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Capacity addition, ramp up of healthcare, toy segments to drive topline…

We met the management of Shaily Engineering Plastics (Shaily) to get an insight into its business and future plans. Shaily 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 (SFM), which contributes ~55% to the topline

What should investors do? Shaily Engineering’s share price has grown by ~2.77x over five years (from ~| 695 in July 2017 to ~| 1925 level in July 2022).

* We maintain our BUY rating on the stock

Target Price & valuation: We value Shaily at | 2235 i.e. 25x on FY24E EPS

Management meet highlights:

* Shaily’s topline is driven by its home furnishings segment. The company has gained wallet share through launching multiple products for SFM in the last two years. Shaily’s home furnishing segment revenues are likely to grow at a CAGR of ~15-18% over FY22-24E supported by new launches

*  Healthcare is the second largest contributor to Shaily’s topline. The company has acquired Intellectual property rights for its insulin pen devices. The product has been well received by major Indian pharma companies

* In the coming years, Shaily will concentrate on growing its healthcare business. The company is working on 16 pen device projects with various companies with different order sizes

* Shaily also aims to increase its revenue through adding capacities and new launches in its toys segment

* The company has envisaged a capex of | 200 crore for expansion of facilities in India to ramp up capacities. Expansion of capacity for the healthcare segment and addition of new clients is expected to drive the topline

* The company sees improvement in margins over FY23E-24E supported by stabilisation in raw material prices and improved product mix

Alternate Stock Idea: In the consumer discretionary space, we also like Havells.

* Trigger for Havells’ future revenue growth would be revival in Lloyd’s revenues and improvement in margin

* BUY with a target price of | 1300

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