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

Ladies and gentlemen, good day, and welcome to the Q3 FY '20 Earnings Conference Call of Shaily Engineering Plastics Limited. 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 guarantee future performance and involve risks and uncertainties that 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 at Shaily Engineering Plastics. 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 hope all of you are keeping safe and healthy. I have with me Sanjay Shah, our Chief Strategy Officer; and SGA, our Investor Relations advisers. I hope you've had a look at our investor presentation that is uploaded on our website as well as the stock exchange. With each passing quarter, we have been registering growth in our top line sequentially. I'm pleased to share with you that our 9 months results this year have been far greater than any of our full year results thus far. Our new plastics facility at Halo is up and running, and we are gradually improving utilization. Orders received over the previous quarters are gradually picking up pace and momentum will be continued during the period to come. We are actively working at our design and research center in the U.K. And I'm glad to share with you that under Shaily U.K., we have acquired 2 additional patents for both pen injectors as well as auto injectors. The scope of this business is immense, and we are working very diligently to maximize this opportunity. Our objective is to be a leading player in self-administered injection systems globally. There have been quite substantial business development efforts, and we're finally seeing the proof of the same. Apart from Europe, we also cater -- we've also started catering to Middle East markets in this segment. We are increase deepening our foray across contract manufacturing of medical devices, developing our own IP and products and platforms as well as specialty packaging. It is our ability to develop IP and our own platforms that are finally paying off. We currently have a total of 5 platforms for various molecules and are working towards developing the auto-injector for a particular molecule. We've also received confirmation business awards for 2 additional injector pens, which will be developed in Shaily U.K. Now talking a bit about business from our largest customer. We see as they are increasing their footprint in domestic as well as global markets, we're also equally getting our share of growth from the increased price, and we continue to be an important part of their supply chain. I would like to announce expansion projects here as well. We will be expanding our brush manufacturing capacities in the current year, and the new capacities will be operational by Q1 of FY '26. Under our automotive and engineering business, we received confirmation for 3 additional actuator rods, which contributes to a fairly large business value in the automotive segment. We will start commercializing these rods from calendar year 2023. We have raised funds at the beginning of the current fiscal year. We've started utilizing to expand not only our core business of home furnishings, but we're also investing in toys and health care. We're planning to spend approximately INR 200 crores over the next 18 months. As of which, more than half of spend will be moving towards pharma partner the business or growing the device part as well as scaling up manufacturing of devices where we've created our own IP. Before I hand over the call to Sanjay Shah, our Chief Strategy Officer, to give you an update on operating and financial highlights for the quarter, I'd like to share an update with you. Our CFO, Chintan Shah, has resigned from the posts and today will be his last work day at Shaily. We thank him for his contribution towards successful Shaily and wish him best for his future endeavors. Thank you. I would now like to hand over the call to Mr. Sanjay Shah.

Thank you, Amit. Good morning, everyone. I shall share with you the highlights of our operational and financial performance of Q3 and 9 months ended FY '22. Following which, we will be happy to respond to your queries. During the quarter, we processed 5,321 tonnes of polymers as against 4,444 tonnes in Q3 FY '21. In Q2 FY '22, we processed 4,498 tonnes of polymers. For 9 months FY '22, we processed 13,912 tonnes of volumes as against 10,246 tonnes in 9 months FY '21. Machine utilization was 61% in Q3 FY '22 as against 70% in Q3 FY '21. This is -- it is due to additional capacity in place in Rania and the new Halol plant. It will ramp up -- machine utilization will ramp up in the coming quarters as we move forward. Exports during 9 months FY '22 stood at 79% of total revenue as compared to 72% in the same period last year. Now I should reap on the stand-alone results highlights. Revenue stood at INR 148.3 crores during Q3 FY '22 as compared to INR 105.5 crores for the same period last year, marking a growth of 40.5%. On a year-to-date basis, 9 months FY '22 revenue stood at INR 413.2 crores versus 9-month FY '21 revenue at INR 250.8 crores. Commencement of commercial supplies from new plastic facility and ramp up of other businesses is helping us the top line business to grow. EBITDA for Q3 FY '22 stood at INR 24.3 crores as compared to INR 18.9 crores in Q3 FY '21. EBITDA margin stood at 15.4% in Q3 FY '22 as compared to 17.9% in Q3 FY '21. For 9 months FY '22, EBITDA stood at INR 68.3 crores to 16.5% EBITDA margin versus INR 40.1 crores in 9 months FY '21 with EBITDA margin of 15%. Net profit stood at INR 9.3 crores for Q3 FY '22 versus INR 8 crores in Q3 FY '21. For 9 months FY '22, net profit stood at INR 27.8 crores versus INR 12.3 crores in 9 months FY '21. Cash PAT for Q3 FY '22 was reported at INR 16.5 crores as compared to INR 12.8 crores for the same period last year. For 9 months FY '22 cash back stood at INR 47.4 crores versus INR 26.2 crores in 9 months FY '21. Gross debt at the end of 31st December '21, including working capital, stood at INR 262 crores. For the quarter, we incurred CapEx of INR 19.41 crores. With this, I would like to summarize on the operational highlights front and let you all know that we are working actively towards diversifying our business model. You would see better here surely in quarters to come as new orders are ramping up. This is all from our side. Now we can open the floor for Q&A.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ritesh Shah from Investec.

I have one question for Amit and 3 for Sanjay. How much -- is it possible for you to give a broad indication on the number of pens that probably will look to monetize or sell, say, 2 years out. And potentially, if you can actually break it up between what percentage of it would be IP-based. I presume currently the number might be so. I'm trying to just get a sense on how big the business can be. And given the mix between contract and IP, if it changes, how will it help us on the margin profile? That's the first question for you.

We currently do about 6.5 million to 7 million tonnes per year. We intend to ramp this up to close to $20 million over the next 2 years. Exact timing will always going to be a plus or minus 2 quarters. So I won't be able to comment on that. But in this ramp-up, what you will see is contract manufacturing to be about $7 million to $8 million and balance will be tend from our own platforms...

Sure. And if one had to look at the status, I think earlier, we had indicated around the IP base, we had 5 sector pens. Can you highlight at what stage is it like the filings have already been done by the customers? Some broad color here will be quite us.

Yes, sure. So one of our pens, Acxiom, which is meant for delivery of teriparatide has been filed, and the is under review from -- I mean, our customers filed with the U.S. FDA file is currently under review. But we anticipate approval in the current year, and it will be launched on approval. So we should see launch happening towards the end of the year as well. One of our second products comes in 3 different molecules. 2 of those molecules have been filed. Third one is currently work is progress, but we should see approval for those molecules as well before quarter 1 of calendar '24. Then for Middle Eastern markets and some of the rest, ROW markets, we're currently -- we've done the necessary documentation and registration work, and we will be starting supplies shortly in quarter 2 of FY '23. On another platform, I'm not naming the platforms here because then giving up confidential information. But on another platform, we have a product, which was an NCE minus 1 filing, which has been filed by 2 of our customers in the U.S. in December 2021. And even though approval might be end of the year, launch based on current information will not be before '27. And then we continue to work on auto injector for an upcoming molecule. And we also continue to work on the new pen platform that we've acquired, which is innovative technology, slightly different than what we currently do, again, for advanced GLP-1 therapy.

Yes. That's quite use. I have a few questions for Sanjay. I think September balance sheet, it did indicate that we have actually moved up. I think it was attributed to toys, which I presume in the notes, you have indicated that the revenue growth was good on health care as well as toys. So first, if you can give some color on how the inventory levels have more on a sequential basis. Secondly, the interest costs is...

Could you repeat -- your voice was breaking up a little bit. Could you please repeat?

Okay. So first question is on the inventory level. On the first half, as the inventory has actually moved up pretty sharply. I presume it should have gone down because you have indicated in revenue that health care and toys both have done well. So if you can provide some color on the numbers on inventory and how it has panned out on a sequential basis, that is something which will be useful. The second question is on interest cost. It has moved up pretty sharply on a sequential basis. So that's the second point. And the third is basically, how should we look at the gross margin movement on a year-on-year basis? Is it purely a function of lag if the raw material prices have moved up? Or is it something which is a change in mix?

So Ritesh, on inventory levels, if we were to look at from September '21 to December '21, inventory levels have gone up a little bit. The reason is to -- in this quarter, especially during December, we had issues of container availability. So we had FG, which was in stock with us. We -- in fact, our expectation was that we could have had higher revenue as compared to what we achieved if we could have got those containers. So inventory levels are marginally a little higher. We expect inventory levels to come down as we speak over the next 2 to 3 quarters. Your second question was on the interest cost, where you the interest gone up. Interest cost has gone up again on 2 counts. One is till September, whatever debt was raised for the new plastic facility was capitalized to the plastic facility got commercialized. So this was -- this quarter was a full quarter when interest cost for the plastic facility was charged to revenue. This was one. Second, on exports, there is this RBI subvention, which was 3% on export finance. That was available to 30th of September. Post that the government or the RBA has not renewed this and people not have clarity on that. So we have paid a higher interest to our bank, and that accounts for the higher interest cost. Gross margin, I do believe have come down a little bit. But as the raw material pass-through happens with customers, we should get back to normalized margins in the next 2 quarters. That's exactly what I said in September also as we expect by the year-end repaying back to normalized margins, and I would still stand by that.

Sure. Just a follow-up on the first thing, how should one look at the logistic issues. Basically, if I look at the revenues on a sequential basis, we don't see much of moment. Year-on-year, obviously, it looks pretty good. Had it not been for the container issue, what's the revenue growth would have been like would it be closer to 50%? How should one read into it? And secondly, a related question, how does it impact the viability of the business if the container freight rates continue to remain high for the extent period of time, which we have seen over the last 1.5 years.

So sequentially, if you were to look at it, we would have had over 10% growth sequential, which certainly in this case, we do not have the container issue. A little over 10% in terms of growth. So that's what it would've been. I think freight rates have gone up not only from India, but across the world. So we're on people are importing from China or somewhere else, freight -- higher rate rates are being paid. Based on discussions which we've been having with people, we expect that in the next -- between this quarter and next quarter, you would see this container issue getting stabilized and availability improving. So we should basically be able to get containers and be able to move on. But there are challenges which are there, which we need to address, which we're trying to address with our customers.

Right. But is the freight issue? Is it -- does it then in to eat into our margins? Or is it the customer who takes care of it expected basis?

So on exports, customer takes into account. From a landed cost material perspective, it gets adjusted on a -- with a customer on a like basis.

So there is no impact on our margins as the freight rates move up. It is only the throughput, which could actually get delayed by a quarter or so. Would that rating be correct?

Right. Right.

The next question is from the line of Manish Gupta from Solidarity.

So first question for you, Amit, that -- can you give us some flavor of the kind of conversations you're having with your clients now that your balance sheet is significantly strengthened. And have you been doing more complex kind of products vis-a-vis what Shaily has been doing in the past?

I mean certainly, I think not just growth and top line, but -- and customers who recognize that Shaily keeps improving its financial performance and therefore, has the ability to take on larger projects. You've seen that happen already with our largest customer, and we also see it increasingly happen not in the toy space as well as on the health care side. So we are wrapping up one of our trends to create a capacity of 10 million tonnes per year. which is, of course, through the various discussions either having and the performance that we've shown on these products.

So are you winning with your largest customer, are you gaining wallet share of the business that they are buying from India?

Yes. We are the largest plastic supplier out of India. And we keep -- we continue to grow that business at the same pace.

And at any given point in time, I mean, how much visibility do you have, how big that business could be on a rolling 3-year basis? Or is it always 12 months as new programs are negotiated.

There is a joint business plan between the 2 of us in the sense between Shaily and the customer. I cannot comment on it, Manish, but we would say that we anticipate aggressive growth at least for the next 3 years.

Okay. My next question is that you just -- INR 200 crore CapEx over the next 18 months. So just to -- because we don't -- what would that imply in terms of gross block in fiscal year '24 ending?

Manish, Our current gross block is a little less than about INR 300 crores. If we had INR 200 crores, we would basically be looking at around INR 500 crores of gross loss.

By March '24.

Right.

Okay. Third question was that historically, Amit, we put in a lot of CapEx in the pharma side of the business, and we had issues in being able to sell out that plant. So now when we are embarking on such an aggressive CapEx program, do you have firm visibility of business here? Or is the belief that we've got the competency, and we'll be able to sell out this plant? Or do you see visibility for this revenue?

Manish, I think, so we're looking at building about 100,000 square feet of additional facility for pharma, and I would say that, all in all, we're provisioning for 36 new machines. We have visibility for about 25 of those, which means -- and the equipment will be bought-it basis. It's not going to be a onetime investment. So we will increase the capital as and when needed or an increased number of machines as and when needed, but we have far larger visibility today than we did when we did -- than we did in 2014.

Okay. And any risks you want to talk about, Amit, that you see for the business and the risks that you are aware of what you would like to share?

I think biggest risk to our business is essentially human capital. So the session room in the next generation of managers meeting additional people is a challenge.

Yes. We lost our CEO and now the CFO has also resigned. I mean, why is it that we've had 2 of our senior people leave us in fairly quick succession.

So I think with Anil, it will certainly health wasn't there, so it was a mutual decision. Since Anil, I think, realized that he wants to probably be a more active or probably participate more actively in maybe the start-up space of India. So he wants to devote a significant percent of his time to helping start-ups, and I wish him the best of luck.

Okay. Excellent. Thank Thanks, Amit, as always, for all the transparency and congratulations for all the progress that has been made.

Thanks for your support it, Manish.

[Operator Instructions] The next question is from the line of [indiscernible] Jain from [indiscernible].

So I just wanted to ask a follow-up question on one of the questions which were asked earlier. We mentioned that the gross block by the end of fiscal '24 will be about INR 500 crores. So what kind of asset turn are we looking at on a gross block level?

You would still focus look at somewhere between 2.2 to 2.5 sort of a thing.

2.2 to 2.5?

I said 2 to 2.25.

2 to 2.5. Okay. See, the reason why I'm asking this question in the earlier presentation, we used to provide a strategic target of $100 million of revenue by FY '20, right? So I'm just trying to get a sense of how do I visualize Shaily, let's say, over a period of 3 to 5 years. How do you see things moving? Where do you think -- what kind of numbers you'll be able to hit on a very broad level?

I would refrain from giving more of forward-looking numbers. But I think we're giving in the CapEx requirements. We're talking about different individual businesses as well as we recently told you just told the sales to CapEx numbers. I think you could probably make a sense in terms of what sort of numbers you will be able to give.

Sure. Sure. But if I take, let's say, an asset turn of 2.25, we're looking at roughly about doubling our revenue, so when do you like -- I'm guessing 2.25 is coming at full capacity. So do you think by end of 2025, we'll be able to reach that?

Because I would refrain again from giving some sort of a sense in terms of the numbers or something. But we're quite confident of the growth which we are talking about is the way I would put it out.

Sure. No, I just wanted to ask, are you confident of reaching that asset turn on the gross loss level at full capacity by end of 2025? Keeping the numbers aside, like do you think that...

Whenever we make the charter, it takes roughly 12 months to ramp up on average, sometimes more sometimes a little less. These are large CapEx, which we're setting up facilities, we're not investing in a few machines at a time. So the ramp-up phase would be a little longer.

Right. So about -- let's say, about a year from the...

We're not going to do a year. So I think just based on the discussions shared with you. You can probably put a guesstimate to when that revenue can happen.

The next question is from the line of Kaushal Shah from Dhanki Securities.

Yes. Thank you for the opportunity and congratulations for the results. So just some clarification on the initial remarks that Amit has made, so -- and also, I think on some of the answers that he -- so if you are doing something around, let's say, 6.5 million or 7 million just now. Did I hear correctly that we are targeting 20 million in the next 2 years?

Yes. Yes.

Okay. Because, if I remember correctly, we were talking of doubling this number in 2 years and doing 20 million in 4 years. So does that mean that we are preponing this 20 million target by 2 years?

So Kaushal, what we have said on the pharma part of it is, we're looking at a 2 to 3x growth over the next 3 to 5 years. what Amit gave you the number in terms of a 20 million pen we currently do about 6.5 million to -- around 6.5 million pens across different platforms, which will go to 20 million again across different platforms.

Right, right. So what I'm trying to kind of just understand is the road map towards that. So what we are saying is now we are sort of confident. I mean, obviously, I'm not holding on to a particular number. What I'm trying to say is that, we are confident we're doing $20 million in 2 years. I mean it could be plus or minus maybe 6 months here or there or even this number of 20 million could be higher or lower. But directionally, we are confident of achieving -- just earlier than what we had earlier envisaged.

Yes. So we were at the development stage earlier. And today, the confidence stems from the fact that our customers have done the filing and have done the validation of the product, which has been supplied by Shaily.

Great. And sir, some more color on the Toys segment. Obviously, we have ramped up our numbers over the last 3 to 4 quarters. We were also targeting more business from customers like Hasbro, et cetera. So if you can kind of maybe throw some more color on that segment and where we expect that to maybe in the next 1 year or 2 years' time, what numbers can we do?

Kaushal, we had said we're looking at about $8 million to $10 million of business in FY '22, I think we will achieve that number. As we speak, we did a very large shipment of a very large product for a toy oil company and a global entertainment company, a global entertainment brand. which was launched from India for the first time. So this was done very, very successfully. We're now looking at ramping up that business and adding more SKUs as we speak. So we are now commercialized 2 more products, which we will start -- or we have started supplying in the current quarter onwards, and we will be looking at ramping up and look at adding more products with these customers as we move forward.

And sir, if I remember this CapEx plan, we have discussed about this number of INR 200 crores even earlier. And we had said that INR 100 crore is towards pharma and the other INR 100 crores is towards other segments including toys. So this USD 8 million or USD 9 million that you're targeting in the current year given the CapEx and given the visibility, do you think we can, potentially, I mean, again, directionally, I'm not just asking, can we double this number maybe in 2 years' time?

I would refrain from commenting on that. But I think what we have said earlier, I will stick to that, from a 3- to 5-year perspective, whatever we did in FY '21 in terms of business with home furnishings, we can get to that sort of a number over a 3- to 5-year horizon.

Okay. If I do this math of, let's say, $8 million or $9 million, we're already doing, again, ballpark around maybe INR 60-odd crores revenue. So that would imply kind of, what, 2.5 or 3x kind of a growth from that number because, I mean, I don't have the number for the Swedish furnishing major. So I'm just trying to do a little bit of...

Right. You have the numbers on the home furnishing major, if you look at it because we have said about 55% of it comes from the home furnishing pay check for FY '21. So that number is there but yes, you are broadly right.

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

My first question, continuing on the toy side. So we are already running at close to peak kind of run rate, which you have talked about in the last con call. So when do we see the next ramp-up happening in the Toy segment, by which quarter? Are you seeing that ramp up from the current because we are already at full kind of utilization, which you have talked about earlier?

Well, I probably did not understand your question. So if you can elaborate a little bit, it will be helpful.

Yes, sure. So we had talked about at full utilization. We can do that $8 million to $10 million or like $2.5 million to say $2.5 million a quarter run rate. And sir, we had discussed this during the last conf call itself. We are very close to that. And maybe we would have done close to that number in this Q3. So I'm saying when do we see the next ramp-up happening in terms of either getting more orders or getting newer customers in the Toy segment?

So we are constantly working on that as I mentioned to the earlier participants also on the call that we're looking at we've just commercialized to more toy products, and we will be looking at supply starting this quarter and going over the next couple of quarters. Toy business is a little more seasonal as compared to other businesses. So there are 3 distinct seasons when there is a fairly large ramp-up which happens. And then the ramp-up happens basically when you introduce a newer toy or something. So there will be periods when for pockets when there will be full utilization, there will be some pockets where you will have a little lower utilization. So we also trying to understand and build up a portfolio which can be more balanced around that.

Sure, sir. Sure, sir. In terms of gross margins for the different products, so I'm not asking for any numbers, but is it depending on the size of the -- I'm talking specifically on Toy segment? Is it dependent on the complexity and size of the product? Or is it dependent on the customer to customer? Or is it broadly similar across the different customers and different type of products for us in the toys?

Broadly, we are more or less similar for different customers. There will be some differences or something. But gross margins will more or less be the same. Again, product have different gross margins depending on the complexity of the product.

So my question was so you have talked about, we are doing much bigger sizes or much more complex products now. So directionally, does the overall gross margin profile of toy segment, are we trying, do you think this will be much better, say, 2 years end versus whatever is today?

I would refrain from answering that, again, we being in a B2B business would not want to comment on an individual segment where is the customer, where is that.

Okay. No issue. Next question is on the, so there is, in our presentation, loan and advances of INR 159 crores in the stand-alone balance sheet. So if you can talk more about this number.

Can you talk about -- let me know which page are you talking about?

So sir, page -- Slide #10. So on Page #11. Where we have given stand-alone balance sheet in the presentation, there is this INR 159 crore number in loans and advances.

So that includes the fixed deposit with the bank from the [indiscernible] order which we have raised.

Okay. Shouldn't it be in cash and cash equivalents and why within loans and advances?

Cash and cash equivalents have basically been taken as exact cash and cash equivalents in the presentation. If you were to look at the balance sheet, which has been published with the results, they come into cash and cash equivalent.

Okay. On. My next question is on machine utilization, sir. So we are obviously adding capacities, and that is why it is hovering around 60%-odd utilization. When do we see this coming to in FY '18, we like 75% kind of utilization level? So when do we see this kind of higher utilization level? Because this will also mean better utilization and better margins for the overall company.

We should see utilization levels improving next year.

Okay. So do you see 70% plus kind of utilization for FY '23?

We see utilization number is improving for FY '20. I wouldn't again refrain from giving on the percentage. But yes, we do see utilization levels improving as we move forward.

Sure, sir. Final question is on...

What you need to look at is. We added around 20-plus machines our new Halol facility, which you've seen in October, November, December is being available for the full period. So that's one of the reasons why we are saying about that. We would basically see improvement as we move forward.

Sorry, one more clarification on this. So with this INR 200 crores CapEx, where will this machine number go to, say, by FY '24?

You should ideally be going to around 80% utilization as we ramp up the business.

And sir, total number of machines roughly broad train, if you can give by FY '24, just to understand.

Will be difficult for us to do that.

What is it today?

Around 180 plus.

Okay. This is after you include the 20 new machines, which we did in Q3.

Right.

Sure, sir. Yes. Coming to the, finally, a question on the pen segment, sir. So have talked about scaling this number to 20 million in roughly 2 years. So will the growth be back-ended? Or can we see a good growth of -- this is like doubling, so maybe 40%, 50% growth in FY '23 number also?

We see from the current level, FY '23 will probably only be 20% higher than what we currently do, and the reason is that we need to scale out. We don't have the infrastructure to build more test. So it's going to take us 12 months to create that infrastructure. And then in the following year, we see a ramp up.

Sure, sir. And you have in a way kind of confirmed orders or quite a good visibility in terms of pen or any risk you see of reaching this 20 million number?

No, I don't think that we have customers that will confirm orders for 2 years out, but the nature of business is such that if they are buying from us, it's not something they can switch to someone else for. So as long as the ramp-up plans are in line with ours, we should see the volume growth.

And sir, do we see -- do we need to add many more such platforms to reach this 20 million number? Or do you see from the current set we have we will be able to reach it?

This is for the current platforms. It always happens in, at least in health care that, from the time you develop and commercialize a product to when ramp-up happens, you typically have 3- to 4-year period. So we started developing this particular platform about 3.5 years ago, and we are now finally, seeing the ramp-up of that platform.

There was this INR 3 crore number in the other income. Could you clarify more on that for this quarter, Sanjay?

We'll revert back on this to you. Some of it is basically, it should come on the need to -- but we'll need to revert back.

[Operator Instructions] The next question is from the line of Venkatesh Balasubramaniam from Tokio Marine.

Yes. I had a very simple question. I mean the demand outlook for you looks fantastic. You either have the capacity or you plan to increase capacity to meet that demand. What I'm a little worried about is the fact that about people, are there people there to execute the same because see ,there is a little bit of a concern that the lack of a CEO and now a lack of a CFO. So in terms of managing day-to-day activities, have you already identified the total people to be intern CEO or the CFO or your plan [indiscernible]. Any kind of update on this would be useful.

Sure, Venkatesh, you're concerns are valid. They also happen to be our concerns. The CEO search is ongoing. So we have interviewed and have advanced discussions with certain candidates, but it is something that is not closed yet. As far as CFO is concerned, we have hired a general manager finance, who can currently manage operationally at least what Chintan used to do. But I think on a more strategic side, he will need, we certainly need grooming over the next 2 years. So Sanjay, and I will be spending the time to groom him into a CFO. And if we are able to find the right candidate and given the business growth, we will look at hiring the CFO as well.

Okay. That was very useful. Yes...

Our second line of managers have performed exceptionally well. Operational second line has performed really well over the last 18 months, I would say. So while there is a need to certainly get a CEO or sort of a chief operating officer, I'd say the current staff has really taken up the challenge and are performing well.

The next question is from the line of V.P. Rajesh. It seems like we lost the connection for the current participant. We move to the next question from the line of Faisal Hawa from HG Hawa Company.

Just likely developed IKEA or even Gillette in almost 3, 4 years back, and now they have planning into make a huge and regular business for us. How many such developments are we making at this point of time, which will be very small in terms of revenue, but they could move into the same league in 2 to 3 years from today? So how many such developments or trials would you be conducting at -- in today's time?

So far the 3 key areas where we are looking at growth coming in from in addition to what you mentioned. One is on the pharma space where our IP-led spends as well as contract manufacturing of medical devices. So we have been investing a lot in terms of growth for that. And, that is what it is going to cost. So that's one part of it. Second is going to be toys as we speak. And third is going to be the specialty automotive business, which we do, where the business will be small, but it will be a very niche business, which we would have as we move forward. So these are 3 areas where we have been working in the past years to grow a ton.

Sir, may I request you to repeat the second one because that then your line was breaking.

Sorry, I'll just repeat it. What I said was the second part, which I mentioned was on toys. The fourth part, which I mentioned was on the pharma like thing in terms of our own IP-led devices as well as contract manufacturing of in platforms or medical devices. And the third part, which I mentioned was basically the niche auto business, which we do, where, again, while the business is small, it will grow at a much faster pace in the next 3 to 5 years.

And in all these 4 spaces, we will be having some kind of trials or some kind of progress in terms of approvals, et cetera?

Yes. So we -- these 3 things, which I'm talking about is where we have active discussions, active projects a business confirmations from customers.

Yes. So this means that we are having a very good pipeline of things to come up also. So would be like this will be at least 15 to 20 different companies that you will be trying out?

I won't get into the number of companies or something, but we have an active pipeline, which we work on with different customers.

And if I may ask, do you have somebody fully in charge of this, who handles only people who are in initial stages of development.

So we have a separate teams. Do we have somebody who is in charge of this development?

Yes. I mean somebody who's heading this like a division because I think this is a very important position.

What we have actually is that we have a technical team, which is split between pharma and nonpharma. And within non-pharma, they have different teams for toys, home furnishings and other customers. So there are specific teams which basically work with the customers in development across different verticals. Thank you very much.

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

One question for Amit. Sir, you indicated a number of molecules and you indicated how the ramp-up can actually play out. I just wanted to understand the sort of investment which goes into when we go for build up for any particular platform. running you indicate a sort of 3, 3.5 years? How should we just understand the market on is looking at it from an IRR standpoint?

The line is very poor. I apologize, but, what I understood your question is about the amount we typically invest in the platform or a molecule.

I think that's what also understood.

Is that correct?

Yes. Yes.

Over that 3- to 5-year period, correct?

That's right. That's right.

Okay. So it's different for different platforms. We don't really have -- we don't have a baseline, to be honest, because when we acquire IP, it cost us a lot more when we develop it on our own. But of course, given final value of money and the investment was the hand for the opportunity loss, we're better off with doing a combination where our teams were on creating IP, but we also acquired good IP when it's available. Hard to tell. It can range from a couple of million dollars to as high as $5 million, $7 million per platform. So not for molecule because there are multiple molecules on the same platform.

Okay. Okay. And if I have to understand the economics between the differential on margins between contract versus IP, can one assume that it will be on low single digits or high single digits or low double digits?

Sorry, can you repeat that, please?

If one has to understand the margin profile for IP versus contract as the mix changes incrementally, I'm just trying to get a sense on how actually the margin trajectory could actually evolve. A broad answer should do fine.

I think on your -- when you have -- when you own the IP inherently, you will make better margins, slightly better margins at least and not entirely -- not substantially different, but you will make slightly better margins. And again, it depends on the therapy area. So in insulin space is very heavily commoditized which means you're looking more for revenue and volume than just your margins. So it does depend on the molecules as well.

Okay. Sir, if the margins are slightly better, would it imply that the volumes that you would probably get over here will be significantly higher given the company's IP and the competition will be lower?

I didn't understand your question, Ritesh. could you repeat, please?

So if we are incurring anywhere, say, $5 million to $7 million for a particular platform, which would have multiple molecules. What Amit indicated as the margins could actually be slightly better. And given we do not have confirmed orders over here, but we have a visibility given we work with a particular company. Does it essentially imply from a return ratio standpoint, if the IP actually succeeds on a platform, we will be in a position to actually get better volumes on that particular device because the margin difference and if it's not much, it has to be compromised or offset somewhere else, right?

Sorry. On our own devices, for example, we've invested, let's say, $4 million, $5 million, $6 million. Your question is do we see better returns from...

Yes. Yes.

Yes. I think because given that margins are slightly better, you do see better returns, but it takes time. So I think if you look at it from maybe an IRR perspective, you shouldn't start calculating IRR until year 5.

Okay. Okay. Okay. So I'll circle back on this question.

Because you always have a pipeline, which means whatever you will ramp up in 3 to 5 years, so there will be ongoing investments in new technologies. I don't know if that answers your question.

Okay. I'll put it in a simple -- other way around, what is the probability of getting it right? Basically, if we have -- if you have invested in 5 separate platforms, will the success rate be 60% or more?

Yes, somewhere between 60% and 70%. We've invested in 5 platforms. I'm fully aware that one of them will not do well.

Okay. I have a second order question. How should I understand the export mix region-wise? And is there any risk for any of the global duties? Basically, you have FDA which are there, there is a series there? Are there different duties which come in at any point in time? So if one can you give a broad sense on the export mix region-wise, and do you think this is something which -- how does the management look at it given the trade remedial measures can come in from any country at any point in time. Is there any risk that the company faces on that count?

So major exports, Ritesh are to Europe and U.S.

Okay.

Where we currently do not see any major risk. In fact, what we see is an advantage with the U.S. or the European markets is most of our customers are looking at de-risking themselves from China. So we see an opportunity to grow the business.

Okay. And any thoughts on the local policy, be it RODP, more clarity? Or are we expecting PLI on any of the segments where we are operating in?

Your guess would be probably as good as mine. My sense here is that if I go to look at incentives for exports. What the government has been doing over a period of time as the incentives which have been available for exporters have been coming down with MEIS not being given to EU users as I said from 1st of October, increase convention has not been renewed by the RBI. So effectively, the incentives available to exporters have been coming on, which is an area of concern, which we have.

Okay. And anything on PLI, nothing of that thought. Any industry representation, which has been done?

I think OPPI where [indiscernible] has been the President, has made a representation, but they have not heard back the outcome so far. Similarly, we have been hearing about the Toy Industry Association meeting a request for PLI, but again, nothing has been heard about it so.

The next question is from the line of Nikhil from Perpetual Investment Advisers.

My first question is on what is our capital allocation policy? So for example, now we are aggressively investing for the pharma business. So is it based on maybe a minimum ROC or IRR or maybe a payback period? And can we expect the incremental ROC to be higher than the existing going forward?

Nikhil, when we look at making investments, it would be 2 or 3 benchmarks. One is -- and this would not be looked at from a short-term perspective, but from a medium- to long-term perspective. One is the potential for that business to grow and be profitable and sustain profitable over a long-term period. This is one thing which we will look at it and then there are 2 key metrics which we look at is either an EBITDA margin or an ROC margin. These are things which we would evaluate. And based on what it does to overall Shaily what we would look at. Typically, whenever we would be adding business, we would look at that building over that medium to long term, adding to our EBITDA margins or our ROC margins. And that's the way we would look at it.

Understood. So I mean with the gestation period, when we can expect incremental ROC or EBITDA to be higher than the existing legacy business in a way? So what is our right to win in the business? So is it our people, the process that we follow or maybe a plant is that high tech or is it our products, how do we compete with our competition on either of these front? Is it a mixture of all 4? Or is there one element which sort of is advantages for the company?

Every business will have a different expertise, which is required to basically get that business. So that's something which would be unique to every business.

Understood. So you are meaning to say according to each vertical of the business, maybe for the furniture business, it's something else. For the toys business, it's something else.

What is being reported also, a lot of it will depend on the relationship with the customer, the need of the customer, and it will be dependent on multiple factors.

Okay. Okay. So one last question is can you explain a bit about the business as the new U.K. subsidiary? And to what would -- how would it function and what would be the revenue model at the business?

Do you want to take that or I'll take that?

So the subsidiary is primarily responsible for creating technologies and developing our platforms to the point where it is ready for industrialization. We essentially have 2 aspects to the platform business model. There is a onetime fee that is charged based on the customizations and developments that the customer needs, which is essentially the cost that we incur in the U.K. So that revenue will flow over there, but supplies will be made from -- made from Shaily in India. So whatever supplies are being made will flow into Shaily India.

Thank you. Ladies and gentlemen, time constraint, we take that as the last question. I would now like to hand the conference over to Mr. Amit Sanghvi for closing comments. Over to you, sir.

Thank you. Thanks, everyone, for joining the call. We hope that we've been able to answer your questions at this time. For any further information, I will quickly begin in touch with SGA, our Investor Relations advisers. Thanks once again.

Thank you. Ladies and gentlemen, on behalf of Shaily Engineering Plastics Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.