Buy Shaily Engineering Plastics Ltd For Target Rs. 2165 - ICICI Direct
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Strong revenue growth; margins to inch up…
About the stock: Shaily Engineering manufactures high precision injection moulded plastic components and finished goods in home furnishing, healthcare, toys, personal care and automotive components.
Export revenue contributed ~74% to the topline in FY21 while the rest came from the domestic business for Shaily
The company’s biggest clients include a Swedish furnishing major, which contributes ~55% to the topline
Q3FY22 Results: Execution of new orders helped drive revenue growth in Q3
Revenue grew ~41% YoY to | 148 crore led by a ramp up of new products in the healthcare and toy segment. Volumes were up ~20% YoY
The EBITDA margin declined 381 bps YoY to 14.1%, mainly due to a delay in passing on high raw material costs and higher other expenditure
PAT increased 16% YoY to ~ | 9 crore, tracking sales growth
What should investors do? Shaily Engineering’s share price has grown by ~3.3x over five years (from ~| 522 in February 2017 to ~| 1751 level in February 2021).
We maintain our BUY rating on the stock
Target Price & valuation:We roll over our valuation on FY24E and value Shaily at | 2165 i.e. 25x on FY24E EPS.
Key triggers for future price performance:
The company envisaged a capex plan of ~| 200 crore for FY22E-24E to ramp up capacity in toys, healthcare and home furnishings
New client additions will help drive healthcare segment revenue to 2-3x in the next three to five years. The company has added two new clients in the toy segment (Spin Master, Hasbro)
Incremental sales of high margin products (like healthcare) will help drive EBITDA margin for the company
Alternate Stock Idea:We also like Mold Tek Packaging in the packaging space
Strong volume growth of ~18% in FY21-24E led by capacity expansion and client additions in the high margin product categories
BUY with a target price of | 850
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