Sigachi Industries Limited (SIGACHI) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Q1 FY '27 Earnings Conference Call for Sigachi Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Riddhi Shah from Go India Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. It's my pleasure to welcome you on behalf of Sigachi Industries Limited. Thank you for joining us today for quarter 1 FY '27 earnings call. We have on the call Mr. Amit Raj Sinha, Managing Director and Chief Executive Officer; Mr. O.S. Reddy, Chief Financial Officer; and Mr. Vivek Kumar, Company Secretary and Compliance Officer. Please note that today's discussion may include certain forward-looking statements and must therefore be viewed in conjunction with the risks that the company faces. I would now like to hand it over to the management for opening remarks. Thank you, and over to you, sir.

Thank you, Riddhi. Good afternoon, everyone, and welcome to Q1 FY '27 Earnings Conference Call of Sigachi Industries Limited. The financial results and investor presentations have been uploaded on the stock exchanges. I hope everyone has had an opportunity to review them. We enter FY '27 with a clear focus, execution, innovation and creating sustainable value. Q1 reflects our continued commitment to strengthening our core business while advancing the strategic initiatives that will support Sigachi's long-term growth ambitions. Operations remained stable throughout the quarter with healthy customer engagement across key geographies. Our cellulose-based excipient capacity stands at 18,000 metric tonnes per annum with export accounting for over 53.5% of the production. 12,000 metric tonne per annum MCC capacity expansion at the Dahej-2 continues to progress on schedule and upon commissioning, which is targeted by Q2 of FY '28 will take our total cellulose-based excipient capacity to 30,000 metric tonnes per annum. In parallel, our 1,800 tonne Croscarmellose Sodium facility at Dahej SEZ continues to advance supporting our overall move of higher-value excipient categories and a stronger overall product mix. On the innovation front, during the quarter, we launched HiCel SMCC Nutra, a unique combination of microcrystalline cellulose and magnesium aluminometasilicate, purpose-built to address flowability, compressibility and processing challenges in the nutraceutical formulations. This launch reinforces our strategy of moving up the value chain with differentiated application-specific excipients and extends our platform further into the food and nutrition space. Our API business also continues to evolve and continues to support our CEP filing pipeline as we build towards a regulated market expansion. Our O&M verticals remain a steady, scalable contributor aligned with our long-term growth priorities. We also continue to strengthen governance, safety and ESG practices across our manufacturing facilities through online processes improvements, capability building and compliance-focused initiatives. As we look ahead through FY '27, our priorities remain centered on disciplined execution of our expansion projects, strengthening our product portfolio and improving profitability through consistent operating performance. To our employees, customers, partners, lenders and shareholders. Thank you for your continued trust and support. We remain committed to delivering on that trust through consistent execution in the quarters ahead. With that, I now invite our CFO, Mr. O.S. Reddy, to take you through the financials and operational highlights of Q1 FY '27. Thank you.

Thank you, sir, and good afternoon, everyone. During Q1 FY '27, Sigachi reported total operating income of INR 121.27 crores. EBITDA for the quarter stood at INR 16.5 crores with a margin of 13.6%. Net profit came in at INR 8.14 crores, translating to a PAT margin of 6.76%. The MCC segment contributed INR 82.74 crores, while the O&M and API segments recorded revenues of INR 13.06 crores and INR 21.68 crores, respectively. That concludes my update. We can now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Rahil Dasani with MAPL.

First of all, I would like to understand what's the demand and pricing scenario in MCC right now? It seems that majority of the Indian players are expanding their capacities. How worried are we about an oversupply situation arising whereby prices may drop a lot? If you can just help me out there.

So Rahul, (sic) [ Rahil ] on this point, I would like to say, see it's not always the capacity which makes a difference. It is also in terms of your regulatory compliance and the quality in terms of getting an approval from the regulated customer, which actually is relevant in terms of capturing the export markets. There are -- I agree that there are a reasonable number of players who are adding in capacities. But historically, we have seen that the Asia Pacific region has had a CAGR growth of 7% to 8%. And there are reports which indicate that up to 2025, this will continue to grow at a reasonable pace. I believe by 2035, the market is expected to touch a size of $1.4 billion.

Okay. Maybe if you can give me a bit more specific around the pricing as to how is it faring since the last 2 to 3 to 4 quarters? What sort of changes have we seen in the realizations in MC?

Yes, Rahil, here Q1, there is an average realization of INR 241.36 per kg. And previously, it was INR 216 per kg. There is a good increase this year. Is there.

When you said previously, you mean when?

Previous quarter. Q4.

Previous quarter. Okay. So you're saying quarter-on-quarter, we have seen such a large increase?

Even from the beginning, there is a good increase is there quarter-on-quarter or continuously.

Okay. And so why is this happening? What is suddenly changing in this segment so much because MCC is not a very high complexity product. So what is changing right now that is leading to so much demand and so much realization increase? What's going on there? Is there like global plants have shut down or something else?

No, no, it's not like that. See, here, MCC, there are -- people think that there are no entry barriers at all. Anybody can come and play. But here, there is a vintage also takes place and the expertise even the other players even I can quote here, Aurobindo sometime back, they have opened Crest Cellulose and they have incurred losses and then they sold their unit to Roquette. But see, people -- they will see this product will be used in API, this -- mostly in formations, this will be used. API cost will be on higher side, always when we compare it to MCC, very, very -- far, far high. If they take this substandard or even unregulated or even those who is not proven in terms of their quality and customer satisfaction if they use, they may incur huge losses or the damage will be on higher side. That is the reason they don't prefer. Because Sigachi is known for quality and customer satisfaction. That is the reason we have good product demand is there.

Got it. And just one last question on the MCC before I go to CCS. It seems that we have lost some market share to some of our local peers. What's the strategy to get them back? And why should the customers come back to us again? Or will the strategy be to -- since there is so much demand, we just capture demand from new customers and that's how we do it.

No, no. In fact, we have lost market share primarily because we have had a shortfall in our capacity. There has been a reduction in our capacity by about 6,000 metric tonnes per annum. And because of that, we have not been able to supply to our customers. So naturally, our customers wherein they have approved the other players will move to the other place because they can't stop their production. So we are quite hopeful that for the kind of relationships which we have cemented over the last 3 decades, once the capacities come back on track, we will be able to regain our -- the bigger share of our customers' wallet.

Got it. Got it. And now coming on to CCS, what sort of market and demand are we seeing for CCS?

Sorry to interrupt Mr. Dasani, but can you please rejoin the queue for follow-up?

Sure. I'll get back in the queue. Sure, sure.

The next question is from the line of Rupesh Tatiya from Long Equity Partners.

Congratulation on maintaining the margins and good results from Q4 to Q1. It's good to see the turnaround. So first question, I think is, in the Q4 call, you said API revenue can go to INR 90 crores to INR 100 crores. I think in this quarter, it was around INR 18 crores. So how do you see the ramp-up through the quarter? Is there some seasonality? When can we hit INR 25 crores, INR 30 crores quarterly run rate in the API business?

Yes. This quarter, we have done INR 21 crores. And in the second and third -- subsequent quarters, we do good and then we achieve -- we are -- we hope we'll achieve our budget -- our targets.

So are there any products driving this?

Yes, there are some new molecules are there. Even we are -- some molecules, even Sparsentan and Zestrapin and Bempedoic acid, there are other molecules where we can get higher margins also and good business also is there. Definitely, our revenues will go up and all those margins also are going up.

Okay. Okay. The second question, sir, is I think we have given revenue guidance sort of INR 650 crores to INR 675 crores. So we need to hit INR 160 crores sort of quarterly run rate INR 160 crores to INR 170 crores, so -- and I think in this quarter, we came up fairly short INR 120 crores. So were there any issues that you faced in this quarter? And is there some change in the guidance or you will -- we will see significant ramp-up starting Q2?

Second half onwards, sir, these revenues will go up. It is as planned that is there in Q1 also. Only small variations are there. But otherwise, we are on track.

So there is no change in the guidance? INR 650 crores to INR 675 crores, there is no change in the guidance?

Yes, yes. There is no change in guidance.

Okay. Okay. And how about margins, sir? Margins also, I think it's now 13% in Q4, now 13% forward. So we'll still feel like we'll hit 18% for the full year?

Yes, yes. As planned, we are on -- more or less, we are on track only.

So what would be some drivers for margins to go from 18%, 13% to -- in some quarters, you will have to hit 20%, 21% margins. So are there some one-off expenses or gross margins will improve or some operating leverage play out? Can you give some drivers that will make sure that the margin goes to 18% to 20%?

Yes, yes. The fixed costs remain constant, and we are expecting our revenues will go up and indirect costs will remain as is, that is the reason the margins also will go up. Once the revenue increases, the fixed cost, there is no change and margins we are expected to -- anyway, that is a natural phenomenon that revenues will go up. And we are expecting quarter-on-quarter improvement is there in terms of revenues also.

Okay. And sir what were the...

Sorry to interrupt you, Mr. Rupesh. But can you please rejoin the queue?

Yes, sure.

[Operator Instructions] The next question is from the line of Ankit Gupta from Bamboo Capital.

Sir, on the MCC side, if you can talk about the demand from smokeless tobacco snuff, which is known as we have been reading that snuff is almost have 60% to 70% MCC. So how is the demand from that segment? Are we catering to this segment? And how do you see growth from this segment for us and as well as the industry?

Thank you, Ankit, for this question. Ankit, the smokeless tobacco industry is at a very nascent stage. So firming up a schedule of a demand and the possibility of growth in that segment is still very nascent. I wouldn't really be able to speak up and give you a commitment on what is it that we look forward for probably in the next 3, 4 quarters or maybe in the next couple of years. But what I see is that in the tobacco industry, there is a reasonable shift from the typical traditional tobacco, the smoking tobacco to the smokeless tobacco. And for that, the formulation entitles that there is a need for cellulose MCC in that. So there is a reasonable demand moving up in that direction, but it will be difficult to give you future guidance on that.

Are we supplying to them -- to the industry? And how much sales contribution does it have to our overall MCC segment?

I think it will be a tricky thing to give because we supply to many formulations. Likewise, we don't really have the upfront data on how much is the quantity we supply for the tobacco industry from our distributors. Just about all of it is exported out. There is none of it in India. So -- and the export is primarily through the distributors. And from the distributor's side, they cater to different formulations based on supply-demand gaps and requirements. So it will be difficult. But I could tell you that it is a reasonable bit.

Okay. Because what we read is that this industry itself is growing at 40%, 50%.

Yes. I think I believe that gradually, the smokeless tobacco industry would taper down and would have a steady growth. 30%, 40%, I think, is actually unrealistic to maintain.

Sure. And sir, second question was on the CCS side. So here, we will not be making the key raw material for this, which is CMC, and we will be procuring that from China. So like how much cost advantage does CMC provide if one is -- like what kind of margins do we see in CCS segment if we procure CMC from, let's say, I think China is the biggest supplier there. So what are the -- yes, so if you can share your views on that?

Absolutely. So I would say that if there is somebody who's making a product at a better price, at a better cost and you're able to kind of get it at a good price, you should probably be just buying it from them rather than trying to integrate yourself all the way up to the KSM. So China, of course, has got lakhs and lakhs of tonnes capacity of CMC in place. So I think it would be futile to just add up additional CMC capacities in-house, wherein I will probably have only a couple of thousand tonnes of CMC to be made, wherein my cost will be far more than what I buy from China. So it is business sense at this moment to just procure it from a big player of CMC.

Sure. And sir, if you can talk about how this market is shaping up on the CCS side. What we understand is it's largely been dominated by the large excipient manufacturers like Roquette and other players. So how -- if you can talk more about what are the realizations here? What kind of margins are we targeting here? And how do you see the growth in the segment?

Yes. So because we are already entrenched in the supply chain, I mean, we are already there in the pharmaceutical excipient supply chain. So the way microcrystalline cellulose is wherein it's a binder, the CCS becomes a disintegrant. So -- and both of these functionalities are essential for tablet making, so that makes it easier. Now when my customer is already taking in MCC and he is taking in the other product, other complementary excipient products from the other players, they'll be more than happy to look at us as Sigachi as an established Indian player to explore additional excipients. So that is how the whole supply chain will pan out. And over and above that, in terms of margins, it is far more healthier than what the MCC margin is. So that gives us strength because the chemistry here is much more complicated than the cellulose chemistry of MCC.

Sure. So can we assume margins here can be in the range of 25% plus, even if we import CMC from China?

Absolutely, Ankit, you're right.

Okay, okay. And sir, how will we compete with large...

Sorry to interrupt you, Mr. Gupta. But can you please rejoin the queue? The next question is from the line of Nalin Shah from NVS Brokerage.

Let me offer my congratulations to the management that after such a big disaster, you have come back and started the normal operations. So we are very happy to see the company coming back. I have a very broad question.

All your blessings and the goodwill of all our customers, our investors and...

Always there, sir. Always there. Now my question is a very broad question that somewhere during this period, you had said that now since you will be coming back to normalcy and starting it, then you want to -- you are planning that this somewhere around INR 650 crores, INR 700 crores top line and about some INR 85 crores to INR 100 crores bottom line. My first question is whether are we somewhere near that and we would be able to achieve that? That is some -- I think, the pre this thing -- disaster, this is the numbers which were there. So whether you will be able to reach that level in the current year or maybe next year? That is some light you can throw on that. And my second question is that have we been compensated in terms of, I mean, loss of property, et cetera, by the insurance cover, then what is the amount we have either received or we are in the process of receiving it or something, which will help us in understanding our working better?

Yes. Thank you, Nalin Shah. Your first question, we have given in the last call -- earnings call, the guidance of INR 650 crores to INR 675 crores. More or less, we are on the track and we hope we'll achieve the track. And coming quarters, quarter-on-quarter, there would be -- improvement would be there. And in revenues also will go up. And as the fixed rates remain constant, the margins also goes up. We are on track more or less. And coming to your second question regarding the.

So shall we achieve the pre-disaster level, whatever the best performance you had this thing -- posted, current year should we reach that?

Yes, sir, that's what. What is the guidance we have given, we are on track as... The first quarter would be these levels and the next quarter also -- we planned quarter-wise, we are on track. And coming to your next question relating to the insurance. Insurance, the assessment is done, and that is -- they have sent it for the insurance company. And these and all -- the e-auction they have done and that is in process. It is expected some few reports they have asked further and those reports also will be submitted in this week. And there is an indication that in this quarter, maybe before end of the September, we'll receive either the full claim with some discount or some ad hoc amount. That's what the recent estimate and the information given by the company.

Okay. Congratulations to you and I think best of luck for the new innings now.

The next question is from the line of Amit Vora from [ Ginar Consultancy. ]

A few of my questions have been answered. I'll keep it brief. The first thing is that what has been the utilization for this quarter?

This quarter, utilization at overall for all the company level, 76.8% is there; at Dahej unit 76.5%; and Jhagadia, it is 77.16%. And on an average, 76.8% is there. In next quarter, it will go up. Quarter-on-quarter, it will go up. And also at the same time, we are planning to increase capacities by debottlenecking. That is the thing.

All right. Sir, we are already almost half the quarter of Q2 is also done. So you will have a fair idea on how things are and that shows in your body language also that pretty confident on achieving the full year number that you had guided in Q4. So we are definitely looking forward for that number to be reported. The second question is, sir, considering the fact that we had a big loss, which is there in our P&L. So why do we have this tax liability, sir? Just wanted to understand.

That is MAT is there a minimum alternate tax based on that, yes, it has come after setting up also. But this loss that can be set off in the future years. But a minimum -- MAT...

Right. Two more questions, and I'll join back in the queue, sir. One is promoter had told about buying from the open market. So whenever the time is there or whatever it is, I hope that commitment stays.

Promoter, we have never said that we'll buy in the open market. Never...

So this forfeit has happened, sir, of the warrants, so my mistake, sir, apologies for that. The forfeit of the warrants has happened. So is there any way that promoter is looking forward to buy anything from the open market considering where we are and what we are going to achieve? Just a question if that can be answered.

If anything is there, we'll make an announcement, sir.

Sir, one last feedback, sir. One last feedback, sir. You are giving your results very -- and there is very less time to analyze, sir, between the result and the conference call. I'm new to the company. That's why I'm not aware if this has been the trend. Sir, if you can change this a bit, it gives us some understanding on what questions we can ask and we will be better prepared, sir.

Yes, sure.

Because it was just 10 minutes, sir, for the call to start and the presentation was given. So in the presentation, there is an agenda item saying guidance, but I did not see anywhere about the guidance mentioned. So when we are talking in the call, you are mentioning. So just a feedback, sir, if you can just be a bit.

Yes. On only thing is as per the statutory requirement, all the meetings we should have even NRC Committee -- Audit Committee meeting would be there and also the -- followed by Board meeting and at length that will be discussed. That is the reason. After conclusion of the Board meeting only, we can make this report and then we can do it now immediately. That is the.

Yes, sir. So give some time, sir, at least 1 more hour, sir, between your Board meeting ending and the conference call, sir. Any which ways, it is at 4:30, we can keep it at 5:30 it will not change anything, that gives us a better time to analyze the things, sir. That's it.

Yes, yes. Okay. We will see.

The next question is from the line of Deepak Chokhani from [ Raid Capital. ]

Sorry, I missed the answer on insurance. By when are you expecting that, sir? Did you say December?

No, September, sir. September, as per the recent information in September, either the full claim with some discount or some ad hoc amount would be given.

Right, right. And are we planning any capital raise in the near future given the CapEx, which is coming? And -- so yes, yes, sorry.

Yes, sir, at the appropriate time, once that is finalized, then we'll come with an announcement, sir.

Okay. And my last question is, I think last time you mentioned that the Dahej plant expansion will happen by Q4 of this financial year. And in the opening remarks, I think I heard Q2 of next fiscal. Is that correct?

Yes, yes. Last earnings call, we said that Q1 of FY '28, but it is likely to slightly -- it is in wedge. At the end of Q1 or beginning of Q2. That's why I just -- we are our project people, they said they have confirmed that Q2. That is the reason we have mentioned Q2 FY '28.

Okay. So do you anticipate any further delay beyond that?

Yes. As of now, in the recent meeting, that is the expectation. Mostly we will complete by that time. In Q2. Q2 FY '28.

And I believe there's INR 100 crores further CapEx to be done approx. You can correct me on that. How do you see that funding to come from?

Either from bank finance or even this -- anyway, we are just discussing even preferential issue, just we are thinking. Once that is concluded, then we'll come up with an announcement, sir.

The next question is from the line of Darshil Jhaveri from Crown Capital.

Firstly, congratulations on a great set of results, sir. Sir, I just wanted to note our margin trajectory. So when we say that I think last year, we said around 18% to 20% margins. So right now we've done 13% even if our revenue ramp up by Q3, Q4, will we reach 18% is what we're saying? Are we saying that exit run rate will be 18% or full year consolidated can be 18%, sir?

Full year consolidation we have expected -- that is 18%.

That would mean that our Q4 should be a bit higher than 20% because that's how we'll reconcile that, right? That's why I was a bit skeptical on that part, sir.

Yes. Once the revenue goes up, then that is possible, and we are expecting -- we are on track. As projected in Q1, we have expected this much revenue and EBITDA margin. And next coming quarters, it will go up. More or less, we are on track, and we hope we'll achieve this.

Okay. That's really great to hear, sir. And sir, just wanted to know in terms of like our CapEx, so could you just say what is the CapEx you're going to do in FY '27 and '28? And how much of it is yet to be spent like this?

Yes. FY '27 around more than INR 100 crores we are going to incur. And FY '28, it would be another INR 150 crores to INR 200 crores would be there.

INR 150 crores to INR 200 crores will be there. And for this, we are going to be relying on internal accruals and borrowings? Or are we planning some fund raise in case, sir?

Yes. That's what now we have -- we can borrow and as well as we can raise some preferential equity that we'll come up with an announcement once that is finalized.

The next question is from the line of Ankur, an individual investor.

Mostly all my questions have already been answered. One thing I'm still not sure, is there any new capacity or something new that we are going to make in the coming 9 months because I'm still not sure how can we achieve the target that has been set by you about INR 600 crores, INR 650 crores revenue? In case, our 75% utilization is already there. Is this still workable, because if in case 75% capacity is utilized and we are doing a revenue of INR 120 crores. So how does the math work out, sir, for INR 650 crores?

Yes, Ankur. This balance utilization also capacity utilization also will happen. And also, we are increasing the capacities by debottlenecking adding 1 shifter or some vendor or small, small equipment will add and then we'll increase the capacity. We'll find out the ideal time and then we reduce the gap so that we can increase the production. That is one thing. And also we are expecting a better mix -- change in mix of the products. Even co-processed, where we'll get higher margins. There we are concentrating and we'll get more versions of that kind, which gives higher margins. With that, this thing, we can increase revenue as well as margins. Even our API business also, we are going into the high-margin products. That is the reason we are expecting -- we have expected that INR 650 crores to INR 675 crores of revenue and also the 18% of EBITDA, we hope we'll achieve.

Okay. And sir, I understand that this insurance amount, it takes time because the unfortunate incident that took place, I'm sure that the company has a lot of regulations that they have to go through before they disburse the amount. But if in case it still prolongs further, let's say, you're expecting it in September and let's say it takes more time. So will our CapEx that we are proposing to do of INR 250 crores will that be hampered if in case the amount gets delayed, sir?

We have various options are available, sir. We can raise funds, term loan we can take. As of now, the company is debt free. We don't have any term loan. And term loan we can take and also, we can raise preferential equity or even preferential warrants, this kind of this thing. We'll come with -- we'll finalize and then we'll come up with an announcement.

Sir, my only issue with preferential is that last time when we did the preferential shares, some of the promoter shares were forfeited because the amount was not deposited in time. So that is my only concern here because preferential shares would require, again, the same process to take place. And again, the promoters or nonpromoters to deposit the money in time. That is the only concern.

In that case, many bankers are ready to provide us. As of now, we don't have term loan and they are ready to fund us. Even last time that is some misplanning took place in the last moment because of unexpected holidays. And I hope it will happen the same thing. Of course, we have not finalized any option, but once we finalize, then we'll come up with an announcement.