Buy Shaily Engineering Ltd For Target Rs.4,074 by Motilal Oswal Financial Services Ltd
Healthcare drives growth; robust outlook intact Revenue/EBIDTA/PAT grew 24%/22%/20% YoY in 2QFY27
* Shaily Engineering’s (SHEP) 2QFY27 result was driven again by its healthcare segment, while weakness persisted in the consumer segment.
* Healthcare revenue surged 78% YoY, driven by increasing traction in GLP-1 pen volume following patent expiry in India and Canada.
* Consumer revenue slid 14% YoY due to continued weak consumer sentiment in the US and Europe. Industrial revenue grew 23% YoY.
* EBITDA margin further expanded 81bp YoY to 30.4%, driven by greater revenue mix of higher-margin healthcare segment.
* Domestic revenue surged 33% YoY, driven by expanding GLP-1 pen volume supply to domestic pharma customers after opening of generic drug market.
* The company generated healthy OCF in 1HFY27.
Key highlights from the management commentary
* Healthcare: FY27 guidance of 36m pen is expected to surpass after ~20m pens already sold in 1H (1Q: 9m, 2Q: 10.4m). GLP-1 therapy should contribute ~70% of the total volume. SHEP has 100% share in Canada GLP1 markets and aims to replicate similar success in Turkey and Brazil, having the first mover’s advantage. Pricing pressure in pens is already built in in new contracts. Device for emergency use can come for commercial production by 2028 end, and it is working with two customers currently. 25m new pen capacity will start selling from Dec’26. It signed two new contracts for IP-led platforms for Semaglutide pens. It launched two-step reusable auto-injector pen, Shaily AI Toby, for GLP-1 therapy.
* Consumer: Business confirmation received for new product from an existing home furnishing customer; increased volumes for existing product from home furnishing customer; FY27 revenue likely to fall YoY.
* Consumer electronics: Started supplying in small batches; business confirmation from a new customer to supply five new products likely from 4QFY27; margins to be better than consumer and industrial segments.
* Semiconductor: Started supplying specialized trays from existing facility; revenue is likely to accrue from 4QFY27.
* UK subsidiary is expected to come back strongly in next few quarters.
Valuation and view: Reiterate BUY
We maintain our earnings estimates after healthy 2Q results. We expect a CAGR of 33%/44%/48% in revenue/EBITDA/PAT over FY26-28, with a 32%+ EBITDA margin in FY28, driven by pen volume commitments from key healthcare customers. Robust RoE/RoCE (~29%/39% in FY28E) and OCF (FY26- 28: ~INR8b) will support the expansion of GLP-1 pen capacity by ~5x. Thus, we are constructive on SHEP and reiterate our BUY rating with a TP of INR4,074, based on 50x FY28E EPS. Slower-than-expected earnings growth could lead to a de-rating in the scrip’s valuation and pose a risk to our positive view.
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