One business in particular made a splash in what was the greatest week for Indian startups in almost a decade: Sigachi Industries. And in today's issue, we find out why investors are so enthusiastic about the firm.
The Synopsis
What is the purpose of Sigachi Industries? That was the major question last week, when PolicyBazaar and PayTM raised billions of dollars. Because Sigachi surpassed everyone on the block when it struck Dalal Street with a tremendous listing gain of 252.7 percent, while bringing home just $17 million during its IPO. To put it another way, if you had been assigned Sigachi shares during the IPO, your investment might have more than quadrupled. In fact, it closed the day 270 percent higher than the initial public offering price of Rs 163. It had the second-best initial public offering (IPO) debut ever.
Isn't it incredible?
However, we must once again face the elephant in the room. What exactly does the business do? In India, Sigachi is the major maker of MCC (microcrystalline cellulose). And if that has you scratching your head, don't worry; it's not that difficult. When you put a tablet in a glass of water, you know how fast it dissolves. That's because tablets are designed to do just that. They should dissolve in your stomach and then enter your circulation. They generally come out as powders now. However, if you wish to connect them, you'll need MCC. And the pharmaceutical industry accounts for over 75% of Sigachi's income, with most of it coming from exports.
As a result, they're a significant participant in India's developing pharmaceutical industry. However, since MCC is so good at what it does, it's also employed in other sectors. That frozen confection you bought at your local kirana store? That may have contained MCC. What kind of cheese do you like to eat as a snack? Perhaps there's some MCC in there as well. MCC might be present in your salad dressing as well. So, although you may not have heard of it before, you have most likely consumed it.
Let's look at why the company's IPO was so successful now that we know what it does.
To begin with, in a world where loss-making unicorns are floated at stratospheric values, this pharma-related firm was profitable and "cheap" in contrast. The firm was valued at just 15 times the profits it generated in fiscal year 2021. To put things in perspective, the Nifty 50 trades at roughly 27 times its total profits.
It also helped because there are no other MCC makers listed on the Indian stock exchanges. This resulted in a scarcity premium for Sigachi, which occurs when investors believe this is the only stock that can help them ride the MCC wave. After all, with the MCC market expected to expand at an annual rate of 8% to $1.6 billion by 2027, it's understandable that some investors would be ready to pay a premium.
There's also the reality that current investors were not able to sell their shares during the IPO. Whatever funds Sigachi has received will be used to expand the company in the future. This indicates that investors are optimistic about the company's future prospects.
However, at the end of the day, this is largely due to the fact that certain individuals made mistakes, namely the investment bankers who priced the IPO. They're the suits who crunch figures, measure investor mood, and then determine the price at which the firm could sell its stock to the general public. Given that the shares subsequently floated at a 250 percent premium, it's safe to assume that they mispriced the stock. If they'd priced it higher, the corporation could have been able to raise more money without diluting its ownership as much.
But, in any event, it is now a thing of the past. And whereas just a few weeks ago, few people had heard of Sigachi, today they're the talk of the town. In fact, research experts predict that the stock will rise another 50% in the next month, and even if that prediction isn't realised, the firm will have had a purple patch unlike any other.
(Source Ventura Cap,Finshots)
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