101.9 times in total. The institutional portion was subscribed 86.5 times, the high net worth individuals portion was subscribed 172.4 times, and the retail portion was subscribed 80.5 times.

Due to huge interest from investors, the grey market premium shot up, due to which the company listed at Rs 575,252.7 per cent more than its issue price. This issue gave the investors one of the best listing gains of 2021. Trading at Rs 301 right now, almost all the gains that shareholders enjoyed on the listing were wiped out, as the price fell by 48 per cent from its list price.

Business performance
Sigachi Industries came out with impressive results for Q3FY22. Revenue increased by 36 per cent, and profits increased by 34 per cent on a YoY basis. The company's Managing Director, Amit Raj Sinha, said that increased demand on the export front and increased freight charges due to the nature of the contract.

The company's debt rating was upgraded by CARE from BBB to A-. It also received a letter of intent from Grasim Industries of Aditya Birla group to operate and manage three chlorine product plants. The managing director also said that the contribution of the food and cosmetics segment would increase in the coming years, decreasing the revenue concentration from pharmaceuticals.

What to do now?
Two major reasons many investors and we were interested in Sigachi Industries were its unique business with no direct organised competitors and reasonable valuation. But due to exceptional reception from investors, the latter skyrocketed. Despite the massive fall in the stock price in the last three months, the company is still trading at a price to earnings of 30.4 times and a price to book value of 3.8 times.

The business continues to have great potential as the underlying ingredients in various industries whose growth rates are attractive. Two brownfield projects are going on, and a greenfield project is expected to start soon to meet the increasing demand. Investors can consider investing after due diligence regarding products, use cases, financials and valuations.

Disclaimer: This analysis is not intended to serve as a recommendation. Readers must do thorough research before investing in this company. If you are interested in our stock recommendations, please visit Value Research Stock Advisor.

Also read:

Sigachi Industries IPO: Information analysis

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