IGI Logo

Robust recovery, order book in place…

Shaily reported a fairly strong performance in Q2FY21 & Q3FY21, helping cover up its revenue losses occurred due to pandemic related lockdowns in Q1FY21. Further, the company has guided strong order pipeline that provides revenue visibility for the next two years. With better operating leverage and a complete pass on mechanism of inflationary pressure to its clients (with a lag of three months), we believe EBITDA margin may improve ~100 bps in FY20-23E. Better cash flows, going forward, will be utilised to fund the future capex and reduce debt (H2FY21 debt at ~| 134 crore). That would result in a robust PAT CAGR of ~34% in FY20-23E.

Faster recovery in 9MFY21

After posting ~42% revenue drop in Q1FY21, the company saw robust sales growth of ~13% and ~20% YoY in Q2FY21 and Q3FY21, respectively. That led to ~98% sales recovery in 9MFY21. We believe execution of pending orders in addition to new orders from existing clients helped drive this recovery. On the margin front, withdrawal of export incentives (2% of revenue) led to reduction in gross margin that finally dragged EBITDA margin down ~85 bps YoY to ~16%. According to the company, the incentive will be restored in the coming period (in the form of RoDTEP) in addition to improved product mix. Further, debt being elevated drove interest cost up ~22% YoY, resulting in ~26% YoY drop in PAT to ~| 12 crore during 9MFY21.

Strong order pipeline

The new business confirmation during 9MFY21 includes 1) US$11.5 million/year annual orders (~| 80 crore) from three new toy manufacturers, to be executed in FY22E, 2) | 180 crore new orders from furnishing major to be executed in FY22E-23E, 3) | 100 crore revenue from new carbon steel project (commence operation in December 2020) to be executed in FY22E23E, 4) four new business confirmation from healthcare front (amount not disclosed) executed in FY22E-25E, 5) two new insulator rod project from Garett (Honeywell). The management sees | 550 crore of revenue in FY22E (includes ~ | 30 crore carbon steel projects that is scalable up to | 120 crore in future). Given a strong order pipeline, we build in revenue CAGR of ~23% in FY20-23E.

Valuation & Outlook

We introduce our FY22E and FY23E estimates with revenue, PAT CAGR of 23%, ~34%, respectively, in FY20-23E. We roll over our valuation on FY23E and value the stock at 15XFY23E earnings. We upgrade our rating from HOLD to BUY and a revised target price of | 1060 (earlier | 595), given its strong sales recovery in 9MFY21 along and a robust order book pipeline.

To Read Complete Report & Disclaimer Click Here

For More ICICI Direct Disclaimer https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer