Hello Sir,

Hope you are doing well.

Remember, a few days back we shared a mail on Key terms to know to analyse Pharma stocks. One of the terms in the same was Excipient.

Excipient is basically a constituent of medicine other than active substance, i.e., other than say API. It generally aids in lubricity, flowability, disintegration, taste, etc

So, we recently came across a company Sigachi Industries which makes excipients and supplies to pharma, food and cosmetics companies.

The stock listed recently in Nov’21. In general we don’t spend much time on new listings as there’s not much past history of management’s actions or corporate governance, what caught our eye was the fact that the stock is down from 600 odd levels to around 250 currently.

Numbers looked decent and we therefore thought of understanding the company in more detail.

Below, we have shared our notes (unedited) from the Q4 FY 22 con-call transcript of Sigachi Industries. Hope you find them useful for your own investments or to add the stock to your watchlist:


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Sigachi Industries - Q4 FY 22 concall transcript notes

  • Introduction – Sigachi Industries was incorporated in the year 1989 and today we are one of the largest manufacturers of Micro Crystalline Cellulose (MCC) in the world. The company manufactures high quality cellulose-based excipients, which predominantly find usage in the pharma, supplement and the food industry.
  • The company has created a niche in manufacturing highly innovative pre-formulated excipients and are using and selling 60+ widely used excipients
  • The company has two manufacturing facilities in Gujarat and one in Telangana
  • The company has a global sales and distribution network and exporting to more than 47 countries across Asia, America, American continent, Europe and Middle East
  • In FY 22, the revenue growth was mainly driven by the increased demand of Micro Crystalline Cellulose across all the industries with volume growth of nearly 13% and realization growth of nearly 19%. The company was able to successfully pass on the higher input cost to the customers
  • The blended capacity utilization across all the three plants increased to 93.27% in FY22 as compared to 89.29% in FY21. The sale of export products increased to 75.4% in FY22 from the previous year of 73.6%
  • The consumption of material reduced to 48% from the 52% due to adoption of cost-effective processes and product mix and focus on high margin yield products
  • MCC industry - MCC industry will continue to be primarily focused out of non-developed countries because this being a cheaper product compared to an API, it would be very challenging to manufacture it in place where there’s high people costs and high facility cost. The fact that we are importing our raw material from US and then exporting it back to the US and still having such margins speaks about the supply chain
  • All the units which are running in the EU region or the US region were set up around 15 years or may be 15-20 years back. There has been no recent set up of the facility in the developed market. The market leader DuPont had set up a facility in one grade of MCC in Thailand around 10 years back
  • Cellulose based excipient has been the prime focus for all the products in terms of inactive ingredients. Starch was there, starch is already on the lower side because of the way it is produced and lactose is also there. Lactose has been there, but lactose sourcing is a challenge and also lactose intolerance in terms of customers, in terms of patients, lactose is not the most preferred thing
  • Excipient business - challenges and opportunities - Excipient as an end product for pharma is a very small cost and there are several big players like DuPont, so what we have seen is that it is very difficult to break into any new customer because the switching cost is not so high for them and the end product prices are not very high for them, so they don’t want to take any risk in terms of changing the products of the vendor and risking the quality and all
  • This is both a challenge and an opportunity, challenge in terms of what you already spoke and opportunity that because the price points are insignificant in the end use, the customer stickiness is very high. So, if you have a customer base, you can be rest assured that if the customer is growing, you are bound to be growing. In terms of countering the challenge, the pre-formulated excipients are value adding more than what we are doing is kind of one of the best things we are doing
  • BASF has come out pre-formulated excipient but much later than us
  • Why strong growth in last 5 years...what's changed? - One of the prime reasons which has led to a substantial increase in our growth in our company has been me (Amit Raj Sinha), completing my MBA from the ISB and thereafter the seniors and the elders, the earlier generation of the company believing in me and my thoughts and my vision and giving me a free hand to kind of get things going
  • You would see that from FY19 or so, there has been kind of a change in the way we have been operating and the way we kind of have our EBITDA margins
  • The overall pharma and the food market continuously growing has been another significant reason that in a growing market it is much easier to grow and penetrate and capture customers
  • The third reason has been our decision to incorporate Sigachi US Inc. and kind of take forward the sales team there in connecting up with various other end customers in the US region. By virtue of doing that we have the last mile connectivity to all the pharma customers or rather majority of the pharma customers in the North America territory and thereby increasing our product portfolio
  • Plans to diversify from one product - if you see our product portfolio, historically we were only one product which was Micro Crystalline Cellulose. Gradually, we have moved on to integrate other inactive ingredients or other excipients into our fold
  • So, with that we are having preformulated excipients, so that is a value add to what we were already doing. Pre-formulated excipients itself has to take in such other ingredients before it can be sold out to the customer
  • Over and above that, like it was there in our RHP, we are looking to expand into Croscarmellose which is a cross-linked cellulose, so that is another related diversification
  • In case of Croscarmellose, we expect margins and realizations to be better than our current lines of MCC product and pre-formulated excipients
  • Competitors for Croscarmellose - We have the world number 2 Indian joint venture company by the name of Gujarat Microwax based out of Ahmedabad in India. They would be our prime competition and across the world it will be DuPont
  • Food industry - We export a reasonable quality of our cellulose-based ingredient to the food industry even now. The percentage is on the lower side, but what we see is that we have gradually started giving in certain food premixes which goes on dietary fibre or as emulsifier and stabilizer in the food industry. Cellulose by its technical nature is a dietary fiber, so because of this dietary fibre, it is an additive into anything which needs to be good for health and that makes it a very strong point. So likewise, we can kind of add in other ingredients and we can have a preformulated food ingredient which goes into any other food premix. So, on that basis, we had come out that this will be a substantial portion of our revenue going forward
  • Forex - Almost our raw materials are imported and we export around 75% of our products, there is a natural hedging to that extent
  • US contribution - FY22 – 23%, FY21 – 16.5%, FY20 – 9%
  • Why major sales (70-75%) from exports - Higher realization in export sales
  • Capacity expansion - Our total capacities from all these three facilities is more than 13,000 metric tons per annum which we are further enhancing through our ongoing CAPEX plans to reach 20,000 metric tons per annum
  • Realization - Around 160 per kg on blended basis in FY 22
  • Realization is a combination of lot of things, sir, which is a product mix, the market conditions, the rupee depreciation value, so among this the only thing in our control is to see that the product mix is more suitable and in terms of product mix, we have a combination of standard grade and special grades. Special grades are value added products which kind of give comfort to the customer by addressing more than one challenge and there of course price is a bit higher
  • Our special grade combination is only at 25% against the standard volume percentage of 75%, I mean 75 for the standard grade and 25 for the special grades and the special grades are priced more than 5,00,000-6,00,000 a ton
  • Margin - The gross margin is sustainable and we expect a favourable gross margin in coming years also. Freight cost is also under control and there also we will not see any negative impact, whatever the freight costs are there, we could pass it on to the customers
  • Guidance - For the coming years, we expect that the growth trend will continue with the current profitability at sustained levels. Furthermore, our capacity addition will be in the later part of FY23 and will also be contributing to the additional revenue growth in the coming financial year
  • what is that we are looking over 5-year horizon, we are looking to be the market leaders like you can see that we are growing our capacities by more than 60%, so we are looking to be the market leaders, so continue to be the market leaders for this line of product and cellulose as the base and grow our product portfolio. Parallelly, we are also looking at other opportunities in terms of food industry and other industry in the pharmaceutical segment

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Disclaimer: This is not a recommendation to buy/sell Sigachi Industries. These notes are as announced by the companies on exchanges and only for the purpose of information and education.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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