Sigachi Industries Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
To,
The Manager BSE Limited P. J. Towers, Dalal Street Mumbai-400001 (BSE Scrip Code: 543389)
Dear Sir/Madam,
Date: 27.07.2022
The Manager, NSE Limited, Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai- 400051. (NSE Symbol: SIGACHI)
Sub: Transcript of the Earnings Call for Q1 FY 2022-23 Results held on 25.07.22
Unit: Sigachi Industries Limited
In continuation to our letter dated 26.07.2022, audio recording of Q1 FY 23 earnings call, please find attached herewith the transcript of the earnings call held on Monday, July 25, 2022, 3:00 PM IST. The same the company's website at www.sigachi.com .
is also available on
This is for the information and record of the exchanges.
Thanking You,
Yours faithfully For Sigachi Industries Limited
Shreya Mitra Company Secretary and Compliance Officer
Sigachi Industries Limited July 25, 2022
Sigachi Industries Limited Earnings Conference Call July 25, 2022
Moderator:
Ladies and gentlemen, Good day and welcome to the Q1 FY23
Conference Call of Sigachi Industries Limited Earnings Conference Call.
As a reminder, all participants’ lines will be in the listen-only mode and
there will be an opportunity for you to ask questions after the
presentation concludes. Should you need assistance during the
conference call please signal an operator by pressing “*” and then “0”
on your touchtone phone. I now hand the conference over to Mr. Anuj
Sonpal from Valorem Advisors. Thank you and over to you, Sir.
Anuj Sonpal:
Thank you. Good morning everyone and very warm welcome to you all.
My name is Anuj Sonpal from Valorem Advisors. We represent the
Investor Relations of Sigachi Industries Limited. On behalf of the
company, I would like to thank you all for participating in the company's
earnings conference call for the first quarter of financial year 2023.
Before we begin, let me mention a short cautionary statement. Some
of the statements made in today's concall may be forward looking in
nature. Such forward looking statements are subject to risks and
uncertainties which could cause actual results that differ from those
anticipated. Such statements are based on management's belief as well
as assumptions made by and information currently available to
management. Audiences are cautioned not to place any undue reliance
on these forward looking statements in making any investment
decisions. The purpose of today's earnings call is purely to educate and
bring awareness about the company's fundamental business and
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Sigachi Industries Limited July 25, 2022
financial quarter under review. Let me
introduce you to the
management participating with us on today's earnings call and hand it
over to them for opening remarks. We firstly have with us, Mr. Amit Raj
Sinha - Managing Director and Chief Executive Officer, Mr. O. S. Reddy
- Chief Financial Officer Ms. Shreya Mitra – Company Secretary.
Without any further delay, I request Mr. Amit Raj Sinha to start with his
opening remarks. Thank you and over to you, sir.
Amit Raj Sinha:
Thanks a lot Anuj. A very good afternoon everybody. It is a pleasure to
welcome you to earnings conference call for the first quarter of FY23.
Firstly, I hope everyone is keeping safe and well. In the interest of some
of the people who are new to the company, let me first start by giving
a brief overview of the company after which Mr. O. S. Reddy, the CFO
will brief you on the financial performance of the quarter under
review.
Sigachi Industries was incorporated in the year 1989 and today, we are
one of the leading manufacturers of Micro Crystalline Cellulose in the
world. Our company manufactures high quality cellulose-based
excipients, which predominantly
finds 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 of international quality and
standards apart from customized solution for customers. From our
state-of-the-art R&D facility, we ensure continuous innovation to
efficiently meet evolving customer demands. We have
two
manufacturing facilities in Gujarat and one in Telangana from where
we ensure supply chain reliability for our customers in India and across
globe. Our total capacities from all these three facilities are more than
13,000 metric tons per annum which we are further enhancing through
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Sigachi Industries Limited July 25, 2022
our ongoing CAPEX plans to reach 20,000 metric tons per annum. We
at Sigachi have a global sales and distribution network and exporting to
more than 47 countries across Asia, Australia, American continent,
Europe and Middle East. I will now request the CFO to brief you on the
financial performance after which I will give you an operational
highlight for the quarter. Over to you.
O. S. Reddy:
Thank you, Mr. Sinha. And good afternoon everyone, let me brief you
on the financial performance of the first quarter of financial year
ending 2023. The operational revenue for the first quarter was rupees
78 crores, representing an increase of around 43% year on year. EBITDA
reported was rupees 16 cores with an increase of approximately 34%
year on year and the EBITDA margin stood at 20.82%. The net profit
after tax reported was rupees 13 crores which increased by 42% year
on year, while the PAT margin percentage was 16.35%. Now I hand over
the call back to the MD to give you the operational highlights. Over to
you
Amit Raj Sinha:
Thank you CFO, so on the operational front the revenue growth was
primarily driven by
increased demand for MCC across all the
industries. With volume growing at approximately 10% and realizations
at 19% on a quarter-on-quarter basis. Export sales increased to 75.43%
in Q1 FY23 as compared to 73.6% in Q1 FY22 due to the continuous
efforts of on enhancing the global client base through our marketing
and product customizations. We focused on high margin product mix
with
cost effective manufacturing processes and effective
management of interest in inventory which resulted in improvement of
EBITDA and profitability on quarter-on-quarter basis. The consumption
of material reduced to 47% from 51% in Q1 FY22 due to adoption of
cost effective processes and of course a favorable product mix. We
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Sigachi Industries Limited July 25, 2022
expect
this
trend
to continue and sustaining the profitable
level. Furthermore, capacities of around 7000 MT will be added during
later part of FY23, which will contribute to additional revenue growth
in the coming financial year. We're also putting high focus on R&D
capabilities through cost effective manufacturing processes by
remaining as the manufacturer of choice and supplier of choice in the
existing industry. With this we are now open the floor to the question
answer session.
Moderator:
Thank you. Ladies and gentlemen, we will now begin with the question
and answer session. The first question is from the line of Keshav Kumar
from RakSan Investors. Please go ahead.
Keshav Kumar:
I have a couple of questions. The first one is the director of the
statutory auditor Mr. Adi Narayan is also the director of Usha Kiran
Finance, which was allotted shares on a preferential basis back in
2013. And Amit Sir is disclose as a part of the promoter with 0.1%
holding in that company that under transactions with Mr. Adi Narayan,
actually go even further back to 2008 memorandum subsidiary Sigachi
Laboratories on boarded Mr. Adi Narayan as director and in 2010 Mr.
Ravindra Sinha seems to be the director and the said company is
currently promoted by our current statutory auditor and under the very
same name of Sigachi Laboratories. So due to these observations, it's
sort of difficult to a certain true independence of the auditor. So firstly,
what would be a comment on these observations and what steps could
the management take to a certain
interest to the minority
shareholders?
Amit Raj Sinha:
I would just like to bring out that. Mr. Adi Narayana is, of course, the
promoter of Sigachi laboratories, which was founded way back in early
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Sigachi Industries Limited July 25, 2022
90s, 93-94 to be precise. And during one of Sigachi fund raise his
company, Usha Kiran Finance, had invested into shares. I think that was
around 20 years back and that is how when we had increased
shareholding in the sense when we had I think it was a bonus issue. It
just so happens that the company name of the auditor, is Adi
Narayan. But the partner of the company is different. It is Mr. Y
Pullarao And I don't see this as any conflict of interest, because there is
no direct involvement of any of the auditors, any, of the T Adi Narayana
& company people in the Full House Audit Works, CFO Could you just
substantiate what I speak.
O. S. Reddy:
This Mr. Adi Narayana, he is no way related to the firm T Adi
Adinarayana and Company. He's not even a partner or he doesn't have
any interest with this firm now. Even that time he started that firm, but
that form is completely being run by Mr. Y Pullarao and Thus Adi
Narayana doesn't have any interest with this company. As of now only
Usha Kiran now has got some share. That is a long back it had hold and
it continues to hold and there is no conflict of interest, and since long
he's not at all associated with this audit firm also.
Keshav Kumar:
The second one is the policy of 1% sales as entity to Family Trust 2025
onwards, I believe is again prejudicial to the interests of minority
shareholders. I could have understood this if we were a conglomerate
and one of the interests of the parent company had to pay loyalty to
the parent for Technical Support, and that could justify the expense as
a compensation for the time and resources provided, but in our case
the cost of this is very substantial for a size like alignment to revenues
disregards bottom line. For example, if we grow our revenues at a 15%
to 20% CAGR, or double in four to five years, then royalty charge would
be 10% of the current EBITDA. And as we've seen in these inflationary
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Sigachi Industries Limited July 25, 2022
times, pricing alone can push the topline without being a function of
volume of the product mix so if we don't increase our margins enough
to offset that the charge hits right there, so it's in essence a call option
in which the managers incentives are aligned to the top line but
minority shareholders are entitled to dispensable cash as dividends or
the per share net earnings, so our incentive are solely dependent on
the profitability of the enterprise, which further depends on the ability
of the business model and the capital allocation. And thirdly, in that
very order the
last is sales so
I would sincerely request. The
management to align loyalty incentives to bottom line or rectify it to a
performance linked compensation scheme only then will the interests
will totally aligned at both ends.
Amit Raj Sinha:
Fine Sir, I think we will take this suggestion positively. We will do our
homework and see which way we can align it to the bottom line rather
than aligning it to the top line.
Moderator:
Thank you. The next question is from the line of Meet Katoria from
Niveshaay. Please go ahead.
Meet Katoria:
My first question is that you see rising inflation across the globe. Do
you see any impact on demand as majority of our revenue come from
USA? And what will be the revenue guidance for upcoming year?
Amit Raj Sinha:
We of course are seeing rising inflation. But however, we have not
really seen it impacting our demand. The prime reason is that we
primarily catering to the Pharmaceutical industry, which is not new so
we don't see decrease in demand in any way. In the US in fact the sales
have been pulling up much more, so we don't see the tapering down
because of inflation.
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Sigachi Industries Limited July 25, 2022
Meet Katoria:
And what will be the revenue guidance for the coming year.
Amit Raj Sinha:
We believe that whatever has been a CAGR over the last three years,
we would be able to continue to maintain it, Sir.
Meet Katoria:
My next question is that our competitors like Gujrat micro wax have
more margin than us like in FY21 EBITDA margin was 30% and in FY20
they also have 23% EBITDA margin. So anytime that our margin will
improve further.
Amit Raj Sinha:
CFO, you had certain details of our competition. Could you just give
those details as to, which way the margins seem better than Sigachi.
We had done this analysis around the year back when we were going
public and what we saw was that our margin percentage over the
product MCC were better than their product now it so happens that JRS
has an additional product by the name of croscarmellose sodium, and
there the margins are much superior. So, if you compare all in all, you
would see that Gujarat micro wax the margins are better than
Sigachi. But if you just compare their product portfolio of MCC with our
product portfolio of MCC we are definitely better off than them.
O. S. Reddy:
To supplement in future, we are going to manufacture these excipient,
CCS, which has a higher margin also. With this, we hope it will
increase. We have analyzed their profit also. Their manufacture other
small other excipients also. That's why there is a higher margin for
them. Even Sigachi also going forward to would better the margins on
account of CCS product.
Meet Katoria:
And my last question is that what is the current realization for the
product and what is the impact of wood pulp pricing?
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Sigachi Industries Limited July 25, 2022
Amit Raj Sinha:
Could you please repeat?
Meet Katoria:
Yes, Sir. What is the current realization for the product and what is the
impact of wood pulp pricing?
Amit Raj Sinha:
Yeah, current realization is the first quarter it is the around ₹217.00 last
year it was ₹182 and going forward. This will only get better.
Meet Katoria:
Yes, and any impact wood pulp pricing.
Amit Raj Sinha:
We have seen is that, at this moment we are able to pass on the
increased pulp prices onto the customers. So that's a very big
comfort. We hope that the wood pulp prices should average out and
should get stable very soon. We were expecting it open that in the Q2,
but it still continues to be going up a bit, but we are hopeful that by the
first half of the year it should stabilize and probably later even taper
down.
Moderator:
Thank you. The next question is from the line of Rajesh Jain from NB
Investments. Please go ahead.
Rajesh Jain:
I have broadly 3 questions. One is with reference to the Nutraceutical
segment which you have announced quite some time back where we
have entering into that segment which has a huge potential. The press
release doesn't talk about who are the main competitors. And what are
the benefits that company would be offering to their customers to get
the business from them.
O. S. Reddy:
So you would like to have the name of the competitors and which way
the customers would get benefited on account of customer acquisition
priorities. Is that right, Sir
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Sigachi Industries Limited July 25, 2022
Rajesh Jain:
Yes.
O. S. Reddy:
Yeah, so like we indicated in the press release, we are looking ahead or
rather, we have already launched the human nutrition vertical of our
nutritional services and that primarily would be looking at certain
premixes which are the need of the hour in certain end market
segments like fortified food and beverages, for the private segment.
We also have the fortified food and beverage for the institutional
segment which is more on the B2G, the government part. here business
is transacted on tender. We have the pharmaceutical premixes which
is again going
in for the tablets which has specifically certain
ingredients and to an extent certain minerals being taken in, so these
are the premixes which we are focusing on. Now, in terms of our
competitors, I would say hexagon could be one of them there are
private limited companies like Supreme Pharmaceuticals. These are
some of the competitors like DSM. Also DSM, I could qualify as the
market leader in the premix. Now in terms of the value add over what
my other competitors are doing because of our expertise in the
formulation segment, we do have strength in the tablet technologies
and the suspension technologies wherein we could work on giving
them a better product mix where in tableting activities as the
formulators end would go without a rejection, wherein we will be able
to put in a better mix of Vitamins so that their end material is made. I
just give you an example set to one of our prospective customers who
is a very big company. In fact there are conglomerate. We were
discussing about fortification of Tea leaves and in the Tea Leaves the
customer wanted vitamin A and vitamin D to be fortified. They could
show it as a fortified it could be advertised to the customer accordingly.
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Sigachi Industries Limited July 25, 2022
Rajesh Jain:
I have further to this product segment, I was told that these new
products have MCC as one of the constituent. So does it mean that are
we supplying MCC also to these customers earlier.
O. S. Reddy:
So these customers we are not selling directly, but we sell to the agent,
and they may take it from them. But we are not selling to these people
directly.
Rajesh Jain:
OK, the purpose of asking that question was a once you launch these
products, do we have to conduct testing or trials for this new product
with these customers?
O. S. Reddy:
Yes, we need to do it.
Rajesh Jain:
OK, so how much time will this take for the product to commercially
launch?
O. S. Reddy:
It will take maybe immediately we can do it, but only trial. It will take
as the trial order will provide and they test the quality test and all that
is working we produce it will not take much time, even not more than
even one day or even 24 hours or even just within two days 48 hours.
Depending on the pending product, how many stages are there like
that it is even now in 12 hours or so we can complete the trial and their
maximum of 72 hours, 270 on higher side.
Rajesh Jain:
For this product is same as it's at the same level as MCC and how much
revenue can be expected in the next two to three years.
O. S. Reddy:
MCC also is part of this product and in margins also there is a sales
mix is there it is depending upon the product and we expect little lesser
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Sigachi Industries Limited July 25, 2022
than MCC. Our turn over in current year we may be reaching around 18
to 20 CR from the Premix facility
Rajesh Jain:
OK, and how big is the potential, Sir? Let's say three years or five years
down the line, can we go up to 100 plus crores in this segment or not?
O. S. Reddy:
In this segment not less than 50 crores as of now but going forward
during that we have to access further. There is a good scope ahead.
Rajesh Jain:
In one of the interviews post listing you had mentioned about food
industry going to contribute around 30% to the sales in FY23. So this
product you are giving for Nutraceutical segment that is not part of that
food segment, right?
O. S. Reddy:
Yeah, that's not that part of it. Our statement was there with respect
to our MCC. Our MCC, we supply to pharma, Neutra and food and part
to chemicals, all these sectors. This thing
is that slowly food
percentage also, it is going up. In that context, we told. Earlier it was
very less and then slowly food is also picking up.
Rajesh Jain:
OK, so my second question is regarding the Capex. So are we doing at
the Dahej or at Kurnool?
O. S. Reddy:
That we will move to the Dahej. Because all our other experience, even
now that is closer to the existing facility at Dahej is 1 kilometer away
and there only, we wanted to set-up the MCC. Manufacturing facility
also because for administrative convenience and we wanted to transfer
that, we want to move that CCS project to Dahej.
Rajesh Jain:
But have you already have got the land there?
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Sigachi Industries Limited July 25, 2022
O. S. Reddy:
Yeah, that is the other process and all is going on, land already we have
procured. And the other environmental clearances and other licenses
and all. The process is going on.
Rajesh Jain:
So are you confident of commissioning this plan by Q1 of next financial
year?
O. S. Reddy:
No, it will take a little time for EC. This will take time, but the existing
expansion at Dahej and Jhagadia for MCC that will come into
operational from fourth quarter of this year FY23.
Rajesh Jain:
So now that you have acquired this land at Dahej, so are you going for
any change in capacity for CCS?
O. S. Reddy:
CCS Sir right now maybe small variation but not very huge anyway at
appropriate time we'll announce it again once it comes all the
approvals and all we take and then we'll let you know it.
Rajesh Jain:
So my third and last question is regarding the recently announced
entrance to this OTC product. So if you could share some data about
what are these products where they will be manufactured? Who are
the competitors? Some information. About these things.
O. S. Reddy:
That our MD will update you right now. I have limited information, but
in this OTC but that also will make an announcement and then you'll
get the more details for time being we will defer that question.
Rajesh Jain:
OK, but are we expecting any sales during this current year and next
year.
O. S. Reddy:
Yeah, currently also we are expecting some sales from next year as
well. Current year also we are expecting something.
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Sigachi Industries Limited July 25, 2022
Rajesh Jain:
Ok and, Sir, you have already given a guidance for the top line, saying
that you will maintain whatever you have been achieved during last
three years, so. But as far as the bottom line is concerned, there is
considerable growth during
last three years. Can we expect
improvement in margins going forward also?
O. S. Reddy:
Yeah, we hope that will increase because our sales mix changing it is in
the composition of there are special grades and some premium
grade portion
is
increasing
thereby where we get higher
margins. That's why because of that change in sales mix we are getting
the higher product margin, and that will continue.
Rajesh Jain:
So that means you expect whatever the growth in top line is their
bottom line would. Grow better than that.
O. S. Reddy:
Bottom line also will go at least there is a definitely there is a
sustainability in bottom line profit and we hope it will increase further.
Moderator:
Thank you. The next question is in the line of Ananth from as AS
capital. Please go ahead.
Ananth:
So first question is about the Nutraceutical segment. So sir mentioned
about 18 to 20 crore is expected within FY23. So at what since level, like
what is the cost structure here and at what sales level will be breaking
on search in this segment?
Amit Raj Sinha:
Yes, that’s right. We need to get some further details, but the margins
are as we said earlier would be bit lower than MCC.
Ananth:
So will this will be EBITDA positive this year.
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Sigachi Industries Limited July 25, 2022
Amit Raj Sinha:
Yeah, yeah EBITDA also only would be there. We expect there will be
positive EBITDA.
Ananth:
So in the sense that will there be any like higher cost as we are
launching this new division and because of that margin will get lower is
there is there? Is there a possibility like this would be?
Amit Raj Sinha:
but this still lower that is under initial stage and we'll come up the
outcome with. So in fact.
Ananth:
OK and similarly about this or if the segment. Also like what kind of
investment is required here and like what?
Amit Raj Sinha:
Investment also not much, because we get these products
manufactured from contract manufacturing and then we will sell
through with our Sales & marketing network. We'll have improved
marketing network and maybe in this segment also little less than now,
the MCC margins. But it's the incremental revenue with the minimum
capital. That’s the reason we don't set-up any manufacturing facility.
We get these products manufactured from third party
Ananth:
OK, so this will require like hiring of lot of MRs and all that like how the
for the distribution network and like how does it work? Do you have
the distribution network for this OTC segment?
Amit Raj Sinha:
Right now, we are establishing this, Distribution network. We however
do not need the MR’s since this is a OTC product
Moderator:
Thank you, the next question is in the line of Dharshil Jhaveri from
Crown capital. Please go ahead.
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Sigachi Industries Limited July 25, 2022
Dharshil Jhaveri:
So I'm a bit new to the company, so could I just ask a few basic
questions. Our new capacity supposed to kick in by end of this year. So
in FY24, what additional revenue can we expect and what could be the
capacity utilization for the new capacity?
Amit Raj Sinha:
The new capacities which will come into line is 7000 metric tons per
annum. That will come in fourth quarter, fourth quarter maybe we'll be
occupying a very small portion of it and in by 24 Rd we'll be achieving
60%. Of that increased capacities anyway, the existing capacities we
are operating at, even now 95%.
Dharshil Jhaveri:
Ok Sir, and also the growth in this year revenue. How much would it be
driven by volume and how much would it be by value?
Amit Raj Sinha:
Yeah, volume more in the first. Quarter that is 10% and the value is
around 19%- 20% is there.
Dharshil Jhaveri:
Because the third quarter additional quantities will come and then it
will add us more in quantity.
Moderator:
Sorry to interrupt Mr. Javeri there's a lot of disturbance from your line.
Dharshil Jhaveri:
I just wanted to ask so we have a volume growth of 10% and value
growth of 20%. So that should continue this year.
Amit Raj Sinha:
With the fourth quarter, we are adding the additional capacity, and
with that the quantities will add a little more and anyway, that price
realization will increase because of the healthier sales. Because the
special grade field sales mix is increasing because of that term, it will
increase. The price also will increase and the quantity is also increase
because right now we don't have work on the capacities. Also, we are
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Sigachi Industries Limited July 25, 2022
operating at around 95% and fourth quarter. We'll get the additional
capacities and then point.
Moderator:
Thank you, the next question is from the line of Yogansh Jeswani from
Mittal Analytics, please go ahead.
Yogansh Jeswani:
So only work if he signed the building that you mentioned, you clarified
that you won't be checking off a manufacturing union while we do this
training it. So given that historical experience, why are you venturing
into this segment? And also, from what I understand this is a very, very
competitive area and our expertise has been more on the MPC and so
why have we taken this decision? we will get into this segment specially
at the time and we are having. Very big apex ongoing of 120 plus
covered with again.
Moderator:
Sorry to interrupt Mr. Jeswani. There's a lot of disturbance from your
line, Sir.
Yogansh Jeswani:
Yeah, so I'm saying the OTC segment that we have launched. Why are
we getting into this specially at a time when we have already
committed ourselves to a very big Capex?
Amit Raj Sinha:
Yeah, that Capex being in a way that is going on with the existing MCC
expansion is going on, and MCC and also croscarmellose sodium. We
go and apart from that, this OTC in this marketing network is required
and then even that marketing network will help for further increase in
sales of MCC. We are not setting up of any manufacturing facility, only
we get it manufactured from outsiders main contract with its contract
manufacturing and then we sell our product and right now from the
initial basic information and then after our complete study, there is
some decent good margins are there, without incurring any Capex.
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Sigachi Industries Limited July 25, 2022
Yogansh Jeswani:
I agree on the part wherein you say that there is no Capex. But my
limited point or clarification that I need is at a time when we are
already, you know, putting up a huge Capex which obviously will take
in a lot of management, bandwidth and energy in establishing this. So
again, bringing in a new product like CCS and then also almost doubling
our capacity in MCC, that it will take a lot of time and effort and energy
and money. So then at such a time, by bringing in a new segment, which
person is not a very higher margin or a very interesting segment?
Amit Raj Sinha:
So like you indicated, that a significant bandwidth of the management
is going into the Capex and the added capacity. I would say, of course
there is a reasonable amount of bandwidth going, but it is not that we
are ourselves on the job. We have team members. We have a total
strength of 900 people in Sigachi and there is a specific hierarchy and
there are team managers and VP's who are taking care of their
respective part in sections. So, it is not that I physically must go and
review which way what's going on, so it's not that there is a limitation
on the bandwidth. My second point would be that MCC. We have
matured out and here are among the leaders, and by virtue of being
that we are able to command a specific medium. And of course, have a
reasonable EBITDA. Likewise, when we get started in the other
segments, of course it will not be as good as the excipient industry,
what we are today. But our overall objective is that we get into the B2C
space because B2C space in this segment there is bound to be growth
coming in. In fact, it's already post COVID, there has been a lot of
change in the consumer behavior and we feel that we have the
inherent competence. This to take advantage by having certain
products which are aligned to the customer needs in line with our R&D
and capability and the competence and be able to push this into the
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Sigachi Industries Limited July 25, 2022
market when we take our baby steps. We of course will not have such
margins, but going forward as we expand & have brand extensions
coming out of cover, then we are bound to be getting into positions will
be among the top view and thereby we will be having a reasonable level
of margins. Our overall long term objective is that we remain ahead &
positive of the 20% EBITDA what we have been having all these years.
Moderator:
Thank you Sir. The next question is in the line of Darshit Shah from
Nirvana Capital. Please go ahead.
Darshit Shah:
So my question is to Mr. Amit so we spoke about GRS numbers and
understanding. There is the contribution of CCS is almost 50% and
that's the reason the margins are higher. But if you look at another
company which we digged little deep into that Signet excipients. I'm
not sure whether the manufacturing here or kind of trading we have
now 70% held by IMCD be India from their NCCS since it will look. The
realizations are quite high around six Lac rupees per metric ton. So any
thoughts or ideas you have about that? While the realization was so
high for the MCC saying.
Amit Raj Sinha:
I'll just tell you a Signet Corp was a trading house and they had some of
the leaders as principles. So they had DuPont as one of their principles
and they had India, Bangladesh and Sri Lanka as their region. They were
actually importing the finished product, stocking it and selling it out to
the local industry in India now. Because they were having industry
leaders respond to is a number one player in the industry. They had
different pricing. You know the industry leader level pricing and that
speaks about the reason that they have certain average realizations
which are better than us. Now on the second part of the question,
where they it shows as approximately 6 lacs per ton. I believe that it's
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a combination of lot of other excipients which kind of are being sold
together under the broad name of cellulose, they've exceptions.
Because they are not really a manufacturing house, they are trading
house.
Darshit Shah:
So you mean to say that because of the MCCC kind of profile they have
the wide range products from viewpoint and all. The pricing varies a lot,
so would it be fair to assume that I mean since we kind of also cater to
domestic and market here. And earlier I understand that using the
product profile more or less is not that different when we kind of either
reset or probably any other competitor sales. So in this case would it
be fair to assume that the realization would be different if you kind of
the products are imported it. You're getting the same domestic market.
Amit Raj Sinha:
So when it is the world leaders who are selling it locally they have a
different price point. I think one would agree to that the second reason
that it looks a bit enormous or big in size is on account of the
depreciated rupee because you're converting it into the rupee
form. What we when we look around we usually see that they are in
much higher than our pricing in dollars. And if the product mix, what
they sell is better, then they go up a couple of notches higher.
Darshit Shah:
OK, got it. So the price is a bit higher for them than what we kind of
selling domestic that would be a fair result.
Amit Raj Sinha:
Yes, because their leaders they managed to extract the price from the
big players and sometimes big players discount out the local strength
of industries here. And they believe that importing from the leaders
would give them an edge by spending a bit more. It's nothing
else. There are so many customers. Where we have kind of displays the
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top number one player in the world and we have we continue to be
supplying them even today.
Darshit Shah:
So would we kind of kind of dig deep into all these clients? Because if
we look at their volumes but they did a year back was somewhere
around 8000 to 9000 metric tons, so can that be an addressable market
also? To us in. India or you think the customer profile is completely
different than what we can cater to?
Amit Raj Sinha:
Your second statement speaks the answer that their customer profiles
are primarily the innovators. And historically, innovative companies
have been working with the world number one. We have been trying
to get into the innovative companies, but it is still work in progress and
their customer profile is primarily the innovator, whereas ours is more
to do with the generics.
Darshit Shah:
And the last session ethanol side where we had announced a project or
kind of drawing board stage of going into that. So is that still on the
board or we have kind of mood I mean in terms of not doing that.
Amit Raj Sinha:
So we're kind of mentally going on the other side of the border where
we are feeling that it might not be the best thing to do. So we are
looking at every point possible alternatives and maybe in another
couple of months we should be very clear on this and we will bring it,
we have. We only having a debate with a lot of industry people trying
to discuss certain situation and among our own team members and
then putting it across to every other people who we feel are
relevant. And the industry veterans we. Are trying to. Assimilate, but
overall we feel that probably it should be a very tough change for
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us. But at this moment it's not a decision, it's a work in progress and we
should update this maybe in another couple of months on this.
Moderator:
The next question. Is from the line of Anurag Dinkar Patil from Roha
Asset Managers. Please go ahead.
Anurag Dinkar Patil: So in terms of human nutrition segment, are we outsourcing the
manufacturing or using their own capacity?
Amit Raj Sinha:
So what we have done is said, we're not outsourcing it, we have taken
on lease a premix facility and we are manufacturing it and that premix
facility itself.
Anurag Dinkar Patil: OK so over next two to three years. Can you just elaborate on your
plans in terms of capital allocation? Because we are thinking a lot of
project and simultaneously like it in all human nutrition, then OTC
products. We also incorporated subsidiary in Dubai. So if you can just
elaborate on that part over next 2-3 years, what are your preferences
particularly?
Amit Raj Sinha:
So in terms of subsidiary at Dubai the prime purpose of the subsidiary
was to further our sales in the region. The Middle East and the North
African market are a very scattered market, and we realize that it would
be very good if we have local people there. We selected Dubai at the
base and we'll have sales team or local people across the various
regions and the countries for furthering our sales. Thus, there is bound
to be no Capex. It's only operational expenditure. Now in terms of
ethanol like I spoke in my last statement, it's a work in progress and. We
are looking to see, If it is worthwhile to go ahead on that. So, ethanol
project is in abeyance and is being debated over internally. In terms of
human nutrition, At this moment We have no further expenditure on
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human nutrition like I indicated, we have the plant on lease for a 10
year period and we will be using the complete facility to get into the
premix market and further our sales. So even in the human nutrition at
this moment there is no further Capex and the Capex cycle. What we
see at this moment is primarily for the two expansion of the two MCC
facilities, which is brownfield facility and the croscarmellose sodium,
which would be a Greenfield facility. As regards the OTC because we
are launching in the healthcare sector we are having this contract
manufacturer from some trusted good reputed players in the North
Indian region and so there is no Capex coming in on account of jumping
into this category as well.
Moderator:
Thank you, the next question is from the line of Vignesh Iyer from
Sequent Asset Management. Please go ahead.
Vignesh Iyer:
I just want to know about this Sodium excipient prosperity like CCS and
so what is the now expected date of commencement of production of
as a commencement of that facility or production facility can you tell
me?
Amit Raj Sinha:
So we are in the current process of getting the EC clearance for our
land which we have acquired recently. So, because EC is activity, which
kind of goes from 6 months to 12 months. We really are not able to
commit you update, but once the EC clearances in place we will
definitely have a date to it because everything else is already structured
in the project management team members. So once the easy is kind of
in our hand, we will give it wait, but at this moment it would be
inappropriate to bring out the specific date, Sir.
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Vignesh Iyer:
And coming to 2nd, I remember the last call if you had given the
spreads were around average $500. If I'm not wrong, so if you could
comment on how the spreads are as a as of now means.
Amit Raj Sinha:
OK, I like to go deeper into this. OSR, Do you have an idea of this spread
being discussed.
O S Reddy:
This Jhagadia and Dahej there is a total of 29 Crores at Jhagadia and 27
Crores at Dahej. The heck out of here 16 crosses unspent as on 30th
June, and that also will be completed by end of this year. I mean before
first quarter before last quarter of this April, we'll incur the Capex and
CCS that is unspent, that is 33 crores there. The total unspent
amount. That is lying in now its deposits with banks.
Vignesh Iyer:
No, I asked about the product thread that we had discussed in the last
quarters on call about the product. However, the spreads were turning
to be. You said it would be somewhere around $700 to $900 then, but
the average spread came around $500. To a certain how the prices
were of the product, so I just wanted to know compared to that, how
is the threads as things stands now.
O S Reddy:
The pricing last year it was 182 average and this first quarter we have
achieved 216.79 and going forward it will further increase. About raw
material that is around now. It is increased almost 20%-25% from $650
to now $850-$900 per metric ton it's there.
Vignesh Iyer:
OK, so the average would be around $900 this quarter.
O S Reddy:
That is on higher side but average that would be around $828-$830.
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Sigachi Industries Limited July 25, 2022
Vignesh Iyer:
OK, just said one thing. So if I go quarter on quarter there is around 8%
improvement in net sales. So how much is the contribution towards
volume and how much is due to realization? Is there a de growth in
volume?
O S Reddy:
Around 19 percent is there one price realization and the quantities 10%
is there
Vignesh Iyer:
So it's 10% growth in volume you meant to say.
O S Reddy:
10%, that is the pricing of four raw material is different, and the selling
price is different.
Vignesh Iyer:
No, I am asking if quarter on quarter I compared sales, sales has
increased by 8% so I wanted know quarter on quarter. What is the
contribution by volumes and by real life?
O S Reddy:
I didn't tell this is the last quarter versus current year. When this
revenue growth that is around 45% is there from Q1 of last year versus
Q1 of current year. And in the pricing lots FY22 the Pricing is averaged
by 182. Now the in the first quarter the average pricing. Is 216.8 around
217 is the on selling price.
Moderator:
Thank you. The next question is from the line of Sagar Shah from Phillip
Capital. Please go ahead.
Sagar Shah:
My first question regarding to your capacity. As I guess your capacity is
around 13,800 tons per annum. Can I get volume number?
Amit Raj Sinha:
Volume number last year it was 13,800 metric tons. This year were
roughly more than 14,000, around 14,500- 14,600 metric tons. It is
available as based on now first quarter results.
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Sigachi Industries Limited July 25, 2022
Sagar Shah:
So 14,500 tons is your current quarter’s tons
Amit Raj Sinha:
Yes, let me tell you in the last quarter it will vary because of additional
capacities will come. Additional capacities of 7000 tons will be added
in the last quarter. As of now, this is the 3650 for one quarter that is
equivalent for fourth quarter, it will be 14,600 metric tons without
considering the additional are increased.
Sagar Shah:
OK, so basically 3650 tons is your sales volume for this quarter. So
basically what is the total capacity for MCC current features?
Amit Raj Sinha:
Can you please repeat the question?
Sagar Shah:
What is the total capacity of the company manufacturing majority of
the company?
Amit Raj Sinha:
That's what MCC, the manufacturing capacity 4600 tons per annum will
come without considering the upcoming increase in the capacity. In last
quarter, it's going to add up for 7000 metric tons without considering
that right now based on first quarter, first quarter rounding up available
capacity 3650 metric tons. That is multiplied by 4 it will come 14,600.
Sagar Shah:
OK, so now as we move forward into a different product for human
nutrition. So can you explain first of all, what is the market or globally? I
mean any specifically
in the domestic market,
the market
price? Secondly, the EBITDA margins of this segment are as same as the
MCC. I wanted to understand on that part.
O S Reddy:
EBITDA margins are slightly lower than MCC.
Sagar Shah:
OK, so what are the margins are in in that segment? Can you please?
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Sigachi Industries Limited July 25, 2022
O S Reddy:
That is now it is under a very preliminary stage but this year we may
expect around the 18 crores of revenue from that. Still now we need to
study further and then there is a very preliminary stage here to tell you
anything.
Sagar Shah:
OK, so basically 18 crores revenue expecting in the entire year, right?
O S Reddy:
Yes.
Sagar Shah:
And what is the revenue that you will be spending for this capacity for. I
think you told that you will be taking some land on lease.
O S Reddy:
Yes, this is on our lease premises.
Sagar Shah:
So what is the amount that will be spending to produce this product?
O S Reddy:
This is a 15 Lakhs per month being paid towards lease and roughly 1.8
Cr per year. This is without incurring any Capex. Further, food premixes
can also be made in the same facility.
Sagar Shah:
Yeah, but 1.5 crores is the lease rental for the entire year, right?
O S Reddy:
Yes this 1.850 lacs per month.
Sagar Shah:
Its there a Revenue that you are expecting from this segment.
O S Reddy:
Yes
Sagar Shah:
OK now my next question or related you have already told about which
is going to Commission for FY23 I'm trying to understand this product
actually. Can you explain the market size? Can you explain the
significance of this product and can you explain the on the realization
front.
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Sigachi Industries Limited July 25, 2022
Amit Raj Sinha:
Which one Are you talking about the MCC or CCS?
Sagar Shah:
CCS
Amit Raj Sinha:
Yeah, it will take them not this year it, but will come in later. We just
acquired land and then we have applied for the EC clearances and other
approvals for setting up this plant and the realizations also higher when
we compared to MCC. Croscarmellose sodium, is a superior grade of
expedient.
Sagar Shah:
So my question was that you are saying this is the superior product as
compared to MCC. It has a wider significance. So why are you focusing
on the other segment on the nutrition part instead of focus, not focus
in CCS. Or maybe it’s funding even more on this.
Amit Raj Sinha:
Yeah, so you see, it is not that we are not focusing on CCS, Sir. CCS is
already a work in progress. We are looking at getting the EC
certification of the facility and proceeding with the project. So it is not
that by focusing on the nutrition part we are really not focusing on the
CCS. There are two separate teams. There are two separate facilities
and there are different locations. CCS continues to be as part of our
agenda and it's a work in progress which will finally, commission and
it will give us revenues.
O S Reddy:
All our primary area there are specialized people and we'll take care of
all are important for the company.
Sagar Shah:
OK, so my last question. Well, though I didn't get the company is
enjoying right now in the first quarter around 21%-22%. Are these
sustainable for the entire year end, and even for next year some kind
of EBITDA margin guidance?
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Sigachi Industries Limited July 25, 2022
Amit Raj Sinha:
Yes, Sir.
O S Reddy:
Yep, just these profits, even growth, under even EBITDA and profit
margins are sustainable in future.
Moderator:
Thank you. The next question is from the line of Kushal from Strontium
Enterprises. Please go ahead.
Kushal:
My first question is for CFO, since we export 60% of our revenue comes
from export and are we reaping the benefits of rupee depreciation? If
yes, what is the revenue mix across geographies and what does this
rupee depreciation
impact on our margins, either positive or
negative? And also how is Sigachi position to face the macroeconomic
headwinds? And are we moving any price hikes and are we comfortable
and are the customers comfortable with price tags and is it impacting
the margins going forward?
O S Reddy:
Coming to the export business and almost we have work even 75% of
our products goes into abroad export and around 25% comes from the
domestic market. And in rupee depreciation, the extent depreciation
Now impact that is a policy for us because we have the next FOREX. Its
earnings power supply is there. And this is a favorable love for the
company and any increase in raw material cost we could able to pass
on to the customers and any increase Because of this, inwards Rupee
fluctuation in considering the services or imports that we could able to
pass and then. Anyway, on exports we are getting the benefit out of
it. So they are taking we could able to pass it on and then they are
accepting it.
Kushal:
My second question would be for CEO and in the recent interview with
Economic times you have said that the Nutraceutical segment revenue
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Sigachi Industries Limited July 25, 2022
would be 20% to 50% of total revenues in the next two years and you
also said about the total revenues would be close to the doubling in the
next two years and if the EBIT margin of 20 similar to 20% sustainable
in the. Next two years.
Amit Raj Sinha:
So the EBIT margins of the excipient lines are definitely sustainable and
going forward as we add in capacities for MCC and we expand into the
portfolio of CCS, we believe that the margins are only going up. On
account of the expansion into the nutrition and into OTC healthcare
products, we definitely see an increase in top line in the initial
phase. We are positioning ourselves so that we are able to capture
more market. We would have little lower EBIDTA compared to our
excipient lines on account of Nutritional and OTC segment in the initial
phase. However, as we continue to service and continue to expand our
product portfolio, we believe that we should be able to come back to
our base margin of 20% EBITDA.
Kushal:
And you have gone into the Dubai subsidiary and when can we expect
it to be commissioned? And when can it be operational?
Amit Raj Sinha:
The Dubai subsidiary is more of a market presence rather than a
facility. We are not investing into a facility in Dubai. Dubai is not the
best place for a facility, it's only a market presence where we'll have
local teams, local teams to kind of go out to the North African region to
the Middle East region and further our sales. So that activity is already
underway. We have appointed as CEO for the Dubai subsidiary and we
will be appointing the local people there to take on the sales team
roles.
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Sigachi Industries Limited July 25, 2022
Moderator:
Ladies and gentlemen, we will be taking the last question that is in the
line of Dharma Venkatesan an individual investor. Please go ahead.
Dharma Venkatesan: I have two suggestions, not questions. First suggestion is that even
though it was actually already referred, but I'm just suffering it again
here regarding the royalty which we are paying like I would suggest the
management to ensure it more in terms of the performance related to
some kind of payment on the two net sales net profits rather than of
net. Sales there is a first suggestion. And second thing would be
regarding the ethanol. What like what is the thought process in the 1st
place to consider it because we don't, we don't have any kind of
forward or backward integration or any kind of anything related to
that. They are not being as such. So what is the first thought the
processing that to consider that in the first place.
Amit Raj Sinha:
Thank you. So much Mr. Dharma appreciate your suggestions on the
first suggestion of royalty, we did have a question earlier in the call and
did it indicate that rather than having it as a figure of the top line, it
should be on the performance base as a figure of the bottom line and
we have confirmed to him that we will do our homework and see
which way we can align so that it is fair. Now in terms of the second
question of ethanol as and when the political leadership came out with
certain overall broad targets and activities in terms of having an
additional blend on our fuel, we thought it could be a good
opportunity. And we did appoint their consultant to explore feasibility
that is currently underway. And as we explore, and as we talked more
to the stakeholders, We realize that there are certain aspects of
this which are of course very, very different from what we do and
certain aspects which are not entirely in control of the government. So
it is not that government is going to be positive about it, so at this
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Sigachi Industries Limited July 25, 2022
moment we are exploring and seeing which way it aligns with our
overall purpose and. possibly we might actually not be going ahead, so
we are talking to a reasonable level of stakeholders in this industry and
in another couple of months, we should come out officially as a board
decision.
Moderator:
Thank you. Ladies and gentlemen, that was the last question. I now
have the conference over the management from Sigachi Industries
Limited for their closing comments.
Amit Raj Sinha:
Thank you all for participating in this earnings call. I hope we are able
to answer your question satisfactorily and at the same time offer
insights into our business. If you have any further questions or would
like to know more about the company, please do reach out to our
investment relations manager at valoram advisors and thank you very
much. Stay safe and stay healthy. My best wishes to all of us. Thank
you.
Moderator:
Ladies and gentlemen, on behalf of Sigachi industries limited. That
concludes this conference call. We thank you for joining us and you
may now disconnect your lines. Thank you.
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