Buy Shaily Engineering Plastics Ltd For Target Rs.2,215 - ICICI Direct
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Strong topline growth; higher RM cost hits margin…
About the stock: Shaily Engineering is into manufacturing high precision injection moulded plastic components and finished goods in home furnishing, healthcare, toys, personal care and automotive components.
* Export revenue contributed ~76% to the topline in FY22 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
Q4FY22 Results: Execution of new orders drives topline growth in Q4; price hike delay takes toll on EBITDA margin.
* Revenue grew ~39% YoY to | 153 crore led by execution of orders in the healthcare and toy segment. Volumes were up ~25% YoY
* The EBITDA margin declined 566 bps YoY to 12.3%, mainly due to a delay in passing on of high raw material costs
* PAT declined 24% YoY to ~ | 7 crore, tracking lower EBITDA in Q4
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 value Shaily at | 2215 i.e. 25x on FY24E EPS.
Key triggers for future price performance:
* The company envisaged ~| 200 crore of capex plans 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 margins for the company
Alternate Stock Idea: We also like Supreme Industries in our coverage universe.
* Supreme is the market leader in the plastic piping segment with ~14% market share. Robust b/s with average RoE, RoCE of 24%, 27%, respectively
* BUY with a target price of | 2320
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