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Shaily Engineering Plastics Ltd
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Ladies and gentlemen, good day, and welcome to the Shaily Engineering Plastics Limited Q2 FY '24 Earnings Conference Call.
This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties are difficult to predict.
[Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sanghvi, Managing Director, Shaily Engineering Plastics Limited. Thank you, and over to you, sir.
Thank you very much. Good evening, and a very warm welcome to all the participants to the post results earnings call of Shaily Engineering Plastics Limited. I have with me Sanjay Shah, our Chief Strategy Officer; and now also our Chief Financial Officer; and SGA, our Investor Relations advisers.
I hope you've had a look at our investor presentation that is uploaded on our website and the stock exchange.
Let me give some highlights on the operational and the business performance for the quarter. Despite a challenging global environment, we delivered a top line of INR 158 crores, and we've improved our gross margins and EBITDA margins, which stand at 41% and 17.16%, respectively. You're all aware that we have spent significant time in developing drug delivery platforms based on our OP and have also made significant capital investments in creating new facilities for scale.
These efforts are kindly yielding results. And we're now seeing the start of commercialization of some of our platforms. I'm happy to announce that we received our first commercial, which is post EB batches purchase orders from a few customers for some of our platforms. I would only reiterate that in this sector, our business scope is very extensive, and we are committed to continuous growth in the coming months and years onwards.
In addition to commercialization of our own products, we have also been awarded a new applicator project, for which we will start supplies in July 2024, where the total value of the additional business is INR 35 crores per annum. On the home furnishings front, we have been awarding business for new products whose total value stands at INR 50 crores per annum, for which supplies will start in quarter 2 of FY '25.
We are strengthening our relationship with customers. We are also working with the home furnishings major on scalable of our steel furnishings business and have received business confirmations for additional volumes that we'll see improved utilization not only in the current year, but also in the next. In the automotive and Engineering segment, we have added 3 new products and the total business value stands at 3.5 to 5 stores per annum.
We're delighted to announce that we have been awarded a new order of supply of 6 components in the Engineering segment by one of our oldest customers, Ascoval. That is all from my side. I shall now hand over the call to Sanjay Shah to give you the operating and financial highlights. Thank you very much.
Thank you, Amit. Good evening, everyone.
I should share with you the highlights of our operational and financial performance of Q2 in H1 FY '24, following which we will be happy to respond to your queries. During the quarter processed [ 5,640 ]tons of polymers as against 5,145 tons in Q1 FY '23. For the half year ended in process, 11,495 tons of polymers as against 11,905 tons in H1 FY '23. Machine utilization rate was around 40% in Q2 FY '24 and 41.5% in H1 FY '24. Exports during H1 FY '24 stood at 74.5% of total revenue.
Now I should take you on stand-alone results highlights for Q2 FY '24. Revenue stood at INR 155.7 crores during Q2 FY '24 as compared to INR 150 crores during Q2 FY '23. EBITDA stood at INR 25.5 crores during Q2 FY '24 as compared to INR 25.1 crores during Q2 FY '23. EBITDA margins stood at 15.4% for Q2 FY '24, an increase of 70 bps over Q2 last year.
Tax stood at INR 9.9 crores during Q2 FY '24 as compared to INR 9.4 crores during Q2 FY '23. PAT margin stood at 6.3%, an increase of 40 bps over Q2 last year. Cash tax for Q2 FY '24 was reported at INR 17.9 crores as compared to INR 17.1 crores during Q2 FY '23.
Now coming to H1 FY '24 highlights. Revenue stood at INR 308.5 crores in H1 FY '24 as compared to INR 332 crores during H1 FY '23. EBITDA stood at INR 49.4 crores in H1 FY '24 as compared to INR 46.8 crores during H1 FY '23, growth of 5%. EBITDA margin stood at 16%, an increase of 190 bps over H1 last year.
PAT stood at INR 18.5 crores in H1 FY '24 as compared to INR 15.8 crores during H1 FY '23, a growth of 10%. PAT margin stood at 6%, an increase of 90 bps over H1 last year.
Cash tax for H1 FY '24 was reported at INR 34.7 crores as compared to INR 32.2 crores during H1 FY '23. Our ROCE and ROE stood at 40% and 9.3%, respectively, as on 30th September 2023. The growth in business has been achieved with the percentages of capital.
Our debt-to-equity stands at 0.5x and our long-term debt to equity stands at 0.15. Now I shall brief you on the consolidated result highlights. Revenue stood at INR 157.6 crores during Q2 FY '24 as compared to INR 161.3 crores during Q2 FY '23. EBITDA stood at INR 26.6 crores during Q2 FY '24 as compared to INR 25.9 crores during Q2 FY '23.
EBITDA margin stood at 16.9% for Q2 FY '24, an increase of 18 bps over Q2 last year. Tax stood at INR 10.8 crores during Q2 FY '24 as compared to INR 10.1 crores during Q2 FY '23.
PAT margin stood at 6.9%, an increase of 17 bps over Q2 last year. Cash tax for Q2 FY '24 was reported at INR 18.9 crores as compared to INR 17.7 crores during Q2 FY '23. Now coming to H1 FY '24 consolidated highlights. Revenue stood at INR 314.9 crores in H1 FY '24 as compared to INR 336.3 crores during FY '23. EBITDA stood at INR 54.2 crores in H1 FY '24 as compared to INR 50.2 crores during H1 FY '23, a growth of 8%.
EBITDA margin stood at 17.2%, an increase of 230 EPS over H1 last year. Tax stood at INR 23.4 crores in H1 FY '24 as compared to INR 19.6 crores during H1 FY '23, a growth of 20%. PAT margin stood at 7.4%, an increase of 160 bps over H1 last year. Cash tax for H1 FY '24 was reported at INR 49.7 crores as compared to INR 41.1 crores during H1 FY '23.
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 Aman Vij from Astute Investment Management.
It was good to hear about the possible commercialization starting for our device business. So just on that part first. So we were waiting for, I think, the U.S. have clearance from 1 of our clients. So team that is now completed and is still result in commercialization or this is some other per metal projects we are talking about.
This is another [indiscernible], Aman. Again, it's not that the FDA clearance has come in. They are anticipating FDA clearance to come in but are preparing for commercial orders.
Okay. So this is apart from that. This is a new [indiscernible] from industrialization.
Yes.
My next question was we had talked about our target to reach around, sell around 15 million pens by the end of this year. So are we on track to do that? And will the bulk of the scale happen in or already in H1, we have had like a majority of that target take.
No, we have not had a majority of the target in H1. So quarter 3 and quarter 4, we'll see bulk of the sales, but we will likely not get to 15 million. It's -- there's going to be a shortfall, not a very significant one, but there will be a shortfall.
Sure, sure, sure. And any kind of targets we have for the next year.
We assessed the situation on sales in quarter 3 and quarter 4 and then give an update during the beginning of next year. Certainly current growth, but we don't know how much at this point.
Sure, sir. And on the own IP is it safe to assume that the majority of this is currently insulin linked on than the new molecules?
Can you repeat that, Aman, you were lost again.
I was saying in terms of own IP scale, on IP pen sales, so is it right to assume that majority of this is insulin like rather than -- we are entering a lot of new areas. So is it safe to assume that as of today.
No. On our own IT products, it's not insulin linked. It's more GLP-1s and [indiscernible] thyroid hormones?
Sure, sure. That helps. Sir, we had recently, I believe, participated in CPI conference. So if you can talk about how was the response given now we have a very extensive range of platform able to offer to our customers.
The plan was to give a full CPHI update on the next call because the CPHI happens in October. But just to put it very shortly, very briefly, we had a fantastic conference. I don't think I had an idle minute at the conference from day 1 until the last day. So very, very positive response not only from [indiscernible] but also from some innovative company.
Sure, sure. And as of now, how many international customers do we have for this division?
We have 2 international customers at the moment. Okay.
And given the response you see this number going substantially in the next 2, 3 years.
I don't know. Yes. I mean from a baseline of 2, it will grow substantially.
Sure, sir. Just final question from my side. I'll get back in the queue. The new orders which you have talked about, which will get executed mostly next year. These are in addition to the orders we had in Q1.
Yes.
These are totally new orders?
Yes. So the home furnishing order or the automotive engineering order or order on the the health care space, all these are new orders which have happened in the current quarter.
And the remaining -- the Q1, which you had talked about some of the orders you're expected to execute in, I believe, Q4 onwards, that is still on track or is there any...
That is still on track.
[Operator Instructions]
The next question is from the line of Priyank Parik from Abacus Asset Managers.
I wanted to understand the sales mix that we have in current quarters vis-a-vis the March 2023 quarter, wherein we have seen substantial high EBITDA margin compared to the last 2 quarters. So just wanted to understand how sales mix have shifted.
So Priyank in the March quarter, I think we had also mentioned this on the call. While we do not give a number, but we expect we had a fairly large revenue coming in from the health care or the device space where we subdivided [indiscernible] to some customers. So there were 3 or 4 shipments which we make. All of them were bunched in [indiscernible]Zandu. So that's the reason you saw that bump-up happened. We're also seeing when you look at last year to this year, we're seeing a slow improvement in the EBITDA margin. And this is what we expect to continue going forward.
Okay. So as you mentioned that the bulk of the sales of ...
Sir, the line of the current participant has dropped off. We'll move on to the next question. That is from the line of Nirali Gopani from Uni PMS.
My first question is to you on the gross margin side. So if I the gross margin for this quarter compared to the last quarter, Q-on-Q, there is a good decline of 3%. Sir, can you share your thoughts on that?
So Nirali, when you look at from quarter 1 to quarter 2, you would also see that revenue, when you look at stand-alone and consolidated, you will see revenues from the U.K. subsidiary have been a little lower as compared to quarter 1. So there have been some lesser revenues or the [indiscernible], and that's the reason we're seeing a reduction in the gross margins, it [indiscernible] more of a mix base than anything else.
Okay. Perfect. And you have been sounding very positive on the next 2 quarters of this financial year. So if you can highlight how do you see the growth coming in for the next 2 quarters? Can we see a top line for somewhere about INR 175 crores to INR 200 crores coming in the next 2 quarters?
I think I'm very confident of bottom line growth, top line growth and north confident of INR 200 crores in the next 2 quarters. Top line growth will be there, but it won't be to that team. I feel bottom line growth will be more substantial in the next 2 quarters.
Largely backed by a higher margin because of the health care segment?
That's right.
Perfect. And sir, if I see the last 2 quarters, we have roughly announced new orders worth of INR 190 crores, INR 200 crores. So when we look at FY '25. So in addition to this INR 200 crores, the base business should also grow substantially. And hence, FY '25 should see exponential growth on revenue and margins. Is that understanding correct?
So we will see growth. I don't want to put in an objective there in terms of exponential or non. Yes, we will see both on the top line as well as the margin level.
Fire situation is that it's -- there's a lot of uncertainty in demand. while we've gotten new business, we don't know what will happen to the demand for the existing business, especially in the non-health care side of the business. So there are certain life. As I said, there will certainly be growth, both top and bottom line whether it will be INR 200 crores, whether there will be something that gets even up in the current business, it's a little too early to tell at this point. But we will provide that update lightly in quarter 4.
The next question is from the line of Priyank Parik from Abacus Asset Managers LLP.
Just wanted to understand the INR 49 crores of CapEx that we have done on the first half. So for what this CapEx is done? And secondly, how is the CapEx outlook for the next half of this year?
So Priyank, a large part of this is the continuing CapEx, which we did in terms of expanding our pharma facility device manufacturing facility. So CapEx is for that reason. We have completed a large part of this CapEx during H1 of FY '24. We these spillover which will happen in Q3, which will continue. So I think from a major CapEx cycle, we would be completely over by Q3 of FY '24.
Okay. Got it. And over our toys business, are we having any update compared to the previous quarter, where we were not seeing substantial business into segment?
I think we will still continue with the same view as we talked about in quarter 4.
We're not actively pursuing toys business at this point. We participate where this is value add, but otherwise, we're not actively pursuing.
Okay. Okay. So over the last 3, 4 years, there has been substantial import substitution has been happening in India, especially in [indiscernible], so are we seeing any opportunity from that perspective?
[indiscernible].
We've not seen a lot of opportunities there, especially because the values I do agree with you the some localization happening with one of these guys -- none of the local guys have volumes to basically look at making investments in [indiscernible].
Okay. Okay. And my last question was on our hunt for the CEO. So are we having any development on that side?
It is very unfortunate. We had finalized the CEO and the person was to join in the next few weeks, but [indiscernible] has pulled out. So we're going to have to start to search again.
The next question is from the line of Harshil Setia from AUM Fund Advisors LLP.
Can you comment on the carbon steel business, what kind of utilization are we at? Because in the last quarter, you mentioned about ramp-up? And what kind of pipeline is there in the same business?
So Harshit, we have seen improvement at the utilization level in that plant. And we continue to we continue to work with the customers to basically see how we can improve utilization level going forward. So if we last year to Q2 of this year, we have seen a substantial improvement in the utilization levels as well as on the top line. Only if you were to compare Q1 to Q2, you have seen improvement.
Okay. So because in the previous quarter, we had also mentioned that that would lead to a better margin improvement -- so due to operating leverage clicking in. So do we see any kind of margin improvement in the same? Or if you can write give 100 bps or 150 bps or whatever.
So Harshit, if you were to look at Q1 and Q2 of last year and then compare it to Q1 and Q2 of this year, you have seen margin improvement happening in Q1, Q2 or even H1 over last year. So part of that margin increase is -- the last part of the margin increase is coming in from the health care, but part of it is also coming in where we have been able to put the indications around carbon [indiscernible] with input utilization levels and it. So that's a combination of these factors.
So are we at breakeven in the carbon steel business?
We would not be able to talk about individual businesses.
The next question is from the line of Mira from Arian Capital.
Congratulations Sanjay on the appointment as CFO. We just had a couple of questions. Looking at the volumes for the quarter, could you please highlight which segments grew lower than lower than expected and which segments grew as expectations? That would be my first question.
So Home furnishing is what we expected. Home furnishing on FMCG grew what we expected. Some of our shipments on our health care have moved from quarter 2 to quarter 3. But I think when we look at it from the whole year perspective, I don't think we will basically have an issue in terms of those shipments because these are development projects where it takes some time.
Okay. Got it. Sir, in the presentation, on the 6 slide is written that we've got new orders for [indiscernible]the 6 components to ASCO, to the oncology society. If you could please just highlight -- I still didn't understand what exactly what this order was for?
So as far as an existing customer, basically manufacturing, engineering components and everything, we have been supplying to ASCO for over 20 years now -- 18 to 20 years. And this is a new order in which we have got from this. That's what we've talked about it.
Okay. So could you quantify how much is the order value growth here or that is not possible?
The volumes will therefore year-on-year so that we will not quantify them [indiscernible].
Just final question. On the same page, there's the return that we've decided for the split of shares. But on other release on exchanges that is approved by the mode or that is still going to happen in the next meeting?
That has been approved by the board that has also been approved by the shareholders. This was done post the last quarter's board meeting, we had a separate meeting for that. So it has been approved by the Board. Those has been [indiscernible] by the shareholders in the AGM. We are going through the approval process. I think the share should be because -- increase, but from a INR 10 share, we are taking it to INR 2. So be 5 shares for every 1 share held. And the whole process should be completed probably by the end of November.
[Operator Instructions]
The next question is from the line of [indiscernible] Shah from Bright Securities.
I had a few questions. The first one is, sir, can you elaborate more on the order that we have received in the last quarter related to no applicator product in the [indiscernible] space.
What kind of elaboration are you looking for, [indiscernible]?
Like on the order perspective?
So I mean the order value has been given. And what we also said is we will be looking at commercializing this in Q2 of FY '25. Rest of it, we would be bound by MDA in terms of what is the application and everything is, but this is going to be a recurring order. So it will be a yearly order which will be recurring year-on-year.
Okay. The next question I had is, sir, on the Home Furnishing segment. We have received new supply for which segment also any development on additional customer and room furnishing and which geography and what type of customers are you targeting for this segment?
We continue to work with our existing customers on the home furnishing segment. This order is from our existing customers. And we supply to this customer all across the group, wherever they have stores. So hotels are predominantly to Europe and the U.S., but then we also supply to China, Asia, Middle East and other places wherever they have stores.
The next question is from the line of Richa Agarwal from Equity Market.
[Operator Instructions] The next question is from the line of Nirali Gopani from Munich PMS.
So this quarter, we have seen a good jump in other income. Any particular reason? And what does it include?
So this is a normal thing. So there's nothing one-off, which is there.
But nothing related to the operations of the business, right? So ideally, if we eliminate other income and fee EBITDA...
So most of our other income would also be related to our [indiscernible] business.
Okay. Because if I eliminate the other income and see the EBITDA margin, there is a decline sequentially because of obviously the gross margin. So just wanted to understand when you say that you see a significant jump in the EBITDA margin in the coming quarter and say next year. So from what level should we see this growth?
So just to answer your first question, the other income basically includes FX gain. So it is relative to the business. Okay. Can you repeat your second question, Nirali?
No. So because if I eliminate other income, I was just seeing an EBITDA margin of 15% for the quarter. So I just wanted to understand when we see a growth in the EBITDA margin and in the next 2 quarters or over FY '25. So what level should we see this growth from current growth of 17%, which is mentioned in the presentation?
Similarly, I think these margins on a quarter-on-quarter basis would not be correct. What I would have reiterate is when you look at margins, you look at the full year margins, which we achieved for quarter FY '23. Based on that, we are looking at growth in FY '24 and FY '25 going forward.
The next question is from the line of Aman Vij from Astute Investment Management.
Sir, on the health care side, what kind of growth are we expecting in the second half?
Can you elaborate the question a little bit?
And so at the start of, I think, last quarter, you had talked about your timing very high growth for the full year. So are we on track of that? Is it just lower than our expectation? Is it much higher than our expectation, if you can talk about that part?
We are on track to achieve that growth. Again, like I said, the 15 million pen is going to be a little bit less than that. So whatever drop that and sales will be the only drop. Otherwise, they're on track to death.
So that 50%, 60% kind of growth on health care side still stands?
Yes.
Sure. So there's a lot of the Indian generic players are facing some of the other issue related to U.S. FDA audit recently. So do you think this can have an impact on our plans as well.
Yes. I mean it can certainly have an impact on our plans. But all the ones we're looking at commercializing in -- or have started will start shipment of commercial orders. We have not seen those customers face an issue with the FDA. So there could be a potential longer-term impact, but nothing in the next 24 months that I can see today.
Sure, sir. In terms of number of project additions and by project -- I mean say 1 customer, 1 [indiscernible], 1 platform, what kind of additions do you think will happen for this year and next year.
I mean we're having active discussions with probably a dozen or more customers on various molecules and devices. I would assume that at least 60%, we should be able to convert.
Aman, just to add to what Amit said is, I think every quarter, we intimate you guys in terms of what is happening. So that's what we would do.
And just final thing on this part. In the presentation, in terms of the platforms we have shown, I could not see the [indiscernible] platform. We have shown the other site, neither I could see the inject -- the Mira platform, which is available only website. So any reason for not including those.
So those are [indiscernible] for some specific reasons.
The Neo platform will be updated on our presentation. We've already created our new health care presentation. You will probably see it in the next quarter.
The next question is from the line of Viraj from Marian Capital.
Sir, on the health care side, I wanted to understand the kind of prospects that defer when we sign with an innovator and a generic player. I just wondered if you could just throw some light on it kind of opportunities would differ? And if we are in talks of any innovator right now in advanced stages?
We are in talks with an innovator on a novel molecule. I would probably not say that it's very advancing is somewhere -- it's not an initial sales conversation, I think, but somewhere in between. So we're going through the evaluation process of our devices that are suitable for their molecule and primary container.
And once that is complete, we will undertake the agreement discussions. So that will be a new one for us where we have a new chemical entity that we onboard, hopefully, onboard. And with generics, we understand the market a lot better because we know what is coming to an expiry what is notice going to have and then see minus one filing deadline. And our development is largely based on that. Some of our development also happens for innovators. But largely, all the platforms that we have been able to commercialize or get to designed verification are based on the deadlines that we see with the generic industry?
Great. So the innovator, if we sign any innovator. I'm not putting up a question that we are going to. But the opportunities will be significantly different from what we have generic players? Or would it be in the same range? I mean, in terms of volumes that we may do, I just wanted to understand that.
With a generic player, you know the volume because you know what the innovator is doing and how much of a market share generics can take up. With an innovator with a new chemical entity, you're not going to know what the volumes will be. There are essentially projections, right? So there is certainly a very high upside if the drug does well. But there's also a down side if the drug doesn't do well. So with the generic business, there is more clarity in terms of what your future will look like.
Got it. And my final question, sir, on the FMC side that we've mentioned, there's a new packaging development. Is it a product base development? Or is it some client base. [indiscernible]. If you could just explain what would exactly the development there?
So it will be client based development.
Okay. Okay, yes. We'll be sharing more details in the next quarter, right, it is in progress?
Yes. So this also has already been confirmed. So we're doing the development now, and we would start supplying between 4 to 6 months.
The next question is from the line of Richa from EquityMaster.
My question was related to the CapEx that you were suggesting a part of it will be more or less done by third quarter. So just wanted to understand for whatever growth in Pharma, we are expecting 2 to 3x, will this CapEx be enough, the [indiscernible] would be enough to take us to that kind of growth. And also, I mean, currently, the turnover. What kind of turnover would you expect based on the product mix that you envisage 2 to 3 years from now on the current gross [indiscernible].
So Richa, what we have said is the large part of our pharma CapEx is done. We have created space for a total of additional 36 molding machines out of which 12 molding machines have been put in. We will need to add another 12 plus 12, 24 machines, but they will be added gradually as the ramp-up happens. And once the utilization levels within the existing pharma facility improve.
And what kind of utilization turnover we are looking at once these capacities get developed and ultimately utilized.
Again, I think giving individual numbers would basically be difficult, but we ...
[indiscernible].
I'm sorry, I lost you. I can't hear you.
Overall current gross to ...
That's what I was coming to. So on an overall gross block, what we have said is somewhere between 2.25 to 2.5 of our success of investments in the turnover, which we would be [indiscernible].
The next question is from the line of Bhavin Rupani from Investec.
Just sir, just wanted to understand how should one look at the margins and the CapEx requirement for the new orders that we have announced in Q1 and Q2?
The new orders which we announced in Q1 and Q2, we would be basically utilizing our existing infrastructure which we have and we are basically adding in our health care facility. So that will take care of these orders.
So sir, you are saying that no additional CapEx is required?
There will be some marginal CapEx but nothing substantial.
Okay. And sir, how should one look at the margins as compared to the company-level margin existing company or margins.
I mean every business will have different margins. So the difference of [indiscernible]. I said on an overall basis, we expect going forward margins to improve as the top line improves.
All right. And sir, just 1 clarification. Is it correct that we are looking at margin expansion in FY '24 versus FY '23, if I understand correct.
If you look at H1 numbers, when compared to the H1 numbers last year, you have seen margin expansion at the EBITDA level in the PAT level. We hope we continue that for the end of -- the balance for the year, also.
[Operator Instructions]
There are no further questions, I now hand the conference over to the management for the closing comments.
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 Relation advisers. Thank you, and have a great evening.
Ladies and gentlemen, on behalf of Shaily Engineering Plastics Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.