Microcrystalline cellulose maker Sigachi Industries had a bumper listing on November 15 – way above analysts’ expectations and grey market premium. The stock opened with 252.8 percent premium at Rs 575 on the BSE against an issue price of Rs 163, making the biggest ever listing.
Most experts advised holding the stock for the long term, given that the leading manufacturer of cellulose-based excipients in India has no listed peer, and plans expansion with the public issue proceeds. They also recommended partial profit-booking and to hold the remaining shares for the long term.
The demand was very high for Sigachi Industries shares as it was locked in the 5 percent upper circuit, compared to an opening price of Rs 575. The stock rallied as much as 270.40 percent to trade at Rs 603.75 against an issue price of Rs 163, at 12:46pm.
“Sigachi Industries saw a bumper listing with a gain of approximately 250 percent on the back of robust fundamentals and attractive valuations. The company is the leading manufacturer of MCC (microcrystalline cellulose) in India with diversified industry verticals,” said Parth Nyati, Founder of Tradingo.
“The IPO was valued at 16x FY21 with no listed peer. Over the long run, if the demand is sustained for MCC, the expansion programme of the company after the IPO will provide earnings growth momentum. Existing shareholders are advised to hold the stock with a stop loss at Rs 480, while new investors are advised to wait till the stock prices cool down,” he said.
Ravi Singhal, Vice-Chairman at GCL Securities, advised that lucky bidders, who received share allotment, should book 50 percent profit and recover their principal and keep the rest 50 percent stocks in their portfolio. “They should hold Sigachi Industries shares for a one-month target of Rs 888 maintaining a stop loss at Rs 530 per share levels.”
Even for investors who failed to get Sigachi shares during allotment, Singhal advised to buy the counter at current levels for a one-month target of Rs 888, maintaining strict stop loss at Rs 530.
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Sigachi Industries has raised Rs 125.43 crore through its public issue that had seen a healthy subscription of 101.91 times during November 1-3. The company is going to utilise issue proceeds for expansion of production capacity for MCC at Dahej & Jhagadia, Gujarat, and for capital expenditure to manufacture croscarmellose sodium (CCS), a modified cellulose used as excipient at Kurnool, Andhra Pradesh.
Incorporated in 1989, Sigachi is engaged in manufacturing microcrystalline cellulose which is widely used as an excipient for finished dosages in the pharmaceutical industry. MCC has varied applications in the pharmaceutical, food, nutraceuticals and cosmetic industries.
“Long-term investors are advised to remain invested considering niche product offering of company. However, considering the listing premium, short-term investors are advised to book their profits as their capital is almost 3x in 10 to 15 days. For fresh entry, advice would be to wait for declines and not to enter fresh at the current listing gains,” says Rahul Sharma, Co-Founder of Equity99.
Manoj Dalmia, Founder and Director at Proficient Equities, expects a good demand for the stock if earnings are positive in the coming weeks.
Sigachi recorded a 49 percent growth in profit at Rs 30.26 crore for the financial year FY21, compared to Rs 20.31 crore in previous year, and revenue grew by 38.6 percent to Rs 192.75 crore in the same period.
Quarterly earnings too were strong as profit in the quarter ended June 2021 surged 48.4 percent to Rs 8.99 crore and revenue increased 25.5 percent to Rs 54.95 crore YoY.
Gaurav Garg, Head of Research at CapitalVia Global Research, and Mohit Nigam, Head - PMS at Hem Securities, also said that investors should hold Sigachi Enterprises for the long term.
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