Accent Microcell Limited - A Niche Microcap with some puddles

[Ashar_Mann]

Incorporated in Ahmedabad on April 10, 2012 Accent microcell limited is into manufacturing of a excipient named MCC à Microcrystalline cellulose

It’s one of the most used excipient in pharma value chain. MCC market is valued at $411 Million (around 2800 Crores) and is projected to reach $712.9 Million

Source – RHP

Process of manufacturing – Cellulose obtained from Wood pulp is mixed with Hydrochloric acid and mix it up and heated @105C for 15 minutes

The cellulose obtained is known as depolymerized cellulose and this Depolymerized Cellulose is Known As MCC

Value chain given in RHP

Where is MCC used in ? → in wide range of application such as pharma, textile, packaged food for anti-caking, etc. for Accent max contribution arises on account of Pharmaceutical business → 72%

If you have followed my Yasho thread (the co. has very minute division of B2C where co. manufactures the Anti-oxidant, for formulation of such anti oxidants carrier or filler is required à carrier – Helps API to reach to target site in formulation and Filler à helps in bulking the weight

Some of the competitor are

Dupont de Nemours, Inc.

Asahi Kasei Corporation

Sigachi Industries Limited

Accent Microcell Pvt. Ltd. (red flag)

DFE Pharma GmbH & Co.KG

Since the MCC market is very very tiny 2800 crores globally the exports are to facilitated in order to Ensure revenue growth → Domestic market will be sub 700 crores at max.

The major grades of MCC manufactured and marketed by Company are branded under the name “accel”. Besides “accel” they sell products under the name “acrocell”, “maccel” and “Vincel”.

The company has 2 manufacturing unit → @ Dahej and Pirana à both are running at optimum capacity @100% and 95% respectively

The company IPOed recently and there was no OFS the whole issue was Fresh infusion

Purpose of the IPO was to Install the capacity for Croscarmellose Sodium (“CCS”), Sodium Starch Glycolate and Carboxymethylcellulose (CMC)

For the amount of 54.39 crores the commercial production for which will start from March 2025

Croscarmellose sodium is a super-disintegrant, which means it helps tablets break down quickly and completely when they come into contact with moisture in the gastrointestinal tract. This property is useful for improving the dissolution and absorption of active pharmaceutical ingredients (APIs) in tablets or capsules.

Hence for pharma co. both are a need however they don’t complement each other’s value chain hence we can safely say they are venturing in horizontal integration (expansion)

Now why does Croscarmellose Sodium (“CCS”) Excite me – See below SS

The CCS margins are more than 30% although the capacity for Accent is around 2400 out of 10,400 MT capacity but a start is a start

Market for CCS is almost 850 Million double of MCC market

The EBITDA margins for the company can be sub 24% once the capacity comes live

Considering that 70% of revenue is on account of pharma it’s not surprising that Gujarat is the major contributor of their revenue and for export it’s Brazil. Their MCC market and CCS market is Big

4 members of family are paid cross of 30 Lakhs which frankly is very nominal considering that annualised pat as per Sept result can be 28 crores

Certain Redflags:-

The IPO proceeds will be used in manufacturing the capacity – the land for which is procured from the Related party at 0.6 crores à possibility of Mark up pricing

“Independent contractors” from which the whole expansion project is to be facilitated are “Patels” only à the chances of being related party not recognised by the law is high though no proof

Source – RHP

The promoter is into the same business through Unlisted entity Accent Microcell Pvt. Ltd. (red flag) which is mentioned as competitor for MCC in RHP à what’s the need for the same?

Land In Dahej SEZ is on lease (ofc) risk of non renewal
The company is owned by Patel family  average cost of acquisition is around 10 Rupees  Source – RHP
Issued on preference basis to family members @50 Just before the IPO on August 2023
Disclaimer - Not invested

[utsav_garg]

The promoter is into the same business through Unlisted entity Accent Microcell Pvt. Ltd. (red flag) which is mentioned as competitor for MCC in RHP à what’s the need for the same?

Accent Microcell Pvt. Ltd seems to be a former name of this same public listed entity. After reading your analysis, I found it to be a major red flag so I tried to dig into their website for any info on this, in the career section of the website “Career – Accent Microcell Ltd.”, I found in the contact info - “(Formerly Known as Accent Microcell Pvt. Ltd.)” . So the report which you referred from while listing competitors may have made the mistake of referring some old database and hence listed it as a competitor (at-least that’s what I am thinking).

Disc : Taken some initial positions

[Ashar_Mann]

I think there was some mix up from my end, Sorry for that.
But the company’s group company are into formulation and also into API
For excipient one has to make sure that promoter since has technical knowledge will not share the same with it’s other group companies.
Which in turn is very difficult since it’s person and not the machine.
I’ll be seeing the development here → business is good but IPO funds utilization through Patel family might be a risk and sharing technical knowledge such that the Formulation company itself enters into horizontal expansion is Risk → Personal Opinion is that I don’t see enough Risk premium to bear the risk at this price
But will surely look at appropriate level for the same

[harsh.beria93]

@Ashar_Mann

sharing technical knowledge such that the Formulation company itself enters into horizontal expansion is Risk → Personal Opinion is that I don’t see enough Risk premium to bear the risk at this price

I am sorry but are you suggesting that promoters of Accent Microcell will tell their sister formulation companies how to make excipients in-house and destroy their own business, after building the excipient business after a decade of effort? Whats the basis for such a ludicrous comment?

I am sharing my notes of my work on Accent Microcell. What I found really interesting in the company was consistent cashflow generation, despite making low margins and operating at a small scale. They have done small capexes regularly using these cashflows. Even during COVID, they didn’t take any loan moratorium because cashflow generation was quite decent (see table below). Also, their sales have become 3.4x from FY16-FY24 and profits have grown from 0.84 cr. to 37 cr.! This is particularly impressive as their first plant in Pirana was only established in 2012 (its only a 12-year old company).

Year	Sales	PBILDT	PAT	Operating cycle	Export %	CFO / accruals
FY16	72.18	7.34	0.84			4.25
FY17	74.47	7.87	0.83	52 days	60%	4.31
FY18	97.88	10.31	1.84	46 days	50%	5.14
FY19	119.51	11.14	3.62	50 days	59%	8.84
FY20	135.25	12.62	4.18	54 days	61%	7.79
FY21	139.68	13.97	6.21	64 days	64%	7.32
FY22	173.33	16.79	8.22	62 days	66.8%	14.91
FY23	202.95	18.94	12.24	68 days	63.54%	5.62

Post IPO, their operating cycle has expanded from 50 to 70 days because their payables have reduced drastically. I think they have reduced creditor cycle for availing cash discounts, which is now resulting in higher gross margins.

We see this clearly in the large reduction in payables from 35 cr. in FY23 to 13 cr. in H1FY25.

During this period, gross margins improved from 32% in FY22 to 41% in FY24 (46% in H1FY24, 36.5% in H2FY24, 38% in H1FY25). The 6-8% improvement in gross margins is either because of lower raw material prices or due to lower creditor cycle (or a combination). The recent care rating report mentions that their margin improvement was due to moderation in wood pulp and coal prices along with benefit from economies of scale. It needs to be seen if their gross margins sustain at 40%+. This is especially important given Sigachi makes gross margins of 50% consistently (see comparison below).

If anyone can shed further insights into the differences in end-markets of Accent vs Sigachi which might be resulting in the gross margin differential, it will be very useful.

Disclosure: Not invested (no transactions in last-30 days)

[paragbharambe]

The company IPO in Dec 23. I wonder why they did not operated with Crisil? Is there anything to worry about?

[Manav]

Hi,
I am trying to understand one simple calculation for this company.

In FY24, they did sales of ~240 crs and produced ~8000 tons which converts into ~INR 300 per KG realization. 92% of sales came from MCC and rest 8% from other products. If we do similar numbers for Sigachi, for FY24 they had average realization of INR 210 per KG for MCC. Sigachi sells only MCC currently.

Under no circumstances, the variation in realization could be so much. Can someone help me to understand this.

Thanks
Disclosure - No investment in Accent.

[Mgkreddy]

Hi , pls listen to latest Concall with investors uploaded by company…answered about it wrt to raw material used and price of their products when compared to sigachi

[Manav]

I listened to the call again. The mgmt clarified responded to the lower margins compared to Sigachi. On RM cost, mgmt. mentioned that they purchase a higher priced product. And on finished goods pricing they mentioned that they sell at a competitive price compared to Sigachi.

Somewhere in 7-8 minute they mention that they sell MCC at INR 200 per KG.
So the question still stays.

[kkronline]

240 crores, 9600 MTPA capacity is yielding 256 per kg as realization. They are running max capacity.

[Harsh04]

2 out of top 5 suppliers of the company are its group entity. Red flag ? Is it not a good idea to make these entities as subsidiaries ?

Accent microcell buys from group entity Jainishk Ind as well as sell to them ? Couldnt quite wrap my head around this ? How to check these are geniune transactions and not some circulatory gimmick / trick ?

The listed entity Accent Microcell has a lot of group entities around it which are in the similar domain / sector - out of them, Jainishk and Maccent have significant dealings with listed entity

None of the promoters or KMP have a Pharma background. All i could find is a matriculation degree. Doesnt this domain demand some qualification academically ?

[Harsh04]

Further to above

22Cr and 15 Cr worth of goods purchased from Maccent Biocare in FY 23 and Fy 24 respectively. Thats a total of about 15-20% of raw material purchases

As a retail minority investor in the listed Accent microcell, how can i know that such dealings are at arms length and at fair prices ?
In the recent concall, there was already a question on Margins by one participant which the management refused to answer -
// Himanshu Bisani: Understood, sir. I also wanted to understand, because we have a listed peer as
well. When I look at the margins of that business—it is mostly into MCC currently, without high
value-added products—but still they have better operating margins. From what I can gather, that
is due to the material cost. There is a significant difference in material cost between us and our
listed peer. Any idea on that, any outlook?
Ghanshyam Patel: Yes, madam. Sir, as per our company policy, we prefer not to comment on
peers’ finances. We understand we are doing fair enough and expect to deliver in future as well //

[kkronline]

Yes it is difficult to avoid this kind of red flags in some SME counters. they have been doing this business in this way for very long time. Over a time, Pressure from investors and analysts will make them to provide more transparency and high governance. that’s the reason it should trade cheap, but the valuation across SME is 2x than it should be.
I bought this scrip for Rights issue under special situations. So, also their concall reading provides they are trying to be more transparent. We need to give time on the progress.

[Souresh_Pal]

@harsh.beria93

If anyone can shed further insights into the differences in end-markets of Accent vs Sigachi which might be resulting in the gross margin differential, it will be very useful

They do some trading also. So they buy semi finished products and then sell it. This thing is mentioned in latest concall. It can be an explanation for gross margin differential.

Here read the entire thing not just the highlighted portion.

[kkronline]

Due to fire accident at Sigachi, Accent microcell started gaining . Whether this new Greenfield will help to close the short term rise in demand supply gap.
Collective wisdom says yes and it is up 15%.

[Investiepic]

Yes, the Sigachi plant that was affected by the explosion was contributing roughly 27% of the capacity (6,000 MTPA out of a possible 21,700 MTPA).

Management has highlighted that it will take about 3 months to bring this plant back into operation.

This temporary outage at Sigachi may advantage Accent, as Sigachi was working at almost 90% utilization. With the elimination of the 6,000 MTPA in capacity, then potentially 3,300–4,000 MTPA of incremental demand may shift to Accent.

Assuming a realization of Rs. 300/kg, that could mean ~Rs. 25 crore incremental revenue opportunity for Accent.

[Vidhyut_Bhawnani]

Hi, new to this thread so posting some of my notes that I have collected till now.

COMPANY BACKGROUND:

• Company manufactures Pharma Excipients - Micro Crystalline Cellulose (MCC) which is a filler/binding agent (helps keep all the ingredients of the tablet bonded together).

• They are also moving into specialty products like CCS/SSG/CMC, which are premium variants of excipients. Some of them are used as disintegrants (sucks the water and disintegrates the entire tablet in our body so that the API can zoom out fast).

• These variants have nearly twice the realizations (MCC - INR 250-300/kg; CCS/CMC - INR 550-650/kg) and also better margins (co is guiding 20-25% PAT margins vs 10-13% in legacy MCC). (source: Q4-FY25 concall)

• Woodpulp is the core raw-material for making MCC (contributes ~50% of the RM cost).
  Ocean Freight is the 2nd largest pie (5-10%).

• Excipients form 5-15 % of the overall tablet’s cost. (majority cost is APIs: 60-70%)

• Each excipient grade is coded in DMF files. Switching to another supplier would cost a formulator stability trials + regulator approvals, leading to 6-12 months delay + expense of $0.5-1 Mio.

Industry Size: (source: GPT)

- World MCC demand is around 260-300 KT, expected to grow to ~330 KT by FY28.
- Accent’s current share is ~3% of the world capacity.
- Considering full capacity of Accent in FY28 (24 KT), this would become ~7%.

Tailwinds:

• China+1: Covid factory-closure forced pharma supply chains to relocate production to India. (created void of 25–30 kt MCC capacity (≈10 % of the world demand)).
• Quality/Spec Upgrade by regulator: In 2021, FDA/EMA pushed formulators to switch to “low nitrite/spray-dried” cellulose. (lots of Chinese companies couldn’t meet the requirement)
• New category demand: Vitamins, vegan gummies, high-protein bars all need MCC or CCS as clean-label bulking agents (sub-segment growing >10 % CAGR).
• MCC Industry Growth: Global MCC industry growing at 6-7%.

Who are they selling to?

• Accent sells to approved importers (eg: Indukern do Brasil - global chemical distributor, Direct Food Ltd (UK) - specialty food & nutraceutical ingredient distributor, etc).
• These houses then onward-sell to hundreds of final formulators in their geography.
• Effectively, Accent is not directly invoicing Pfizer or GSK.
• Since the distributors take on stocking, small-lot logistics, etc on their books, the receivables aren’t stretched for a small B2B player like Accent.

End-User Industry? - Pharmaceuticals, Food/Nutraceuticals, Cosmetics, vegan gummies & protein bars,

CAPEX:
Current Capacity (Unit 1 + 2): 9,200 MT
Unit 3 (Phase -1): 2,800 MT (for premium grade excipients - exp by Oct’25)
Unit 3 (Phase -2): 12,000 MT (for bulk MCC - June’26)
Total Capacity (by June’26): 24,000 MT (~160% increase)

Capex is being funded by by IPO proceeds + right issue (INR 40 cr closed in June’25).

Company is running at near 100%/95% capacity utilization in Unit-1/2 for the last 3 years (as per DHRP).

Competitors:

Note: Above is an estimation of FY28 figures for a Taiwan based entity and India’s listed MCC players. The ASP for Mingtai is higher because of premium product mix (which displays that Accent can move up the value chain further to expand revenue).

Accent’s ASP is better than Sigachi’s due to better product mix (higher grade of pharma excipients being sold).

Financials summary: Mcap: 650 cr, Rev: 265 cr/ PAT: 33 cr, PE: 19x, debt free, CFO/EBITDA ~0.5x, CCC stable at 124 days, Promoter: ~55% (0% pledge). (source: Screener)

**NOTE: B/w FY21 to FY25, revenue has gone by 100% however majority of it has been price/value driven (~80-85%), while ~15% was volume driven as capacity was running full (some bottle-necking was done). This value growth is on account of the factors listed above in TAILWINDS section, i.e. quality/spec upgrade, capacity void & also fall in RM prices (pulp prices fell $1100 to $700). Given that excipients are such a small part of the overall tablet cost & the quality/spec upgrade mandated by FDA, it looks unlikely that the ASP for Accent/Sigachi will fall majorly, however it remains a monitorable. **

Future Growth: Modelling in 60% utilization of the 12K MT plant & 75% of the 2.8K plant by FY28 (considering company has been running at ~100% capacity for the last 3 years, so faster ramp up), we are looking at INR 575 cr revenue / EBITDA - 18-20% (uptick due to premium product mix) and PAT of 70-75 cr, which translates to 100-125% absolute PAT growth.

Considering PEG of 1x, the company looks to be interesting, considering it delivers on the capex and the ramp-up.

Risks:
Capex to be executed well along with timely ramp up.
Related party purchases with Maccent Biocare Industries down from 23% in FY21 to <10% in FY24. Any spike to be monitored (mgmt saying post Unit 3 setup same will reduce further).
Huge swings in Pulp Prices could escalate costs/impact margins.
Bulk MCC prices to sustain in the range of INR 250-300/kg, otherwise absolute revenue could take a hit.

Note: Some of the data posted above may not be completely accurate, however the intention is to broadly understand where the company is placed in the landscape, and how compelling the story is.

Would love to hear your thoughts on the same.

[kkronline]

Looks like liberal allotment in Rights for Retail portion. minimum of 2x.

https://nsearchives.nseindia.com/corporate/ACCENT_04072025145424_News_Paper_ADV.pdf