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Shaily Engineering Plastics Ltd: Re-designing future growth

Buzzing:

Shaily Engineering is eyeing significant revenue growth over the next four to five years led by the toy and healthcare segment.

Context:

Shaily has earmarked a capex of ~Rs 300 crore in FY22-24 to enhance its toy, healthcare and furnishing business capacities. In the healthcare segment, the company supplies insulin pens to leading pharma companies such as Sanofi and Wockhardt. It has recently added one more global pharma company for the supply of pens in the US. With the new client additions, the company sees 2-3x revenue growth in the health care segment in next three to five years. On the toy side, Shaily has signed a contract with global toy giant Spin Master to supply toys worth ~US$12 million in FY22. At present, the toy segment has insignificant revenues. Shaily sees significant growth opportunities in the toys segment, going forward, as many global companies have started outsourcing from India as a part of their China+1 strategy. Looking at significant growth opportunities, the company has raised Rs 150 crore to fund its capex plans.

Our perspective:

To tap the opportunity in the healthcare and toy business, Shaily is planning to increase its manufacturing capacity in these segments by infusing fresh equity of Rs 150 crore. Venturing into newer segment will further diversify its revenue streams. We believe an uptick in revenue will be aided by new client additions along with increased wallet share from existing global major customer (includes Swedish furnishing major). We build in revenue and PAT CAGR of 27% and 52%, respectively, in FY21-24E led by execution of new orders. Further, strong earnings growth and repayment of debt will improve RoCE and RoE of the company, going forward.