In what was the biggest week for Indian startups in over a decade, one company, in particular, made a bang — Sigachi Industries. And in today’s edition, we see why investors are raving about the company.


The Story

What is Sigachi Industries and what does it do? That was the big question last week — a week during which we saw PolicyBazaar and PayTM raise billions. Because Sigachi, despite taking home a measly $17 million during its IPO, outperformed everyone on the block as it hit Dalal Street with a massive listing gain of 252.7%. Put another way, if you were allotted Sigachi shares during the IPO, you could have more than tripled your investment. In fact, it ended the day 270% higher than the IPO price of Rs 163. It had the second-best IPO debut ever.

Pretty crazy, right?

But once again, we must address the elephant in the room. What does the company actually do? Well, Sigachi happens to be the leading manufacturer of something called MCC (microcrystalline cellulose) in India. And if you’re scratching your head at that, don’t worry, it’s not that complicated. You know how tablets disintegrate pretty quickly when you put them in a glass of water. Well, that’s because tablets are supposed to do that. They’re supposed to dissolve in your stomach and enter the bloodstream. Now usually they come out as powders. But if you want to bind them together, you need MCC. And for Sigachi nearly 75% of its revenues come from the pharmaceutical sector — mostly exports.

And that makes them a reasonably important player in India’s burgeoning pharmaceutical ecosystem. But since MCC does its job so well, it’s also used in other industries. That frozen dessert that you picked up at your kirana store? Well, that may have contained MCC. The cheese that you love snacking on? Maybe there’s some MCC there too. Even that dressing on your salad may contain MCC. So while you may not have heard of it before, you will probably have ingested it nonetheless.

Now that we know what the company does, let’s see why its IPO popped so spectacularly, shall we?

Well, for starters, in a world where loss making unicorns are going public at astronomical valuations, this pharma-related company was profitable and “cheap” in comparison. The company was priced at just 15 times the earnings it made during the financial year 2021. For context, even the Nifty 50 is trading at over 27 times its overall earnings.

It also didn’t hurt that there aren’t any other MCC manufacturers that are listed on the Indian stock markets. That gave Sigachi a scarcity premium — the kind of stuff that happens when investors feel that this is the only stock that can help them ride the MCC wave. After all, the MCC market is projected to grow annually at 8% to reach the $1.6 billion mark by 2027 and it makes sense that some investors would be willing to pay a premium.

And there’s also the fact that existing investors didn’t cash out during the IPO. Whatever money Sigachi raised — It’s expected to fuel future expansion. And that tells you that investors have a lot of confidence in the company’s future prospects.

But at the end of it all, this is also partly attributable to the fact that some people got things wrong i.e. The investment bankers who priced the IPO. They’re the folks in suits who crunch numbers, gauge investor sentiment, and then decide the price at which the company could potentially sell its shares to the public. Considering the shares eventually listed at 250% premium, it’s fair to say that they got the pricing wrong. If they’d priced it higher, maybe the company could have raised more money without diluting as much of its stake.

But in any case, that’s in the past now. And while very few people knew about Sigachi just a few weeks prior, now they’re the talk of the town. In fact, research analysts peg that the stock may jump another 50% within a month, and even if that prophecy doesn’t come true, the company would still have ridden a purple patch like no other.

Until then…

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