Nice writeup Dhruv. But don't you think that even in a business with a distinct competitive advantage they have a key man risk (Mr. Sinha). wouldn't it mean that there future growth rather depends on the ability of the management rather than the industry environment? Also, can it be a case for appreciating luck as skill (Post 2018 it has been a good for pharma companies)?
Also I did some distributor visit for channel check posing as an MCC customer.
Two observations came in: too much commoditization and no brand recall. In fact 6 out of 11 distributors did not even recommend sigachi since cheaper options of same quality were available ( Quality is solely their opinion)
Hi Dhruva, my biggest concern here is their DRHP where they mentioned that they transferred the trademark Sogachi to some other company for free in 2018. Although not suspicious, but this company will start charging 1 percent of Sigachi sales as trademark cost.
Importantly, this firm is majorly ownerld by promoter family.
Yes that's an concern but we are valuing it today including that.
From governance point of view it's an issue if they continue to do similar siphoning money in future too.
Generally majorly promoters own small companies do stuff that doesn't makes sense post IPO but it's okay if 1℅ going to them, anyways they aren't taking in huge salary.
Good stuff Dhruv, thoroughly enjoyed the short story.
What is the reason behind venturing into maintaining plants for others and what are the key risks there and again entering to ethanol making ( I think that Kurnool project is for Ethanol not for CCS)
Nice writeup Dhruv. But don't you think that even in a business with a distinct competitive advantage they have a key man risk (Mr. Sinha). wouldn't it mean that there future growth rather depends on the ability of the management rather than the industry environment? Also, can it be a case for appreciating luck as skill (Post 2018 it has been a good for pharma companies)?
That's true, Key man risk is pretty much there.
Opportunity always comes to the prepared mind. Yes Pharma up cycle helped them but they were wise enough to capture it too.
Also I did some distributor visit for channel check posing as an MCC customer.
Two observations came in: too much commoditization and no brand recall. In fact 6 out of 11 distributors did not even recommend sigachi since cheaper options of same quality were available ( Quality is solely their opinion)
This is an interesting point thanks.
Hi Dhruva, my biggest concern here is their DRHP where they mentioned that they transferred the trademark Sogachi to some other company for free in 2018. Although not suspicious, but this company will start charging 1 percent of Sigachi sales as trademark cost.
Importantly, this firm is majorly ownerld by promoter family.
Yes that's an concern but we are valuing it today including that.
From governance point of view it's an issue if they continue to do similar siphoning money in future too.
Generally majorly promoters own small companies do stuff that doesn't makes sense post IPO but it's okay if 1℅ going to them, anyways they aren't taking in huge salary.
Good stuff Dhruv, thoroughly enjoyed the short story.
What is the reason behind venturing into maintaining plants for others and what are the key risks there and again entering to ethanol making ( I think that Kurnool project is for Ethanol not for CCS)
Is this prudent allocation of capital ?
Thanks Rafi, Maintaining plants for others - they see as a diversifier and risk free business for them. I don't think today its substantial.
I am not aware of Ethanol ? Can you please share the source.
Amit Raj Sinha: I will start with the first one, while we were looking at setting up the Croscarmellose plant at
Kurnool, we realize that the handover of Kurnool land from APIIC, the AP Industrial
Infrastructure Corporation with the company was getting delayed, so parallelly what we had
done was we were doing the ground work to have set up another facility in the special
economic room in Dahej. That is around 1.5 kilometers from our current unit, so what we have
kind of home down to is that it would be better that we shift the CCS plant to Dahej. That is
just adjacent to our old unit and for the 25 acres land which has already been allotted, while
the process for it continued, we are looking at ethanol as a potential product where we could
kind of expand given the kind of focus which is there for the country in terms of having an
alternate or having a additive over the crude oil. So this is what we are potentially looking at.
We are working on seeing various other factors in terms of compliance, in terms of cost, in
terms of revenue and all that ground work has been done, we have appointed a consultant
towards this and we are looking deeper into this subject, but I can assure that we are on this
job and we are looking at whether this could align our overall growth aspiration and we shall
keep you posted on this.
Keshav: Sir, you broadly covered all this, so I had my question answered, but sir, just one last question
from me, so ROCs and ROEs of our core business are much higher than IRR of an ethanol
product, so what exactly is the thought process behind this? And are there any potential
synergy to the current products or are there limited incremental capital allocation avenues in
MCC, so why are we venturing in this?
Lets wait for more details, if they going to put too much of capital into it. I don't think as of now they are doing on ground anything about it.