Shaily Engineering Q4 Review - Strong Traction In Healthcare Division To Drive Robust Outlook: Systematix

Systematix Research Report

Shaily Engineering Plastics Ltd. reported a healthy quarter (revenue/Ebitda/ Profit after tax grew 27%/38%/95% YoY and 8%/9%/33% QoQ). Despite surge in gross margin (46.8%, up 284bps QoQ), Ebitda margin came flattish QoQ at 20.3% due to surge in other expenses. A 27% YoY revenue growth was driven by 30% surge in overseas (including U.K subsidiary) and 18% rise in domestic sales.

Volume grew 17% YoY; plant utilization stood low at 40%. CFO (Rs 923 million) stood healthy at ~75% of Ebitda. While non-healthcare divisions are seeing healthy traction in business, the healthcare division revenue is expected to surge 50-60% in FY25 with fast growth likely to sustain for next 5-10 years. It aims to sell 17 million+ injector devices in FY25 (FY23/FY24: ~7 million/12 million). Shaily Engineering Plastics current infrastructure can manufacture 60-70 million devices with a small capex.

U.K innovation center is strengthening Shaily Engineering Plastics presence in the global healthcare market. We increase earnings estimates by 7-12% owing to expectation of better cash flows. Based on its strong order book and guidance received from key customers, we expect Shaily Engineering Plastics to report robust 26%/31%/43% compound annual growth rate in revenue/Ebitda/ Profit after tax over FY24-26E (FY19-24: 14%/17%/24%) with Ebitda margin inching towards 20%.

With no major capex planned (till capacity utilization reaches 75% from ~40% in FY24) and prudent working capital management, we expect healthy FCFs and return on capital employed to reach ~22% in FY26E. Shaily Engineering Plastics scrip has run up ~30% since our initiation (IC note) on 2nd April 2024.

We remain constructive on Shaily Engineering Plastics and maintain 'Buy' with a higher target price of Rs 769 (30 times FY26E Price/earning, earlier Rs 720 at 30 times).

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