Here is how to take a valuation view on the Sigachi IPO

download 40 Here is how to take a valuation view on the Sigachi IPOThe IPO of Sigachi Industries Ltd opens on 01-November and will close for subscription on 03-November. Sigachi Industries Ltd is a key player in the manufacture of Microcrystalline Cellulose (MCC). Incidentally, this MCC finds extensive application in the finished dosages in the pharmaceutical industry. The company will be issuing a total of 76.95 lakh shares as part of the fresh issue which at the upper end of the price band would be worth Rs.125.43 crore.

Sigachi Industries Ltd manufactures Microcrystalline Cellulose or MCC of various grades ranging from 15 microns to 250 microns. Its product palate includes the manufacture of 59 different grades of microns across its plants in Hyderabad and in Gujarat. Sigachi has one manufactured unit located in the southern city of Hyderabad while the other two manufacturing units are located in Jhagadia and Dahej in the state of Gujarat.

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The company will issue 76.95 lakh fresh shares with no OFS component. The market cap of Sigachi on listing will be Rs.501 crore based on the upper end of the price band. The IPO is happening at a price earnings ratio of 15.1 times. Post issue, the promoter stake will come down from 65% to 48% while the public shareholding will go up from 35% to 52%.

%name Here is how to take a valuation view on the Sigachi IPO

The company has been consistently growing its sales revenues and also its net profits on a CAGR basis over the last 3 years. It continues to report profit as of the latest June 2021 quarter also. The asset turnover ratio of the company is healthy at close to 1.5X and that is likely to drive profitability of the company going ahead.
Valuations thoughts on the Sigachi Industries Ltd IPO

Here is how to take a valuation view on the Sigachi IPO

  • The IPO is entirely a fresh issue with no OFS component in the IPO. The IPO will entail the issue of 76.95 lakh shares and at the upper end of the price band of Rs.163, it works out to an issue size of Rs.125.43 crore. The IPO price band has been fixed in the range of Rs.161 to Rs.163 with a minimum market lot of 90 shares.
  • The company is existing profit making and consistently profitable in all last three fiscal years. For FY21, Sigachi Industries reported net profits of Rs.30.26 crore on revenues of Rs.196 crore. That translates into a healthy net profit margin of 15.44% for FY21. The asset turnover at above 1.5 is also attractive in this case.
  • Sigachi has the advantages of entrenched position in the manufacture of MCC which has resulted in long standing market presence, deep relationships with customers and resulting in a lot of repeat business. Its plants are also strategically located in proximity to the major demand pockets.
  • The IPO funds will be used by Sigachi Industries for expanding its footprint. While it will invest Rs.29 crore to expand MCC capacity at Dahej plant, another Rs.30 crore will be used to expand MCC capacity at Jhagadia unit, also in Gujarat. In addition, another Rs.33cr will be allocated for the manufacture of CCS at the proposed unit.
  • The MCC market is a niche and specialized market and also huge in size in India and globally. Hence it is likely to keep the demand for the products of Sigachi Industries Ltd ticking and robust.

The IPO is reasonably priced at just about 15 times earnings , and so do you think this would makes the IPO worth a chance?

Share your review here in the comment section below.

Disclaimer

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