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Shaily Engineering Plastics Ltd
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Ladies and gentlemen, good day, and welcome to Shaily Engineering Plastics Limited Q1 FY '24 earnings conference calls.This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.[Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Amit Sanghvi, Managing Director. Thank you. And over to you, sir.
Thank you very much. Good afternoon, and a very warm welcome to all the participants to the post results investor call of Shaily Engineering Plastics. I have with me Sanjay Shah, our Chief Strategy Officer; and SGA, our Investor Relations Advisors. I hope you've had a chance to look at our investor presentation that is uploaded on our website as well as the stock exchange.Let me start with giving you some highlights on the operational performance. Despite the challenging geopolitical situation, we've delivered a top line of INR 157 crores and we've improved our gross margins and EBITDA margins, which stand at 41.1% and 17.6%, respectively. We've also stabilized operations in the U.K., and as we scale up and move forward, our emphasis is on broadening our horizons to encompass more intellectual property development and contract manufacturing of medical devices.With that, I'm happy to announce that we have been granted patents for one of our new auto injectors in the U.S. market. The efforts dedicated to developing our injection system platforms are now yielding positive results. In this sector, our scope is not only extensive, but we're seeing traction with commercialization of devices in the coming years -- coming months and years.I'm also delighted to announce that we have been awarded new business from General Electric with a value of INR 40 crores per annum. Our second largest revenue generating sector today is healthcare and we have adopted a scalable approach that will enable us to increase our revenues at a faster pace over the next 5 years. The money that we had raised in '21 has been put into enhancing capacities and building new facilities for healthcare. We also plan to increase our own IP contribution going forward.On the home furnishings front, we have been awarded business for 3 new products, where the total value stands at INR 50 crores per annum. We're strengthening -- we're further strengthening our relationship with the customer. We ventured into steel furnishings business with the same customer and have also added an exclusive facility to the service with this new furnishings business.We received business confirmations for additional volumes and this has improved utilization in the current year. In the automotive and engineering segment, we've added 3 new products with 2 new customers where the total value of the business in the current year -- in the next year will stand at INR 5 crores per annum, but will grow somewhere between 15% to 20% year-on-year from there.That is all from my side. I shall now hand over the call to Sanjay Shah, our Chief Strategy Officer, to give you the operating and the financial highlights. Thank you very much.
Thank you, Amit. Good afternoon, everyone. I shall share with you the highlights of our operational and financial performance of Q1 FY '24. We will be happy to respond to your queries.During the quarter, we processed 5,822 tonnes of polymers as against 6,760 tonnes in Q1 FY '23. Machine utilization rate was around 43% in Q1 FY '24. Exports during Q1 FY '24 stood at 75% of total revenue as compared to 77% in FY '23.On our stand-alone result, revenue stood at INR 153 crores for Q1 FY '24 as compared to INR 172 crores during Q1 FY '23. EBITDA stood at INR 23.7 crores during Q1 FY '24 as compared to INR 21.7 crores during Q1 FY '23, a growth of 9% year-on-year. EBITDA margin improved by 290 bps to 15.5% for Q1 FY '24, 12.6% in Q1 FY '23. PAT stood at INR 8.7 crores during Q1 FY '24 as compared to INR 7.4 crores during Q1 FY '23. PAT margin stood at 5.7% as compared to 4.3% in Q1 FY '23. Cash PAT for Q1 FY '24 was reported at INR 16.8 crores as compared to INR 15.2 crores during Q1 FY '23, a growth of 11%.On a consolidated basis, which includes Shaily U.K., our subsidiary, revenue stood at INR 157 crores during Q1 FY '24 as compared to INR 175 crores during Q1 FY '23. EBITDA stood at INR 27.7 crores during Q1 FY '24 as compared to INR 24.3 crores during Q1 FY '23, a growth of 14% year-on-year. EBITDA margins have improved by 370 basis points to 17.6% for Q1 FY '24 from 13.9% in Q1 FY '23. PAT stood at INR 12.6 crores during Q1 FY '24 as compared to INR 9.5 crores during Q1 FY '23. PAT margin stood at 8% in Q1 FY '24 as compared to 5.4% in Q1 FY '23. Cash PAT for Q1 FY '24 was reported at INR 20.8 crores as compared to INR 17.3 crores during Q1 FY '23, a growth of 20% year-on-year.This is all from our side. Now we can open the floor for Q&A.
[Operator Instructions] The first question is from the line of Manoj Bahety from Carnelian Asset Management.
First of all, congratulations on a good set of numbers. So my first question is, if you can give some color on sustainability of the margins the way we have seen decent improvement in margins in the current quarter? And then I have one more question.
Manoj, your voice is breaking a little bit. Would you...
Hello? Is it clear now?
Yes, sir.
So I have 3 questions. First one is on margins. So if you can give some color on sustainability of the margins the way we have seen decent improvement of margins in the current quarter? And secondly, if you can also give some color on ramp-up of our health care facility during the current financial year and how it is going to impact our margins going forward?
And what's the third question? You said you have 3 questions, Manoj.
Yes. And third question is, if you can elaborate on the new business wins, especially on GE appliances, on furnishing and also the carbon steel ramp-up in terms of improvement in capacity utilization? So these are my 3 questions, Amit.
Okay. Amit, you want to take the second question first, ramp-up on health care facility. And then I will take the second -- the other 2 questions.
Sure. I don't think the second question was a ramp-up on health care.
So the question which Manoj said was what sort of ramp-up do we expect on the health care facility and improvement in margins from that. So...
Yes. So I think question 2 is a little related to question 1, Manoj. You will see improvement in margins as the pie of -- the health care pie of the total revenue continues to increase. So we will see -- I hope that we will see marginal improvement quarter-on-quarter. Quarter 2 seems one where we have some new projects that have been delayed to Q3, which means that you'll see certainly a significant improvement in quarter 3. It may not be so much in quarter 2.But health care continues to scale up. This year, we are anticipating a growth of roughly 60% on the health care business.
Sorry. Can you repeat, Amit? I couldn't hear you. You mentioned some percent.
We're on track to grow the health care portfolio by 60% this year, in the current financial year over the last year. So as that happens, you will see improvement in margins. And these are sustainable margins.
Manoj, yes, I'll probably take the other 2 questions. Amit partly answered the first part of the question. And -- see, the improvement in margins is on basically in 3 accounts. One is, as Amit mentioned, you're basically seeing the health care price go up, which has better margin. So overall margins are going up.Secondly, you're seeing improved utilization levels at the steel factories. We're having longer runs and everything, which is basically improving our yields there and everything, which is also ensuring that we have better margins there, or the impact on the margin is lower there. So that's the other thing. It's a combination of these factors which will play out and which will see improvement in margins as we go forward.On the new business front, the GE business, we will basically -- it's a knob which we are developing for them, and we will start supply sometime in calendar year '24. Similarly, on the home furnishings front, there are 3 new products which we are working with the customer. Revenues would start kicking in from Q4 of FY '24 and Q1 FY '25. So that's the time line which is being looked at. The revenue numbers which we have indicated are annualized numbers based on the current volumes which we have got from the customer.Fourth business which we have talked about is on the automotive segment with 2 of our existing customers, where we will be strengthening the relationship and adding more products as we go by, which, again, totals to about INR 5 crores a year right now. And as Amit mentioned in his speech also, we will see that business growing as the ramp-up happens.
Okay, okay. And lastly, on the carbon steel part, do you see now the stability is behind and we will see gradual improvement in capacity utilization there?
That's our understanding.
Hello?
Yes, that's our understanding.
[Operator Instructions] The next question is from the line of Nirali Gopani from Unit PMS.
Sir, if you just part with -- if you can just give a general outlook on the home furnishing side also. So we were seeing constant pressure over there due to the inflationary environment in U.S. and Europe. So how is the situation now? And how do we see the current year panning out on that side?
So Nirali, we're seeing gradual improvement in volumes. But we're not seeing very large improvement in volumes, but we're seeing improvement in volume. And what we're also seeing is we're seeing new business confirmations coming in. So we are building up the business for the next year.
Okay. Because all these new business wins will largely reflect in FY '25, right?
As I mentioned, some of the home furnishing stuff will start getting reflected from Q4, but the full impact will happen from Q1 FY '25 onwards.
Right. So if I want to see FY '24 in particular, so largely the growth will be driven by health care or any other segment you see that can support growth in any way?
FY '24 growth, as we have mentioned earlier also, will come from health care. Part of it will come from improved utilization levels from the carbon steel facility, where we are seeing traction in terms of higher volumes and everything. Third will basically be on automotive front, and some of it on the home furnishing front. So these are 4 areas from where you'll see growth.
Okay. Fair enough. And this quarter, sir, very good revenue uptick on the U.K. side. I know Amit did touch upon it in his opening comments. But if you can briefly talk about it. What kind of difference are we seeing there? And how should things look going ahead?
We're looking at -- while we'll not be able to give you exact numbers, but we're looking at a very, very significant ramp-up in revenue in the current financial year over last year. So I would say at least 2 to 3x is what we're looking at in terms of revenue in Shaily U.K. this year.
Okay. And this is largely the new development that we are working on?
Yes. So Nirali, the way to look at it is we had in the past communicated new business confirmations which we have received and new developments which we have received as and when they have been received, large contracts have been closed. So that are being executed through Shaily U.K. So that's the pipeline which is there. And that's the reason what Amit mentioned, the growth we are looking at.
Right. Right. And the appliances seems to be a new customer. So if you can just qualitatively share what kind of opportunities it can be for Shaily over a longer term? I know you have shared the short-term number. But yes.
Nirali, I think giving numbers will be difficult. We see a pretty large opportunity there. If Amit can add to...
It's actually a very old customer. We started doing business with GE in -- God knows -- '95, I think.
This was our fourth export customer, Amit, yes.
Yes.
Yes.
Okay. So we have been working with GE since 1995?
Yes. But they've never had focus on sourcing from India. I'd say the actual process changed significantly over the last 18 months, which means that we are seeing new opportunities and they are participating in them and have also been awarded this particular project.
Perfect. And lastly, Sanjay, if I see this quarter numbers, expenses have grown quite significantly over Q4. So any particular reason, like other expense, staff cost, power and fuel? Anything that has grown significantly?
Some of those expenses if you were to look at it are in line with the growth in the revenue. Power and fuel, we have had higher growth in the current quarter because there has been some change in the power tariff. And with improved utilization levels in terms of the carbon steel facility or anything -- we have been having our power cost there.
[Operator Instructions] The next question is from the line of Aman Vij from Astute Investment.
My first set of questions on the pharma business. So on the CapEx side, if you can give an update on when is the pharma CapEx expected to complete? And how do you see the ramp-up in FY '24 and FY '25? When do we expect full utilization of this facility?
So Aman, we will basically be completing the major part of the CapEx by September. And so Q2 is by which the major part of the CapEx will be done. And some of it will get spilled over to Q3, but between Q2 and Q3 of FY '24 is when the whole CapEx would be done. The ramp-up will basically be over the next 4 to 6 quarters when we will do the ramp-up.In pharma, we need to have facilities created ahead of time to basically get all the compliance and all the approvals from customers. So that's the basis on which these facilities have been created.
You look at a 3-year -- at least a 3-year horizon for the capacity that we have created to be utilized to a greater extent.
Sure, Amit. And it's my understanding, sir, that almost maybe 2/3 or even more is meant for pens this new facility? Is my understanding correct?
All of it is export by this, yes.
Sure, sure. And in terms of -- you've talked about what kind of growth you see in health care. In terms of number of pens sold, so where do we target -- what is our target for this year?
Aman, I honestly can't give -- when you just look at the total number of pens, it probably does not give you a right sense because we sell at different price points. And we have contract manufacturing for our own devices -- of devices and we then have our own [ IC led ] pens. Each of these pens have different price points and the price variation is very, very large. So looking at total number of pens, I can give you a number or something, but I'm not sure whether it will help you in terms of looking at that number.
Okay. So if we have to say -- can we assume the growth in pens, not the number of pens, but in the pens business in terms, say, the rupees, crores business, will be in proportion to 50%, 60% kind of growth we are targeting in healthcare? Is my understanding correct?
That's right.
Yes.
Sure, sure. On the utilization of our facility, so it was good to see the ramp-up happening in Q1. So if you can talk about for FY '24 what kind of utilization do you think we can achieve? And similarly for next year if you can talk about the same?
Aman, we don't give out what we think will be revenue guidance or something for the current year or for the next year. So we would refrain from uttering that word. I'll probably answer it in a little different way. As numbers improve, you will see utilization levels improve going forward.
So the reason for asking was when do we expect the full utilization of the facility? That is the questions. If you can talk about the same.
My answer is probably sometime by the second half of FY '25.
Sure, sir. On the steel business side, so last time you had talked about, I think, it's still loss making, if my understanding is correct. So if you can talk about, do we expect this to -- is it profitable in Q1? When we expect it to become profitable? And I mean, you had talked about FY '25 we expect full utilization. So is it safe to assume that even for FY '24 we can maybe do like 50%, 60% kind of utilization?
Yes. So I think this year, we will be positive in terms of bottom line and everything. In terms of utilization level, as compared to last year, we are at an improved utilization level. We will be over the numbers which we indicated in terms of utilization levels for the steel facility overall for the whole year. Getting to 100% or full utilization FY '25 it's a little too early to say right now. We are working with the customers to build up the book in terms of products and everything. If we have clarity, we will give that clarity to you.
Sure, sir. And a final question before I come back in the queue. Any positive outshoot on the toy business, if you can talk about this thing?
No.
No.
I don't think anything right now.
The next question is from the line of Paras Adenwala from Capital Portfolio Advisors.
Yes. I had a question on your fixed asset turnover ratio. I saw peak -- my software says that in March 2018 is when you had a peak turn -- fixed turnover ratio, fixed asset turnover ratio of 2.6. And since then, there has been a gradual decline. And I think as of FY '23, it's lower than 1.5. So would you say that with this quarter, now the fixed asset turnover will start improving?
So Paras, we have said in the past that based on the investments which we have made in everything, we should basically be looking at investment -- fixed asset investment to revenue of somewhere between 2.25 to 2.5x depending on the current product mix and the customer profile which we have. I think you will basically see that ratio improving as we move towards the end of the year. At the same time, what also needs to be looked at is we are capitalizing a large part of our pharma facility in Q2 and Q3, which will increase our fixed assets, where you will see revenues coming in over the next 2 to 4 quarters.
Okay. So by what -- do you think over the next 12 to 18 months, you should be reaching a fixed asset turnover ratio of close to 2.5, 2.6 once again?
I'm not sure whether we will get to that level, but you will see that number improve with -- first, we have better clarity, then we can probably talk about it. But yes, we do see that ratio improving as...
Paras, the only thing I would add is maybe not 12 to 18 months. Look at more from 18 to 30 months and you will certainly see, like Sanjay bhai said, that number improving.
Okay. And through the course of various conversations today in the call, you mentioned about clarity and unpredictability. So are you -- in the overall business environment, are you witnessing some amount of haziness in terms of how you see your future over the next 12 to 15 months?
Amit, you want to take that or...
Yes, I will take it. No, I think -- Paras, it's not so much haziness on how business or the environment is. The environment is certainly not great right now. We don't think it's going to -- we're not going to see a full recovery in the current year, and we expect that at the beginning of the year as well. I think the haziness comes partially from -- there's so much movement on this, whether you call it China + 1 or just people looking at alternate sourcing, India being a great part of that strategy.So there's so much -- it's just about finding the right opportunity that we want to participate in where we can make a contribution that will help us to build a sustainable -- to have sustainable growth as well as profitability. Toys is a classic example of how we try to derisk from our home furnishing major. We saw an opportunity which could be scaled up fairly quickly, had very similar margin profile or slightly higher margin profile than the home furnishing major. But it's not a business where our abilities are valued, to be honest.So do we want to continue down that path? I would say probably not. We will certainly participate in high value-add opportunities if they come our way, but it's not a business that we will actively pursue with the customer because it doesn't -- there's no stickiness to the supplier. The spread -- it's basically a very transactional relationship, and I don't think it enables long-term growth. So the haziness probably came from building that strategy for Shaily more than the business environment.
Okay. All right. Okay. And now we've been -- I think FY '23 was quite a challenging year for you. And even prior to that, I think we did notice some amount of slowdown in the business. But now with this quarter, would you say that things have turned around and we should at least cross the turnover or reach the turnover that we had in FY '22?
No. Give it one more quarter. I think we're going to have -- the jump we saw between March '22 and June '23 may not be there between June '23 and the coming quarters. So we will certainly see an increase, but it may not be so substantial. I think quarter 3, we'll see -- quarter 3 and quarter 4 we'll see much more -- much better numbers.
Okay. Just 2 more questions. On the toys business, it is still kind of -- just it's work-in-progress as it seems right now. Can I know what is the amount of investment that you need in the toys business? And what is -- as per your budget, what is the kind of payback that you see on the investment?
Paras, we've invested somewhere between INR 25 crores to INR 30 crore on the toys business. That's mainly in molding machines and in other facilities which we have built. We will be utilizing the molding machines for other businesses which we have. So that will -- the other businesses will also grow. That facility would be used for the other businesses.
Now, so -- would you say the payback would be in -- what -- I'd say 2 years, 3 years? What's the kind of estimate that you have in your plans?
When we took on the business, the estimate was that the payback would be somewhere close to 5 years. It will probably get stretched a little bit.
Okay. All right. Okay. Because as of now, it looks like you have only one client in the toys business.
Yes.
Okay. And finally, on the margins, 17%, I think that's a very decent jump that you've seen. You did give some clarification on the margins. But would it be fair to estimate that now this is something which is sustainable? Or would we see some kind of volatility as we move along?
Paras, I think these are sustainable margins if you look at it more from a long-term or a medium-term basis and not look at it on a quarter-on-quarter basis. And as Amit also indicated earlier, as the pharma business grows, the overall margin should improve.
Okay. Okay. Any question that I'm asking you, Mr. Sanjay, is more on an annual basis rather than quarterly. I fully understand quarter-to-quarter is very difficult in a volatile scenario like today.
But I just wanted to clarify that, because I should not be misunderstood here.
Yes, yes. So on an annualized basis, I think what you've done in this quarter seems to be absolutely sustainable, right?
Yes.
Yes.
[Operator Instructions] The next question is from the line of Harshil Shethia from AUM Fund.
Sir, 2 questions. One is regarding the carbon steel business. What level -- you mentioned in your presentation that you're going to improve utilization, just given the long lead time so far. Where do you see that at the end of '24 and maybe '25 based on your current conversations?
See, based on -- if you were to look at last year to this year, we'll basically be improving our utilization levels by 100% over last year. And we're talking with the customer to see how we can improve that from that percentage to the next year also -- further improvement next year.
Sir, last year was a very small base. Just trying to understand the absolute percent of utilization, because this was obviously a dedicated plant for a specific project and different from our other strengths in the plastics areas earlier. So I was just trying to understand like what point will it come to the level that was originally anticipated when we made the investment? You think it would be around the 50% range for FY '25 or -- I mean, the end of '24? Or you don't think so?
So it will be 50% plus for FY '24 for sure, closer to 50%, 60% plus. And then we should probably be looking at improving that the year after that.
Okay. From the same -- is it possible to just give a sense of the current utilization levels for both the -- the other, the home furnishing majors, the dedicated project, the automotive and the GE...
We do not give out individual utilization levels, and it will be difficult for us to do that.
I know. I understand. I'll say that...
There's also [ fluctuation ] across businesses. And putting out this sort of information and [ prediction ] will not be correct for the company.
Sir, I'll suggest -- I don't know how we can get this, because given that our business model largely consists of your dedicated plant and machinery for dedicated customers and overall utilization of 42 does seems a bit low, especially when nothing seems at a very early stage, if we put the carbon steel on the side for a moment.So just going forward, how do you expect on average for continuing businesses? Could we expect margin -- overall utilization to be higher than this? Or how do you look at the business model once the business has stabilized? What kind of consistent utilization you would expect to receive?
We expect utilization levels to improve. Sorry, Amit. Go ahead.
No, no, go ahead. I thought you left that for me.
No, no. So we expect utilization levels to improve. So probably by the end of the year, you should see some improvement in utilization levels from where they are currently. And then you'll see further improvement in FY '25.
But you also have to keep in mind that our new pharma facility will -- like Sanjay bhai mentioned earlier, will go on stream and will be capitalized in the coming quarters, which means that while utilization of the existing business will improve, existing capacities will improve. When you look at a number on the presentation, in the coming quarters, it will also include new facility. So likely that the number is going to be not changed very significantly. It will be either marginal or no change at all.
Sure. No, Amit, it was not the question related to -- as I said, for new business we understand, they take time to ramp up. But once they have stabilized, how do you think of the business model when you take new business? Do you expect that in a year to at least -- do you expect a healthy 60%, 70%? I'm not asking about specific business, so you don't need to worry about that.I guess when you take on new businesses, is it okay for us to expect that in year 2 after stabilizing, you should get to a 60%, 70% utilization level, because that's what gives us reasonable return ratios, et cetera. Otherwise, it kind of takes these long lag lead times, really reduce our cost of -- reduce our return on capital.
Absolutely. No. And the answer is, yes, we should in a year expect 70% -- 65% to 70% utilization at a minimum. And unfortunately, if you look at the consumer portfolio, that's also how we kind of cost it out. So if it doesn't happen, we're increasing our payback period by that amount. And very unfortunate what happened in FY '23, but we should have -- at the beginning of the year, we had a solid business plan. Didn't happen. Forecast kept coming down. It kept decreasing. In FY '24, we're not seeing a full recovery. We're seeing slight improvement, which is why I said then look at a horizon of 18 to 30 months, where you'll see our utilization levels improve substantially.
Great. And last question, maybe just an addition on the same tone, that what, I guess, is happening with the toys and the steel businesses. I think they were slightly different for us. But going forward, do you kind of see new areas as well where it could require kind of very different processes and different products for us? Or you expect more growth coming from generally products aligned to our plastic stabilities and maybe with some more fungible capacity?
I think we're looking at improving -- from a capability perspective, we're looking at making enhancements when it comes to complex assemblies. I mean we do complex assemblies in pharma today, but we're now looking at doing even more complex assemblies with more components. So a typical bill of material would run into, let's say, upwards of 70, 80 parts in a particular subassembly or a product. So we're trying to make -- gain that capability, also look at various means and ways of automating part of these processes. Because going forward, if we don't get into complex products, then we're going to end up eroding our margins at some point. So getting into more complex products means that we will be -- we will need more value add and more manufacturing processes and more complex processes.
Okay. So I guess somewhat similar to what you have done with injectables. Is that fair?
Yes.
The next question is from the line of Ritesh Shah from Investec.
I joined late. A couple of questions. First is, last year you were looking to hire a new CEO. Any specific update over here, any feeling or thoughts of it? So that's the first question.
I am very hopeful, Ritesh, that we will be able to give you an update in the next quarter. So our next earnings call we should be able to give you an update. We had paused the process in the last financial year, looking at the decrease in forecast. We restarted it about 3, 3.5, 4 months ago. And we have been actively interviewing and we have released offers. So we hope that we will be able to give you more concrete details in the short term.
Sure. And if we had to appoint a CEO, what objective will it attain for the firm? Any specific [ CRAs ] that you have gone out for, the new appointees?
Given we're a manufacturing organization, a very strong emphasis on operations. But what we have looked at in the candidate or in terms of the profile is we also wanted someone with a technology background, which means someone who's extensively worked on product development. And above all else, it's the organizational building of an individual, from that perspective. So we're looking at a person that's obviously a good cultural fit with Shaily, but can also build the organization, take the teams along, take the people along with the growth that we see coming.
Sure. There might be some background noise. I'm sorry for that. I don't see no questions. Amit, you did indicate about utilization levels to move up from a 18 to 30 month duration. Just trying to understand how do we come at this time frame. Are there any specific underlying variables that you're monitoring? Is it the inventory in the channel or the order book position? If you could give some color, that would be really useful.
So on the pharma side, we have mentioned a few times before that we will see one of our first big products being launched in '25, not FY '25, in calendar '25, which is why I said that look at a horizon which is higher. Plus the fact that we're putting in new capacity right now means that we will only see that ramp up over 3 years at a minimum.With the existing business, we know that the current year is -- there is slight increase, but otherwise more or less muted from the last year. And the hope is -- or not the hope, but -- the hope is that there will be a global recovery post this -- post the next 12 months, which is why I look at a horizon of 18 to 30 months. Even to say within the global recovery on the existing business, we are adding new strategic businesses that should see our utilization levels go up.
Right. So I think you detailed about pharma, but when you look at home furnishing, is there channel inventory elements that we are looking at? How should we understand that as far as the business?
Ritesh, on the...
Yes. Go ahead, Sanjay bhai.
Go ahead, Amit. Go ahead.
No, no, I was just asking him to repeat the question because I've heard a lot of background noise. So if you got it...
On the furnishing front also, what we monitor is not the inventory, but the 52-week holding forecast which we get on a weekly basis. And we are seeing some traction or some improvement there. And that's what we constantly monitor. We are also adding newer products. We just talked about 3 new products being added, which we will be commercializing by Q4 and Q1 of -- rather in the next year, so which will also lead to an improvement in utilization levels. So it will be a combination of new products and increase in volumes on the existing products which would improve utilization levels.
Sure. This is helpful. Amit, just a couple of questions on the pharma side. I think a couple of quarters back we had indicated that we are very hopeful that we can actually double up the revenues in a 3-year time frame. So where are we on that? And I think Sanjay bhai did explain that number of pens is not the right way to look at. But historically, we have given a number that we have capacity of around 20 million pens. And I think last year, we had around 6.8 plus pens which we had [ pulled ].If you could quantify the number of pens purely from a capacity utilization just from a understanding standpoint? And the headline number of -- involving the revenues on a 3-year time frame? So if you look at the number by FY '26, '27, how can you look at that?
So Ritesh, we're looking at a 60%, 70% growth in the current year, which means doubling the revenue in 3 years is going to happen, as we had indicated in the past. On the pens, in terms of absolute numbers of the pens also, we are looking at nearly that percentage increase, I would say, maybe not as much as 50%, but a very substantial increase in the number of pens that we will be selling in the current year as well.With the new capacities coming up, we are adding another -- we've added capacity to manufacture another 20 million pens. But that ramp-up is not going to happen in FY '24. It's going to take time. So we'll see some volume in '24, then steady increases over '25 and '26.
Sure. And just one last question. Sanjay bhai just indicated that there's INR 90 crores of incremental business which will flow in from Q4 and Q1 onwards. Is this all margin accretive?
Is this margin...
Accretive at EBITDA level. The reason I asked is earlier we had this scenario wherein when we deal with the home furnishing major, we were asked to do the [ TD ] CapEx. And hence, it was informative to look at numbers from a PBT level. So how should we look at this INR 90 crores of incremental orders? First question. Is it accretive at EBITDA margin level? And if you could give some color at ROCE? And secondly, is there some [ TD ] CapEx element which is there over here? Or it's not something which is relevant?
So Ritesh...
There will be some -- yes, go ahead, Sanjay bhai.
So Ritesh, if you want look at it from an ROCE perspective, yes, it will be accretive. At a EBITDA level, it will be more or less similar to levels of EBITDA which are there on the current quarter.
Okay. And from a purely CapEx standpoint, is there some incremental commitment that we have to go for?
No.
The next question is from the line of Richa from Equitymaster.
My question is on this order from GE Appliances. Just wanted to get a sense of do you see stickiness in this kind of order? And what kind of run rate going forward? Will it grow over time? Or -- as of now, we don't have that input. Give some color on that.
We have been working with this customer, as Amit mentioned, since 1995. We have close to a 30-year relationship with this customer. And all the current products also which we do, including these 2 new products which we will be doing, we will be the single source for this customer worldwide.
Okay. Is it fair to assume that...
And we're looking at growing this relationship, as Amit also mentioned earlier in his speech or one of the questions when somebody had asked. We're looking at growing with this customer and look to add more businesses in the year.
Okay. And sir, let's say, if we see from a 3-year perspective, how do you see the business mix changing between the pharma and non-pharma? And the reason I'm asking is that I just want to get a sense on what kind of margin from a longer-term perspective should we expect?
So I think pharma will grow at a much faster pace as compared to the overall business. And that will basically mean you'll see margins improving from a 3-year perspective.
Okay. So basically, from -- what kind of margins do we have in pharma? I mean can you give any kind of range, if not...
We do not give a range at this time, sorry.
Okay. Okay. And sir, could you also talk about or give some more color on the process of winning new orders, new clients, something like that?
Probably we didn't understand your question. Can you explain that a little more in detail?
Yes. So let's say, we got the toy business a few years ago. And currently, you are saying that we have got an order for which it will be the only client. I understand this client is like a long-standing client. But when it comes to targeting new clients and new areas, if you could add a little more color on what is the [ strategy ] to increase visibility on what we are doing in targeting clients, in targeting new business [ clients ]?
So there are a few areas that we're actively pursuing. Like I said, we prefer to get into more complex products which fit our capabilities and engineering strength and not so much -- not highly commoditized businesses. With that in mind -- hello?
Yes, go ahead. Go ahead, Amit.
Am I audible?
Yes, yes.
Yes.
With that in mind, we are working with a few companies to see how we can start a relationship. You'll see, again, the theme is basically consumer electronics, appliances and even industrial applications. So at this point, Richa, it would be immature for us to share any further light or give you any names. But as the conversation matures and we are -- we actually have something more concrete in hand, we will be providing an update.
Okay. Fair enough. And sir, any kind of guidance on CapEx for this year or in the coming 2 years?
I think CapEx for this year, we have already indicated that whatever we are doing on the pharma front and our tool room is what we are doing. We will not be doing any large CapEx other than that in the current year. Next year we'll again -- we're basically looking at seeing how utilization levels improve on the other business front. And once they improve, we will basically be looking at CapEx.
The next question is from the line of [ Priyank Parikh ] from Abakkus Asset Managers.
Just wanted to understand like what sort of metric you track for your operational purpose? Is it like per tonne revenue or per tonne realization, per tonne GP margin, GP? Or absolute number you track? Or it is a certain percentage of GP margin on this much revenue? So how you look at internally?
Could you just repeat your question, please?
So I wanted to understand like when you are planning your business internally, what metric you target? Is it absolute gross profit per tonne or is it percentage of revenue or something like that? So how you plan it internally?
We never look at gross profit on a per tonne basis. We never look at on a per tonne basis. There will be different metrics which we will look at. What does the business do to existing capacities? Is other investments required? What sort of an EBITDA margin or ROCE or something which are there? I'll give it to Amit.
But Sanjay bhai, I think internally there are a few expense lines that we look at in percentages of revenue.
Yes.
But most of our internal operational metric would be measured, for example, what is the material yield. Material yield typically for us a target would be 98.5% or 99% to us, which means that we don't want to scrap raw material more than 1%. We don't get downtime, cycle time with cycle efficiency. So if we've given -- if we've gotten business at a 30 second cycle time from a customer, as an example, then is the plant running the machine at 30 seconds? Is it running it at 32 seconds? Or is it running it at 28 seconds. So these are the type of, I guess, parameters that we -- or indicators that we track internally.
Okay. Okay. And in last con call, you indicated an expected utilization of 50 to 55 percentage for FY '24. So is it going to be seen even today?
I think Amit just answered that earlier. Yes, currently, we will see some improvement, but it will be a gradual improvement over the current year. And that's what he indicated also.
Okay. So 50 to 55 percentage would be the right number to take?
I will not turn in a number and we would refrain from giving a number there.
Okay. Fair. Yes.
You will see the improvement in the coming quarters.
Thank you very much. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Thank you, and over to you all. Members of the management, you may go ahead.
Thank you. Yes. Thank you everyone for joining the call. We hope that we've been able to answer your questions adequately. For any further information, I request you to get in touch with SGA, our Investor Relations Advisor. Thank you, and have a great day.
Thank you. On behalf of Shaily Engineering Plastics Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.