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Strong order book, execution remains key…

Shaily reported a strong performance in Q4FY21 with revenue, PAT growth of ~38%, ~40%, respectively. Further, the company has guided for strong revenue growth in FY22 despite lockdown related disruptions in Q1. A home furnishing major (HFM) remains a key contributor to the overall topline (55% of overall revenue). However, significant growth opportunities in the healthcare segment (revenue growth of 2-3x in the next three to five years) and strong order pipeline in the toy business provide strong revenue visibility in 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 see improvement in EBITDA margin in FY21-23E. Better cash flows, going forward, will be utilised to fund future capex and reduce debt (FY21 debt at ~| 173 crore). That is expected to result in a robust PAT CAGR of ~66% in FY21-23E.

Ramp up of new products in Q4FY21

In Q4FY21, the company started commercial production of new products: toy and carbon steel products. These products have combined annual revenue potential of about | 180 crore. While the carbon steel project is dedicated to HFM, Shaily is looking to add more customers in the toy business in the overseas markets. On the healthcare front, the company received two new pen business confirmation from MNCs in Q4FY21. The healthcare business is the second largest contributor in topline (after HFM business) and the current order pipeline suggests 2-3x revenue growth in this segment by the next three to five years. Rising revenue contribution of other segments (like healthcare, toy) would help Shaily to reduce its dependency on HFM over the next five years.

Strong revenue visibility in FY21-23E

With strong orders in the pipeline (| 180 crore from HFM, | 100 crore from carbon steel projects, | 80 crore from toy business), we see FY21-23 revenue CAGR at 31%. For FY22, the management has guided for ~50% revenue growth despite lockdown related disruptions in Q1FY22. The company continued with capex plans (| 80 crore per annum in FY22E, FY23E) and expects to generate 2.5x revenue on every incremental capex. On the margin front, we believe EBITDA margin would remain elevated considering the improving product mix (as healthcare is a high margin business) and on ramping up of utilisation of new plants.

Valuation & Outlook

We believe Shaily is on a strong footing considering diversification into new product category and strong order book from existing customers. We maintain our BUY rating on the stock with a revised target price of | 1670 valuing the company at 25xFY23E earnings (earlier target price | 1060).

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