Shaily Engineering Plastics Limited (501423) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shaily Engineering Plastics Limited Q4 FY '20 Earnings Conference Call. We have with us on the call today Mr. Amit Sanghvi, Managing Director; and Mr. Sanjay Shah, Chief Strategic Officer. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk 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 the management. Thank you, and over to you, sir.

Thank you. Good morning, and a warm welcome to all the participants to the post-results earnings call of Shaily Engineering Plastics. I have with me Sanjay Shah, our Chief Strategy Officer; and SGA, our Investor Relations adviser. We also have Mr. -- our new CEO, Mr. Anil Kalra, who has joined the line, just to get an understanding of how the investor calls go and the different perspectives of our current investor days. I hope you've had a look at our investor presentation that's uploaded on our website as well as the stock exchange. Allow me to take you through our operational performance and the way forward. Over the years, we, at Shaily, have consciously focused our efforts towards developing a business model, which is well diversified and sets the stage for propelling our goal. Over the past 5 years, we've grown our consumer business multifold by strengthening our relationship with the home furnishing major by constantly adding new SKUs and thus, increasing our overall share of business. We've also ventured into steel furnishings with the same customer, which marks their confidence in our abilities. Further, we have successfully added a new customer in the home furnishing segment and also added a new subsegment of toys, wherein our client is Spin Master, one of the top global toy manufacturers. We have made great strides in health care segment, which is finally taking shape and is reflective in our financial performance over the last 2 quarters and a healthy order book for FY '21 and beyond. The addition of new clients and businesses will help us diversify our product offerings and provide significant growth opportunities in the times to come. With respect to our steel furniture business, we had received confirmation on for manufacture and supply of steel products from the home furnishing major. We are -- we were in final stages of commissioning the plant in March '20. However, due to COVID-19, there has been -- there have been delays in installation. We are planning to commission the plant with trial runs starting June with sales start end of July. And for this, we have spent a total CapEx of INR 55 crores. In the past few years, we've invested a sizable amount in the development of our health care business. This is to support growth in the home furnishing segment and set up new capabilities for the newer segments. Despite these investments, we have maintained financial flexibility, which is evident from our debt-to-equity ratio. With a strong balance sheet, we are future-ready to take advantage of Make in India opportunity. With respect to our financial performance, despite a flat top line, we have been able to deliver growth in our EBITDA as well as profitability. And both EBITDA and profit margins have also expanded year-on-year basis. Our return on capital has also improved from 16% to 17.8% year-on-year. Therefore, even in tough economic environment and despite facing external challenges over the past couple of years, we have maintained a healthy balance sheet and shown strong financial position. As we embark on our next leg of growth, we are happy to share that we have taken concrete steps to strengthen both the Board as well as the management team at Shaily. At the Board level, we have appointed 2 independent directors who come with exemplary track records. We have appointed Dr. Shailesh Ayyangar, who has rich experience of over 3 decades in pharma. He has served at a CEO or a CXO level, major pharma companies such as Sanofi, GSK. He had been associated with the World Health Organization as well as sits on the advisory panel of CMO. We have appointed a lady director, Ms. Varsha Purandare, who has rich experience of 3 decades in financial services. She is a veteran SBI employee, where she was the Deputy Managing Director and Chief Credit Officer and then was the Managing Director and CEO of SBI Capital Markets, where she was in charge of both the SBI capitals and its 5 subsidiaries. I'm also very happy to share that we've appointed Mr. Anil Kalra as the CEO of the company. He has very rich experience in manufacturing over -- spanning over 4 decades and holds a mechanical engineering degree from IIT Delhi. He's been associated with Samvardhana Motherson International Limited for over 19 years as President and CEO. Mr. Kalra has led numerous organizations from strategic planning, growth and transformational perspectives. He's demonstrated turnaround of numerous troubled companies, directed wide-ranging mergers and acquisitions and delivered stellar P&L. So we welcome him to Shaily and look forward to continued growth. Now let me give you a quick snapshot on the impact of COVID-19. Due to the nationwide lockdown announced by the Government of India, operations at our facilities stood suspended. This had an impact on our business during the last 10 days of March and up till April 23 until our operations partially resumed. Production and supply of goods commenced on March 22 at our pharmaceutical facility on a limited basis. And for the rest of the plants, we started off on April 23, also on a limited basis after obtaining all the necessary permissions. We are hopeful that production will be soon enhanced in a phased manner. This naturally will reflect in Q1 FY '21 performance and partially also in Q2 of FY '21. Safety and well-being of our employees has always been paramount to us. We have undertaken all safety measures and are following increased protocols to ensure our people are safe and secure. We've adopted work-from-home policy for our all staff. With respect to labor availability, we do not foresee it as a concern as majority of our labor force comprises of local workmen. Further, we've also increased the proportion of permanent and technical workforce across our plants to ensure continuity in manufacturing. With respect to our financial position, the company has made detailed assessments of its liquidity position for the next 1 year and of the recoverability and carrying values of its assets and has concluded that there was no material adjustment required in the financial statements. We currently are in a very comfortable position to meet all our commitments and are continuously evaluating the situation so as to enable us to take appropriate steps when required. With this, I shall now hand over the call to Sanjay Shah, our Chief Strategy Officer, to give you the financial highlights of quarter 4 and FY '20.

Good morning, everyone. I shall share with you all the highlights of our operation and financial performance during Q4 and FY '20. Following this, we will be happy to respond to your queries. During the quarter, we processed 3,267 tons of polymers as against 2,961 tons in the same quarter last year. In FY '20, we processed a total of 13,293 tons of polymers as against 13,258 tons during FY '19. Machine utilization rate stood at about 64.5% during Q4 FY '20 and for FY '20, the same was 63.7%. Exports during Q4 FY '20 stood at 68.4% and for FY '20, stood at 68.9% of the total revenues. For Q4 FY '20, our revenue stood at INR 79.6 crores vis-à-vis INR 77.4 crores in Q4 FY '19, thus growing by 2.9% year-on-year. For FY '20, our revenue stood at INR 336 crores as against INR 338 crores in FY '19, degrowing minus 0.7%. EBITDA for Q4 FY '20 is INR 15 crores versus INR 11.8 crores in the same quarter last year, recording a growth of 26.5%. EBITDA margin increased to 18.8% in Q4 FY '20 vis-à-vis 15.3% in Q4 FY '19. For FY '20, EBITDA stood at INR 59.1 crores as against INR 54.4 crores in FY '19, growing by 8.6% year-on-year. EBITDA margin for FY '20 increased to 17.6% from 16.1% FY '19. Our margin performance was aided by a healthy uptick in our health care business. Shaily has undertaken various cost-saving initiatives, which will help further improve the margins going forward. Net profit for Q4 FY '20 is seen at INR 7 crores vis-à-vis INR 3.5 crores in Q4 FY '19, thus growing by 98% on a year-on-year basis. PAT margins for Q4 FY '20 was 8.7% versus 4.5% in Q4 FY '19. Profit for FY '20 stood at INR 23.6 crores as against INR 19.3 crores in FY '19, recording a growth of 22.4%. PAT margin for FY '20 stood at 7% versus 5.7% for FY '19. The company expects to exercise the option permitted under Section 115BAA of the Income Tax Act 1961 as introduced by the Taxation Laws Amendment Ordinance 2019 FY '22. Accordingly, the company has remeasured its defined tax liability -- assets net positions and has taken full effect to the statement of P&L in quarter and year ended March 31, 2020. Tax expense for the quarter and year ended includes tax benefit of INR 104.71 lakhs on account of remeasurement of deferred tax assets net. Cash PAT for Q4 FY '20 is at INR 11.6 crores as against INR 7.5 crores in Q4 FY '19, thereby growing at 55.7%. While for FY '20, cash PAT stood at INR 14.5 crores (sic) [ 41.5 crores ] versus INR 34.2 crores in FY '19, posting a 21.3% growth on a year-on-year basis. Our CapEx spend for FY '20 was INR 62 crores. Over the years, we've made investments to develop business to increase potential, which will bring in the next level of growth for Shaily. We've continued with our growth CapEx in such times as well as we ensured that we are able to capitalize on the medium- to long-term growth opportunity. Our ROCE increased to 17.8% in FY '20 as against 16.9% in FY '19. Return on equity also increased from 14.2% in FY '19 to 15.8% in FY '20. So base forward for FY '21 and beyond is clearcut, revenue uptick based on new business confirmations, addition of new clients has increased contributions for new business segments, expanding EBITDA margins on that of high utilization in existing facilities and increasing contribution from health care segment, increasing health care revenue on back of new clients and existing clients as well as a large pipeline of products which we have, more uptick in profitability, limited investments in CapEx, faster capital, essentially utilization in carbon steel business and health care business to these 2 uptick in return ratios and profitability. Given the vast experience and capability, we are confident to play a larger role under the Make in India program as well as form an important part of the balance sheet for our customers. We're looking at China plus one strategy. This is all from our side. Now we can open the floor for question and answers. Thank you.

[Operator Instructions] We have the first question from the line of Chirag from HDFC AMC.

I hope everybody is safe in these unprecedented times. If you could give us some sense in terms of what is the outlook for your largest customer this year? Last year, there were some kind of inventory corrections. So we want to get some sense in terms of what is the outlook for that customer this year? So that is my first question. My second was for the carbon steel project, considering the 1 quarter delay in startings, what kind of revenue expectations do you have for that project for this year? And thirdly, if you could give a breakup roughly of your revenue this year by segment and the outlook for each of those segments in FY '21?

So Chirag, outlook for our largest customer is not looking back. We're not looking at revenue expansion over last year. We're looking at similar revenue. We are tracking their forecast every week. We are seeing increasing orders on their forecast as the stores have started opening up. However, we're not able to make a comprehensive judgment in terms of where it will end up. With possibly a second wave coming in, we don't really know. Order book is looking healthy. Orders have not reduced over the same period last year.

And could you give us a sense in terms of new project you might be bidding for with this customer?

New projects -- one new project went onstream in September of last year. And because of the lockdown, we will be making -- we should be making a significant amount of supply under R&DI.

The second question was on carbon steel in terms of when do we start it.

Yes, okay. So we're looking at -- as I mentioned in my speech, we're looking at starting trial production on the 8th of June with first supply being made towards end of July. We anticipate a full ramp-up not before -- or a decent ramp-up not before September, which means that in the current year, we would be looking at roughly 30% to 35% of revenue on the steel furniture business.

No, what do you mean by 30%, 35% revenue? I didn't follow that. Is that the utilization you're looking at?

Yes. 30% to 35% of plant utilization in the current year.

And that's roughly -- your full year -- on a full utilization basis, this should be INR 100 crore revenue run rate business. So you're roughly looking at INR 30 crores, INR 35 crores of revenue. Is that a fair way of looking at that?

That's correct. That's correct.

Okay.

And on your last question, Chirag, unfortunately, we don't give revenue breakup by segment.

But what we can say, Chirag, is that our biggest customer accounted for a little less than 55% of our revenue.

Sure. And what is the CapEx requirement this year?

We're -- I believe we...

No, we -- so Chirag, on CapEx requirements, we are completing the CapEx -- the spillover of the CapEx which was there in FY '20 in the current year, which is about INR 10 crores to INR 12 crores. Budget CapEx requirements would be based on business confirmations, which we are in talks with different customers.

Sure. And lastly, could you give us a sense in terms of what is the outlook for the pharma business this year compared to what it was last year?

See, we -- so as the development pipeline starts to get into supply, we see stronger growth and margin improvement on the -- growth on the pharma business. We are looking at growth in the pharma business as on a year-on-year basis. An exact number is -- won't -- will not be possible because it's too premature a business for us to give you figures.

The next question is from the line of Ritesh Shah from Investec.

Sir, my first question is intangible assets on the balance sheet. Now this number has increased fourfold on a year-on-year basis. Just to -- just wanted to have some sense of what is the main...

Ritesh? Ritesh, I'm sorry, can you...

Can you hear me, Sanjay bhai?

Yes, yes.

Yes. Yes. My question -- my first question pertains to intangible assets on the balance sheet, which has increased fourfold on a year-on-year basis. I assume this would on back of pharma. Just wanted to understand what this number means? And what is typically a gestation period between intangibles and to what we see actually on the P&L?

So Ritesh, you are right. The increase in intangible assets is essentially representing the IP on the account of the pens which we have developed and the asset for that. So it basically represents the IP and the design for the pens which we have developed. So as we had talked about in the last 2 quarters, we have commercialized 2 of these pens. And since we have commercialized these -- 2 of these pens, we have basically capitalized this in intangible assets.

Sanjay bhai, any color on the quantum of business opportunity that we have in the gestation period by the time we see some benefits on the P&L?

So you've started seeing benefits on the P&L Q3 onwards. If you look at it, Q3 and Q4, we have seen improvement in margins that's on the back of higher numbers coming from the health care segment. I see that trend continuing forward for FY '21, FY '22 also. I think in terms of size in terms of opportunities, we have talked about it in the past, if we are developing a portfolio of about -- we today have a portfolio of 5 platform devices for multiple drugs. We currently have about 13 or 14 pens under development of customers. So the growth opportunities are huge. I don't think I can put in a number here on the call.

Sanjay bhai, what was the number last year, say, same time around? Currently, you indicated 14 pens under development. So how much was it last year? And what has actually transpired to the P&L?

Ritesh, so we have 5 platform devices. On each of the platforms, we have the ability to design and develop molecule-specific pens. So on a particular platform, very easily, we could have support for 2 to 3 or 4 molecules. On these molecules, we are looking at adding multiple customers. So on the 2 platforms that were started about 24 months ago, maybe 26 months, I don't remember exactly, we now have about 6 or 7 customers combined. So when Sanjay bhai says that we're looking at developing more -- or number of pens are increasing, it's basically number of customers on the platforms that we have developed are going up. So there are more people buying into what we have already developed. New development is also ongoing. That doesn't mean that new developments are not ongoing, but -- such is the business cycle that you will have some pharma companies who take a slightly larger risk and develop the product with you upfront, and you'll have others which look for it when it's fully -- in a fully developed state.

Would it be possible to provide some color when you indicate multiple customers? Like, is it the Indian companies? Or is it we are looking at overseas sales, we are looking at MNCs? How does it work?

So the customers that we have acquired so far are all English pharma companies. But all -- the business itself is for regulated markets, which means primarily target market would be the U.S. For the same platforms, we have now also made significant efforts in the Chinese market, where we feel that there is a very large opportunity, untapped opportunity. So we have not officially yet, because we're in the process of doing agreements, but we have. So we are working with a company in China to market our devices. We're also working with 2 companies, 1 in Europe and 1 in U.S., which are both -- they're not large names in the pharma industry, but they're very large in biotech. So we're looking at supplying our devices to them, currently under evaluation.

That's useful. My second question was pertaining to our largest vendor, basically on the home furnishing side. To my understanding, we do have certain volume commitments from the home furnishing major. Given there has been -- or probably there would have been some loss in business either because of forced shutdown or logistic issues over April, May, do we have some sort of support from them? How should one look at it? And have things normalized when it comes to supplies, specifically for exports?

So yes, we -- when we talk about our commitment, it is the -- one is the yearly commitment. Second, we have to look at -- we have to put things in perspective. Triggering a commitment does not make sense if, first, we're not plating. And second, they're not having sales. So even if we trigger the commitment and consumer buys an x volume of product from us, it will only affect future sales. But having said that, we don't see a decrease in the order book as of now, as I mentioned on the call as well -- or as I mentioned to Chirag as well. So we don't -- we're not seeing a decrease on the order book. As the stores open up, we are seeing an increase in forecast.

Okay. And my last question, you did indicate on China plus one in the initial remarks. Any particular segment that you are targeting over here? And any visibility over here if one had to look at the earlier number, which we used to give of INR 500 crores of top line numbers? If you can combine these 2 into 1, it would be great.

Any particular segment? No, I think what we have outlined is, we'd like to participate in opportunities, primarily where manufacturing is moving out of China. So when I say manufacturing, let's go with the companies that are moving their manufacturing base, American, European, Japanese companies moving their manufacturing base from China to India. In such cases, we're looking at high-precision, high-engineering opportunities. I don't have a clear guidance in terms of what the outcome will be. And apart from that, we're clearly seeing opportunities on both home furnishing as well as toys, which is all business that will be moving out of China.

[Operator Instructions] The next question is from the line of Dhwanil Desai from Turtle Capital.

I hope all you are safe. 3 questions. The first one is, we were having an aspiration of $100 million revenue by 2020, '21. So how does this changed scenario changes our goalpost? And any color around that would be very helpful. Second question is with respect to -- we appointed a new professional CEO. So if you can share your thought process as to -- I mean, we were generally doing quite well in terms of managing and executing. So what was the thought process around bringing in a professional CEO? That is my second question. And the third and the last one is, we talk about this Make in India, being part of that program and plans following China plus one strategy. I mean, is that more of a general flavor of the market? Or you are seeing some concrete discussions taking place around that? That's all from my side.

We certainly shifted certainly moved forward. What we will do is, we don't want to give a guidance on many numbers this year. At the end of how we -- at the end of this year, depending on how we perform, which is both a mix of the order book we had and how much we were able to execute, will we be able to comment more concretely on that. Having said that, we -- in spite of the low revenue in quarter 1 of FY '21, we are expecting growth in FY '21. On your second question, on the appointment of Anil, if you go through our transcripts over the last 8 or 10 quarters, you'll realize that we've been struggling with operational issues, whether it's labor, whether it's power, whether it's something else, project delay, et cetera. So the purpose of appointing a CEO is to really bring in operational excellence into the organization, which then frees up my time to do justice to both strategy and business development. The projects -- the new businesses that we discuss with customers or potential customers are no longer $1 million, $2 million businesses. They're significant in value, which requires a lot of time to be devoted to that job. So the purpose is that I need to personally move out of operations, where someone like Anil, who has such a strong background in operations and turning around companies, can come and help us manage that part of the business, where we focus purely on strategy and business development. Also, since the health care business is a very nascent business, it requires a lot more of my time than our other businesses do. And it's a very sensitive segment, where if you make a mistake, it becomes kind of untouchable. So the risk we carry is very high. Therefore, it requires a lot of effort and time. On your third question, specific discussions, yes, we are having specific discussions, very, very specific discussions with the toy manufacturers or toy brands. We are also having discussions with a company which is into some sort of a -- a bit of high-tech. So we're talking about mixed materials that are being sourced from China and would potentially look at us for the future. Apart from that, we don't have any specific discussions ongoing where we look at front shifting out of China. The opportunities will arise. But I think the opportunities will start to come in 8, 10, 12 months hence. Yes. Does that answer your question?

The next question is from the line of [ Jatinder Agarwal ] from [ Reliance Capital ].

I'm actually an individual investor. It was not [ Reliance Capital ], it's [ Relax Capital ]. And I have 3 questions. And since it is my first call, so some of things are basic actually. In terms of the CapEx that you've already completed in FY '20 and the plan that comes online this year, is there any additional CapEx to be done? And is there any new debt that will come in the balance sheet in FY '21 because of this? My second question is related to your capacity utilization. So it's historically been in the range of 65% to 70%. Can you please give a thought process in terms of what is the technical peak capacity position that you could achieve on these 120-odd machines that you have? And my third question is related to your CSR spend. If I look at your FY '18 and FY '19 annual reports, there is some unspent CSR. Can you give us a status update on this?

[ Jatinder ], I'll start with your first question. On CapEx for FY '20, we have given in a number, which I had mentioned in my piece, which is about INR 62 crores. Any...

No, FY '21, sorry?

Sorry, FY '20. So I'm coming to FY '21 CapEx. For FY '21, we would basically do the spillover of FY '20 into FY '21, which is about INR 10 crores to INR 12 crores. Balance CapEx spend would be decided based on projects being confirmed with customers. So as Amit mentioned, we are in discussions with multiple customers for different projects. And if some of these projects get confirmed, we will basically move the CapEx. In fact, we would basically draw on the balance of the loans which we have sanctioned. So there are current about INR 60 crores of loans which have still not been availed. Out of which, we can basically be looking at availing some of that. Second question was on capacity utilization. Yes, we are at about 65% to 75% on a peak -- that's on an overall basis, 65%. Different pockets, we would be in some areas that we run at about 85% and odd and that's the peak level which you can go at. On the CSR spend, we are evaluating opportunities in terms of where to spend on CSR and the right projects and everything. And we still have some unspent amount on FY '20 also. So we will basically bundle this together and see where we can make off meaningful contribution.

Sir, related for the last question, is there a technical time line as per the Companies Act that you need to spend this? Or you can identify the project and then cumulatively spend together, is it?

I think the -- as per the MCA, there are no guidelines right now in terms of a time line, but we'll check and get back to you.

Okay. And sir, there is 1 more question, I'm sorry. This carbon steel plant, right, so in terms of return ratios or in terms of how you do the business compared to the plastics business, could you give some sense? Because I understand that in plastics, you have these cost of molds and everything that keeps coming in terms of incremental business. So in the carbon steel plant, could you give some idea as to what happens on an incremental basis?

[ Jatinder ], on the steel furniture or any individual business, I think it won't be appropriate for us to comment on individual margins. So I would refrain from answering that.

No, no. What I mean to say is that in a plastic business, so there is this cost that you need to incur to develop a mold for a new customer and so that gets you new business, right?

In the steel furniture business, also, there are costs incurred to develop a new product because you're looking at fabrication. So you have punching tools, you have vending tools, you have welding fixtures. So there is development activity even in the steel business. They are just different kinds of tools that cost different than the plastic business.

Okay. And is this customer-centric to a specific customer or you can actually go and cater to anyone else also in the industry?

I mean, we can. We don't have any exclusivity agreements, so we can cater to others as well. We only have 1 customer at the moment. So we want to first focus on starting sales and ramping up production there before we start looking at offerings to others.

The next question is from the line of Aman Vij from Astute Investment.

My first question is around the visibility in the toy segment. So we had 1 customer last year. So have they given some kind of visibility this year? And also we were in talks with 2 other players. So could you help us with that? Any update on that?

So we are seeing growth with this customer. Because of the lockdown, some of their projects have been delayed, but we see business, and business growing in the current year. We are in active discussions with couple of other customers. And once we have some confirmation, we will talk about that, but we see fairly good progress with some of the -- on this front also.

Okay. And my second question is regarding different segments. I'm not asking for individual contribution, but if you can give some kind of guidance, like in FY '20, which all segments grew, among FMCG, appliances, electrical? And which were, say, flattish, say, little degrowth? If you can highlight these things.

So obviously, the auto segment did not grow. But I'll say health care grew, FMCG grew. So these are 2 segments which grew.

Okay. And what about appliances and electrical?

Again, I would not be able to get into every individual segment. But I'm basically looking at major segments where we saw growth and where we did not see growth.

Sure. And finally, on the major segment, which is home furnishing. So any -- you had in the earlier calls highlighted about there is very big Chinese player and then what kind of sourcing is IKEA doing, say, from India versus China, like, as of now? And -- but what kind of opportunity do we see there?

We don't name the customer, first.

Yes, yes.

We don't answer customer-specific questions. And these are questions which don't relate to us. So I think we would refrain from answering them.

The next question is from the line of [ Ankit Gupta ] from [ Bamboo Capital ].

Sir, if I -- this is the question to both you and -- I mean you as well as Sanjay bhai. If we look at the past 5 years, so we -- our volumes have remained -- have grown from around 4,720 tons to around 13,000 tons. So in that, the major chunk of growth came between 2015 to 2018. And in the past 3 years, we have stagnated at around 13,000 tons. So last 2 years have been a bit challenging with change in inventory policy of our major customer, plus labor and power issues as well as the CRC caps project did not take off as we were expecting. So what were the key learnings from our experiences in the past 2, 3 years? And what changes are we making in the company, so that such low-growth periods don't come back over the next 2, 3 years? So if you can broadly give your views on the same?

So one of the key initiatives is hiring a professional CEO like Mr. Kalra. Second is on the labor front, we don't -- first, we don't have any migrant labors. So everybody comes from the local villages and surrounding areas, probably within 20 to 30 kilometers of our facility. And our problems with the labor as far as the hard stand we took last year, seemed to be resolved. We don't have any issues ongoing at the moment. We -- the current issues on labor are primarily to do with starting up of our third shift. So slowly, I think by July, we should be able to start up our third shift as well. We're just seeing less labor come in because of the COVID-19 situation. We don't have any ongoing IR issues. That's your first question.

Second is, I think when you look at polymers processed, polymer processed would not probably be a benchmark in terms of to look at revenue, because we have a product mix which is completely different. So you need to look at what product mix which we have done, and I think that's more important to look at. So probably the utilization number which we report is a better barometer to that case.

Okay. And secondly, we, last year -- or last 2 years' growth has also been impacted because of the change in inventory policy of our major customer. That customer is contributing close to around, let's say, somewhere around 55% of our sales currently. And with the carbon steel plant, it will inch up further like to, let's say, 60%, 65%. So from a longer-term perspective, how do you -- and we -- I do understand that we have almost 15 years of relationship with this customer. So how do you view the customer concentration risk? And from a more strategic point and long-term point of view, let's say, over the next 3 to 5 years, do we have any plans of reducing this customer concentration?

So what -- very high focus area for us is, obviously, health care and the toy segment. What we're doing at the moment is with the addition of steel furnishings for the same customer, we're still able to maintain -- maintaining the revenue contribution of that customer at between 55% and 60% of Shaily's overall revenues. Now going forward, with growth coming in both health care and toys, we -- over a period of 3 years, we should be able to bring it down naturally to a level of somewhere between 45% and 50%. We have no plans on giving up opportunities from the customer. It's one of our key customers and a growth driver for Shaily. So the only way to reduce the customer concentration risk is by growing our other businesses, which we're very heavily focused on. And we will be able to bring the customer revenue share down over the next 3 years.

Okay. And thirdly, on the pharma segment. If you can just broadly give us, over the last 5 years, how has been the growth in the pharma segment? And how have we grown in that segment? Not specific. If the growth rates were higher than our company growth rate, yes?

Without giving you numbers, [ Ankit ], I'll say 2 things. One, the growth has been exponential. Second, also because the baseline was very small. So today, the pharma segment is our second largest business segment in Shaily, which would give you some idea, if you can follow it around. And we've evolved from being just a contract OE manufacturer to providing off-the-shelf platform devices, which is really the big key change in our approach towards that business. So growth coming, as we move forward, can be very, very significant because we don't have to go through the full development cycles every time. We have several devices which we can offer more or less off-the-shelf now.

Okay. So is that the -- also a reason that you are giving that the growth in the segment will be much higher over the next few years?

We anticipate that, yes.

Okay. Okay. And last question on the toy segment. If you can broadly give us -- I'm not saying of about the immediate next 1 to 2 years, let's say, over the next 3 to 5 years, what kind of opportunity do you see in this segment? We already have contract from 1 customer, and we are in talk with 2 more customers. So how do you see this new division panning out for us over the next 3 to 5 years?

So I -- let's -- I won't talk about our specific opportunity because we see very significant amount coming from toys. But essentially, the 3 customers that we're speaking with on the toy segment, just 3 of them combined would be sourcing about $4 million worth of toys, out of which 90% to 95% comes out of China. So I really don't know what's going to come to Shaily specifically. But I think even if a small percentage moves out, we should do well.

Sure, sure. And how many suppliers will -- how many big suppliers will be in the toy segment from China, if you have any idea about this?

There are -- I think, in India today, we're servicing at least the toy major brands. There would be a dozen -- 8 to 9 suppliers. Some of them have booked before Shaily did. So some of them have already gotten an established business generating revenue. You have large clients like Fun School as well in the same segment so, who have been in the business for several, several years now.

Next question is from the line of Ashish Kacholia from Lucky Investment.

A warm welcome to Mr. Kalra to the Shaily executive team. I just had a small question for him, which is that, how does he -- what is his initial assessment after job with Shaily? And what are his top priorities as the chief executive for the company?

Ashish, I'm very sorry. Can you repeat your question?

The question was, how will Anil contribute to Shaily? So maybe he's on a mute mode right now.

Yes, so...

He's not still joined today.

So Ashish, Anil just joined as an observer today. But of course, we've had several conversations with Anil regarding how he will contribute to Shaily, et cetera. Maybe I will -- on this call, I can give you some of my thoughts and at another -- at a future date, you could send in your questions to SGA and Anil would be more than happy to answer them. So as I mentioned a little while ago to 1 other participant that the primary objective of Anil coming in is to ensure that we achieve operational excellence. We, in one way or another, continue to struggle with getting products.

Yes, Amit, yes heard that answer of -- that you gave earlier. So my query is answered. And I would like to congratulate the team on getting such a seasoned veteran onboard. I think it was a much -- the management bandwidth had to be increased, and I think it's a very encouraging sign that you guys have continued to do that. All the best.

Thank you.

Thank you.

The next question is from the line of from Ankit Gor from Systematix Shares.

My first question is related to our existing peer from India, supplying to home majors. We know a couple of names there. And they've been able to scale up apart from that home major. What is the basic headwinds you are facing...

Ankit? Ankit? Ankit, your voice is not clear. Can you, please, repeat the question.

Am I audible now? Am I audible now?

Yes. Yes.

Yes, my question was regarding our peers from India, supplying to the same home majors, though probably relatively not that smaller in our size compared to us. These guys are able to kind of scale up to other furniture makers as well across the world. And for us, obviously, trying hard to get into other furniture makers globally. What is the basic headwinds we are facing here? And how do you see scale up to other financing majors or the second, third, fourth number globally, yes?

Ankit, while there are many -- while there are other furnishing majors, there is one thing very unique about our customer. Our customer design and develop their own products. And their supplier base only manufactures them. Of course, they are always joint design, joint development program and et cetera, et cetera. But at the end, it's very specific to that customer. If you look at other large chains, most of them would be multi-brand retail, which means their model is purely dependent on sourcing and selling. They don't intend to develop and design their own product. They intend to go to factories and manufacture a whole bunch of range and then source based on their requirements and price. We -- on the -- potentially on the steel furniture side, there could be some opportunities, but like I said, that business is very new, which we haven't even started operations yet. So we would first like to focus on servicing the current requirements, and at a future date, probably within the next 12 to 18 months, look at expanding into other furniture brands as well.

Yes. You're right, we are into supply and sourcing model, our peers from India. But relatively, they earn in terms of return ratios and in terms of margin, they're similar to what we are earning. So that moth is kind of not probably seen in overall supply chain? Correct me if I'm wrong, and my understanding is wrong there.

I didn't understand your question, Ankit, sorry, yes.

No. So Amit said, they are into multi-sourcing or multi-source providers. So -- but despite that, they earn a relatively -- a similar profitability than what we are earning. So there is no harm in going that side as well, right?

But they also take a larger risk. In fact, it's good for us that we earn similar margins as them because they take the risk of designing, developing the product and spending the money upfront on tooling and all the development cost. With our customer, we -- that risk does not exist for us. So if we have similar margins to these guys, then I think we're in a much better position from a business perspective.

All right. My second question is with regards to we have obviously strengthened our Board, guys coming from Sanofi and Motherson. So we believe that now that drive to diversify our revenue base is very strong compared to what we are guiding for in last several years. So I'm sure you would hesitate to give some numbers in terms of 5 years down the line, how our revenue will look like, but any directional guidance will definitely help us understanding diversification process now.

So Ankit, what we -- what I said and I maintain that is we need to look at how this pans out. On the order book, we definitely have growth over FY '20, but we need to look at execution. We need to look at whether there is other external factors, whether there is a second wave. Markets are opening up more or shutting down. We don't know yet as of now. So we will be able to give you any kind of guidance, if at all, only at the end of the year.

The next question is from the line of [ Ganesh ] from [ Rupeewise Investment ].

Can you hear me better now?

Yes.

Okay. So we had really stupendous gross margin the last quarter. So is it okay to assume that...

[ Ganesh ], can you -- [ Ganesh ] your voice is echoing, can you...

Okay. You had stupendous gross margins the last quarter. Is it okay to assume that we will have similar gross margins in the coming quarters, too?

Sorry, I didn't -- can't get your question properly.

Okay. So we had like 44% gross margin in Q4 2020. So is it okay to assume that with our focus on value-added products, we'll get a similar gross margin in the coming quarters too?

I don't want to give it a number, but if you see our trend. The trend will probably give you an answer in terms of how gross margins have been moving. And we have been also talking about the areas of business where we are looking at growth, which would -- should give you a trend in terms of how would gross margin grow in the future.

Okay. So my next question -- I'll list my questions, not one by one. So other question is regarding the carbon steel project from the last conference call, we were kind of planning for a INR 50 crore revenue in 2021 before full ramp-up until the ramp-up has obviously been delayed by the COVID pandemic. Do we have any visibility on the current year's revenue with respect to the carbon steel project? That is my first question. Second question is, who do we see as competitors, our competitors, both in India and outside India? And what do we see as our total addressable market size at least for the next 2 or 3 years?

So I think on carbon steel revenue, Amit talked about it in his speech and in some of the questions which were answered, where we're looking at an average utilization of about 30%, 35% for the year, which would give you a sense of the revenue which we're looking at for the year. I think from an addressable market, the addressable market is pretty large. You look at different segments and within those segments the growth potential and everything, it's a number which could be outrageous. I think it's...

For steel furnishing.

For steel furnishing and even for plastic, both.

Yes, yes. Okay. Yes.

Because steel furnishings also takes a lot of areas there. So steel furnishings and plastics, our customer itself buys upwards of $2 billion worth of goods every year -- EUR 2 million. So I don't know how many such players there would be in the overall market, but it will be a very large number.

Okay. Okay. Great. A slightly hypothetical question now. Like, this is my last question. So for somebody who's a passionate student of Shaily, who wants to model Shaily's utilization and ongoing performance, what metrics or what parameters would you advise to look into? Of course, you said utilization earlier in the call.

So see, you basically look at the type of business segments which we are looking into and the growth potential into that. And as you rightly said, capacity utilization. So there could be a combination of these factors which you can model in. But I think you'd know it best in terms of how to model it out.

[Operator Instructions] The next question is from the line of Ritesh Shah from Investec.

Sir, 2 questions. One is what is the normalized working capital that we should look at given we have seen pretty good working capital implement on a year-on-year basis?

Okay. And what about second question , Ritesh?

Second question is a bit hypothetical one. Government has spoken about COVID tax. So just wanted to understand what polymers we import? And given we have a 75/25 mix on exports to domestic sales, how does it impact us? Does it impact our competitiveness, both locally as well as for exports?

So Ritesh, on the first question on normalized working capital, I would say, on a normalized working capital, we'd probably be looking at somewhere between a 60 to 75 days of net working capital days. We are probably at the higher end of that. We will be working towards reducing that. But on a normalized working capital, we'd probably be looking at 60 to 75 days. On the COVID tax, see, all our raw material increases are pass-through. And wherever you are importing material for export basis, I'm sure there would be exemptions given if there is a COVID tax which will come in. So from that perspective, I think it should be neutral because, a, at one point of time government is trying to encourage export and putting in a COVID tax would probably on -- for export would not be the right strategy. And I think the government should be understanding this.

Right. But sir how -- you had indicate that it's raw material pass-through these are in the slides as well. But does it impact our competitiveness? So the vendor might agree to pass-through it. But when you look at our competition as versus the Chinese peer or some other guy operating in other region, how are we going to look at it?

Yes. So certainly, if there is a tax which does not exist in other regions where we are not exempted from, then it would -- it will definitely our competitiveness.

It would impact India's competitiveness, so that's where I think if -- I don't think the COVID tax would be applicable on exports goods which are being imported for it.

[Operator Instructions] The next question is from the line of Shailee Parekh from Prabhudas Lilladher.

I just had 1 question. Would it be possible for you to share time lines for different products that you'll intend to launch in pharma devices in FY '21? I mean, as you'll have in the past?

Yes. There are a few new molecules that we are working on. So what we are developing at the moment is -- okay. So it will be in the quarter 1 presentation, Shailee.

Well, launch wise, typically, I mean, you'll are also like in Q3, you'll had spoken about 12 different pens getting commercialized in FY '21. So I was just wondering if it would be possible for you to share launch -- quarters where they will be launched. That's all I'm looking for. I mean, since you'll don't give a lot of guidance and stuff like that, it's tough to track.

No. Yes. Yes, Shailee, but that is very difficult for us to share because largely, after our activities are done, there is an extensive verification activity that happens at the -- at our customer's end. And we don't know -- yes, yes. So that is extremely difficult for us to provide.

What we can tell you is only what we are developing. Eventually, if we give this date, if some competitors was to look at -- if our customer's competitor was to look at those date, they would be able to understand what the customer is also doing. So it will be we basically be violating the confidentiality conditions which we have with the current customers.

Okay. So then, I mean, referring to a point that you'll have already -- something that you'll have mentioned in the past on this platform, that you'll spoke about 12 pens that were going to commercialize in '21. Do we still stand by that?

So what we had said is this 12 or 13 pens would be commercialized, from our end would be commercialized between FY '20, FY '21 with some getting spilled over to FY '22, but we wouldn't have commercialized those pens. In terms of our end customers, it would depend on when the molecule is moving of [indiscernible] and its plan in terms of launching them.

Okay. So therefore, commercialization may not necessarily equal to revenue. Would that be fair to assume?

There will be revenues, but you basically see peak revenues coming up when the customer actually launches this pen in the regulated lots.

Next question is from the line of Aman Dwivedi from Alpha Alternatives.

My question was, largely, on the China plus one strategy that many global players are looking for. Could you give us a color on any announcements that many of the major customers might have made or any new CapEx that some of your competitors may have incurred outside China? I'm trying to get a sense of which geography is attracting these investments, these customers? Is it India? Is it Vietnam? Or is it any other geography that is attracting these customers?

So Aman, if I would look at it, like, if a player also whenever -- for the last 3 years or 5 years, whatever exports we have been...

I'm sorry, sir, this is the operator. We cannot hear you to clearly.

Okay. What I'm saying is whatever we've been exporting in the last 3 to 5 years also has been as part of -- some of these businesses have been moving in from China to India. So we continue to do that. Our customers would obviously evaluate the options which they have, which could probably be Vietnam, could be Indonesia, could be other areas also. But we are looking at some areas where we feel there's a lot of growth prospects which are available, which is one is toy; second is home furnishing. And we'll continue to evaluate these opportunities as we move forward on that.

[Operator Instructions] As no further questions, I would now like to hand the conference over to the management for their closing comments.

Thank you, everyone, for joining on 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 stay safe.

Thank you very much, sir. Ladies and gentlemen, on behalf of Shaily Engineering Plastics Limited, that includes this conference call. Thank you for joining us, and you may now disconnect your lines.