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

Ladies and gentlemen, good day, and welcome to Shaily Engineering Plastics Limited Q4 and FY '24 Earnings Conference Call. 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 of 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 of Shaily Engineering Plastics Limited. Thank you, and over to you, sir.

Thank you very much. Good evening, and a very warm welcome to all the participants to the post results investor call of Shaily Engineering Plastics. I have with me Mr. Sanjay Shah, 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 and the stock exchange. I'm glad to welcome Mr. Paresh Jain as our new Chief Financial Officer. He is a qualified Charted Accountant from ICAI, having 19 years of rich and extensive experience. Prior to joining us, he has held significant positions in reputed organizations such as Banco Aluminium, Safari Industries, Indian Oil Tanking Group, Atul Limited and GTPL. Let me give you some highlights on the operational performance. Despite a challenging global situation, we have delivered a top line growth of 27% to INR 171 crores in Q4 FY '24 and have improved our gross margins and EBITDA margins to stand at 46.8% and 21.3%, respectively. Presently, we are extending our reach to global market through Shaily U.K. We're now building capabilities beyond Injection Pens and auto injectors to develop advanced drug delivery solutions with electronics. Looking ahead, our focus is on expanding our horizon to include contract manufacturing for medical devices, products featuring our intellectual property and specialty devices. Dedicated effort invested in advancing our injection system platforms are beginning to show favorable outcome. Within the industry, our business scope is vast, and we remain committed to ongoing growth. Our second largest revenue-generating sector today is health care, and we've adopted a scalable approach that will enable us to increase our revenues at a faster pace over the next 5 years. We plan to increase our own IP contribution going forward. In the Healthcare division, we have received confirmed business orders from 3 customers, 2 for semaglutide and 1 for lanreotide in the last quarter. An update on Carbon Steel business for the Home Furnishings Major. We've added one new product in the Carbon Steel business from the Home Furnishings Major. We've also added one new product on the plastic side for the Home Furnishings Major. In the Industrial segment, we received confirmed export orders for supply of knobs to a U.S. appliance major. That is all from my side. I shall now hand over the call to Sanjay to give you the operating and the financial highlights. Thank you very much.

Thank you, Amit. Good evening, everyone. I shall share with you the highlights of our operational and financial performance of Q4 FY '24 and FY '24, following which we will be happy to respond to your queries. During the quarter, we processed 5,380 tons of polymers as against 4,590 tons in Q4 FY '23. For the year ended, we processed 22,098 tons of polymers against 20,615 tons in FY '23. Machine utilization was around 40% in Q4 FY '24 and 40% for FY '24. We expect this to increase in the coming years. Exports during Q4 FY '24 and FY '24 stood at 73% and 74% respectively of total revenue. I shall now brief you on the consolidated result highlights. Revenue stood at INR 170.6 crores during Q4 FY '24 as compared to INR 134.5 crores during Q4 FY '23, a growth of 27% year-on-year. EBITDA stood at INR 36.3 crores during Q4 FY '24 as compared to INR 26.5 crores during Q4 FY '23, a growth of 37% year-on-year. EBITDA margin stood at 21.3% for Q4 FY '24, an increase 160 basis points over Q4 last year. PAT stood at INR 19.3 crores during Q4 FY '24 as compared to INR 9.9 crores during Q4 FY '23, a growth of 95% year-on-year. PAT margin stood at 11.3%, an increase of 390 basis points over Q4 last year. Cash PAT for Q4 FY '24 was reported at INR 29.3 crores as compared to INR 19.8 crores during Q4 FY '23, a growth of 48% year-on-year. Now coming to FY '24 consolidated highlights. Revenue stood at INR 643.9 crores in FY '24 as compared to INR 607.1 crores during FY '23, a growth 6%. EBITDA stood at INR 123.4 crores in FY '24 as compared to INR 96.4 crores during FY '23, a growth of 28%. EBITDA margins stood at 19.2%, an increase of 330 basis points over last year. PAT stood at INR 57.3 crores in FY '24 as compared to INR 35.1 crores during FY '23, a growth of 63%. PAT margin stood at 8.9%, an increase of 310 basis points over last year. Cash PAT for FY '24 was reported at INR 93 crores as compared to INR 68.5 crores during FY '23, a growth of 36% year-on-year. Our ROCE and ROE stood at 17.7% and 13.3% respectively, as of 31 March 2024, although the growth in business has been achieved with disciplined use of capital. Our debt-to-equity stands at 0.5x and our long-term debt on equity stands at 0.15x. Now coming to consolidated segmental revenue breakup. In the Consumer segment, revenue stood at INR 481 crores in FY '24 as compared to INR 503.3 crores during FY '23. The drop or a degrowth of 4% was mainly on 2 counts. One is pass-through for raw materials and lower toy sales as compared to what we did in FY '23. In Pharma segment, revenue stood at INR 107.7 crores in FY '24 as compared to INR 57.6 crores during FY '23 crores [indiscernible]. In the Industrial segment, revenues stood at INR 55 crores as compared to INR 46.15 crores during FY '23, a growth of INR 19 crores. The Board of Directors has recommended a final dividend of INR 1 per equity share of face value of INR 2 each of the company. This represents 50% dividend on the face value of INR 2. This is all from our side. We can now open floor for Q&A.

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

So the first question that I had is that on the health care segment, we have done a fantastic job in terms of developing platforms and then kind of doing all the IT work. The larger question that I have is that if we look at our PL set, be it [indiscernible] or any other company, essentially, they're all -- by DNA, they are medtech companies. And so from where we are today, to reach to that level, what kind of capabilities, manufacturing framework, regulatory and what are we doing to ensure that we move towards there and then compete with them and then are able to get higher market share? Your prospective will be very useful.

One of the things, I think it's a part of the journey. They're established players for a very long time for several decades. And one of the things that we are waiting for is eventually our first U.S. and EU approvals on one of our injections and platforms. We're very confident that these approvals will come in, in the current financial year before the end of this calendar year. And that will establish us as a player -- as a reputed player in the industry. So going forward, with the pipeline that we currently have, we're already looking at a very significant revenue scale up over the next 5 years, as I said in the speech earlier. But the opportunity to work with innovator companies apart from [indiscernible] will come once our brand and products gets established in regulated markets. So it's a journey, and we're just now waiting for the outcomes.

Got it, Amit. Just if you can expand a bit on the capability side of it other than the polymer processing, what kind of capabilities in next 3 to 5 years, we need to develop to kind of compete head on with some of those types?

I think when it comes to, let's say, R&D and design capabilities, I would say that our injector platform portfolio is as good or better than any of our competitors globally today. When it comes to manufacturing, our infrastructure is world class. We've invested in tool manufacturing in the last year. It was mentioned in one of our calls before. So we now manufacture a lot of the molds that we use in these products in-house. So capability buildup has been very strong at Shaily. We need to -- we certainly need to add more heads as we will resource capital as we scale up. But apart from that, on the capability side, I think we're on par, as good as anyone else -- any one of our competitors globally today.

Got it. My second question is on the base business, which is non-pharma part of it. So given the order wins that we have got in the last year FY '24 entirely, if I just look at the number from the timelines starting -- many of them starting from Q2 and then gradually scaling up. But still it looks like that the base business will grow at 12% to 15%. Is that right assumption? Is it how you guys are looking at it?

So Dhwanil, so 2 things which you need to consider. One is -- when I mentioned it in one of my speech also that we have seen a raw material reduction being passed through customers, which basically impacts the top line, which is what has happened. The businesses, which we have talked about last year, part of those businesses have got commercialized in Q3 and Q4. And as we speak, we will be looking at ramping up these businesses. Some of the businesses which will be commercialized in Q4 have got delayed in Q1. So you will then see a ramp in Q2, Q3. That's the way we would look at it.

Got it. And last question on the Carbon Steel business. So I think we were expecting year-on-year improvement and probably breaking even at EBITDA level this quarter this year. So are we on track for that?

We have seen a substantial year-on-year improvement. EBITDA level, I would say we have not broken even, but we are at a very borderline thing and we should be able to breakeven in the current year. So just to add, if you were to look at a number [Technical Difficulty] taken on 4 new projects with the customer during the last financial year.

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

My first set of questions are on our Healthcare business. So one clarification first. So in Q4 presentation, we talked about we got 3 new orders from customers. And in Q4, we had mentioned that -- in Q3, we had already mentioned we had 4. So is the number of orders for the full year, which we got new contracts, is it 7? Is it 4? Why there is this difference?

Aman, we lost your voice a little bit. Can you just repeat?

Yes. I was saying in the quarter 3 presentation, we had already mentioned that we have gotten 4 contracts for development and supply of pen injectors. And in Q4, we have again added that we have got confirmed orders from 3 customers. So are this -- is it 3 plus 4? Or is it -- these 3 are only as of now confirmation. They are not contracts. That is why we have not included in...

No, 3 plus 4.

Okay. So that slide which shows that we have added only 4, that should be 7, right, then we have mentioned in one of the slides. For this full year, we have added 4...

That is basically for quarter 1 to quarter 3 in terms of what's been done between quarter 1 to quarter 3. And there is a specific set for quarter 4.

Okay. Okay. There was this confusion. Okay. Next, basically, in terms of number of contract additions, if you can talk about how is the pipeline looking like for FY '25 and '26, what kind of contracts numbers do you think we can add this year and next year?

So we're getting a lot of traction on pen injectors for semaglutide particularly. But being in the current financial year, we're also looking at adding a fair bit of new contracts for tirzepatide. Tirzepatide is [indiscernible] minus 1 filing deadline in May '26. And our platform is now fully developed. So we're adding -- we're looking at starting supplies in November of this year for clinical batches to various customers, therefore adding new contracts as well.

Sure. As of today, what is the total number of projects we have, including the 7, which we added last year?

Ongoing projects on all molecules put together, somewhere around 12 to 15 ongoing projects.

No, whether we had...

Yes, but we're talking about what this financial year we added.

Yes, yes. I think the question someone had was total ongoing projects, I think, which will need to include Lira and Teri, all of it put together.

So total ongoing projects then would exceed probably closer to 20.

Yes, I'd say about 20 to 23.

Sure. And how many of these projects will be auto injector projects out of this 20, 23.

So auto injectors, we have a total of 4 projects and balance are all pen injectors.

I was asking that last quarter, you had talked about a couple of commercial supplies that we were supposed to start. I think you have done 2 commercial supplies till late. So any ideas about what kind of commercial supplies we will be doing in FY '25?

So we started commercial supplies for teriparatide, which is our Axiom pen. And we're starting -- we are looking at starting some commercial supplies of our liraglutide pen as well in the current year.

Okay. Okay. So only one project commercial supplies you are expecting for this year or more.

Only talking about regulated markets. In nonregulated markets, we do supply for insulin. Same -- our Protean platform is used for supply of 60 units insulin pen. So that commercial supplies have already started, and we are supplying in nonregulated markets. We're looking at a decent scale of this year for Protean as well.

Sure, sure. Next question is Shaily U.K. saw good growth this year in FY '24. So what kind of growth are we expecting in, say, FY '25? And will it be back-ended like H2 or it will be spread across?

On new projects, it will get back-ended because it -- regardless of whether a platform is fully developed or not, when you start -- when you engage with the customer, you have a 6- to 10-month time line before the full project execution happens for that customer. So those projects get -- revenue reflection will be back-ended. Everything that's ongoing, let's say, from quarter 3, quarter 4 will get realized in the first 2 quarters of this year. So you will see a higher U.K. revenue in quarter 3, quarter 4, for sure. But I think quarter 1 and 2 are not going to be low. We're going to see decent revenue generation in the U.K. as well.

Aman, just to add to add what Amit said. Ideally when you look at Shaily or Shaily U.K. and if you look at it more on a consolidated basis, don't look at a quarter-on-quarter basis but more from a year-to-year basis.

Sure. My next question is, Amit, last quarter you talked about a new device, Shaily [indiscernible] for lanreotide. And I think we've gotten one contract also for the same. So could you talk about the same, how many customers do we have for the same? And is this product already commercialized or we will commercialize it in, say, this year?

No. We have now 2 customers on lanreotide and active discussions for adding another 2. But we will supply clinical batches in the current -- in the first half of the current year for lanreotide.

Okay. But -- okay. So no commercialization as of now for this project or this...

When you -- when we supply clinical batches, the product is at Shaily's end fully commercialized, but it won't go -- it won't get on to the market until approvals are received by the pharma customers.

Sure, sure. And just last 2 questions on healthcare before I come back in the queue. So you had talked about a very good growth last year, and we have already delivered a very good growth. On this high base, what kind of growth do you expect for this? And also, if you can talk about our own IP pens. So when do we see these IP pens in the market? Do you think this will happen this year because one is commercialization from our side, but then there is commercialization from the customer side also. So when do we see our own IP pens in the market so that we get the feedback from end customers and all those things, these 2 questions I have.

You know from whatever information we have today, we are fairly confident we will see our products on the market in the current year. And at least teriparatide from the Axiom pen and towards the end of the year, hopefully, liraglutide type as well.

And in terms of growth for Healthcare segment.

Growth -- no, we said in the past calls as well, Aman, we're looking at the moment 50% to 60% growth on the pharma side in the current year as well.

Even on this high base, you are talking about?

Yes.

The next question is from the line of Nirali Gopani from Unique PMS.

Congratulations on a good set of results. My first question is on the margin side. So this quarter, we saw a very good improvement in the gross margins on a sequential basis. So if you can just explain what was the reason for that?

Nirali, when you look at gross margin, it's a combination of higher revenues on the pharma side from Shaily India and what we have done in Shaily U.K. So that's the reason for the higher gross margin.

Okay. Because if I see sequentially, Shaily U.K. saw some decline and the revenue growth was also about 8%, but the gross margin improvement was quite good from 44% to across 47%. So that's the reason for the question.

Yes. So that was the reason I said it's a combination of Shaily U.K. and Shaily India, both put together.

Okay. Okay. Fair enough. And we saw some -- the other expense also increased quite significantly in the quarter. So any particular reason for that?

Which expense are you talking about?

The other expense.

No. There are not any one-off expenses like that on our expenses. A lot of it will be within normal expenses.

So we expect this kind of run rate as a percentage of sales to continue in the next year also?

Yes. I would say you still look at a base for the year and [indiscernible].

Okay. Okay. Fair enough. And consistently for 2 quarters, you have been reporting a healthy EBITDA margin of 20%, 21%. So I'm not asking for any guidance, but do we expect this number to improve over the coming 2, 3 years on the basis of increase in the health care revenue and the IP-led spend?

Nirali, what we have been saying is, one thing you should look at Shaily's margins or Shaily's revenues on a quarter-on-quarter basis, we would still stick by in terms of what we have said. Yes, we expect margins to go up as we -- in the next 2 to 3 years. You will see margins year-on-year improving, broadly on 2 accounts, one is higher revenue coming in from pharma and we're basically putting in more value-add products. So that's something which we have done.

Right. Right, perfect. And any CapEx guidance for FY '25?

We are not looking at any substantial CapEx as of now as we speak. There will be some small CapExs which we will be doing. But our focus is going to be on improving utilization level and see how we can basically have capacities, which have been created, being utilized.

The next question is from the line of Rahil Dasani from M.A.P.L.

Yes. So first of all, just regarding the pharma devices. Globally, there are several manufacturers, even a few with the spring technology. So what is the possibility of any of our exhibit/clinical batches clients for sema and liraglutide. Using our devices at first [indiscernible] shifting, then going for the commercial plan.

I mean, look, there's never a certain thing right Rahil, but if a customer has done a full program with us, then you will have to remain competitive when it comes to cost as well, and I don't see a reason why anyone should shift. One of the reasons why we are seeing good traction on a molecule like semaglutide is because we're the only ones with the spring-based pen injector, which -- where the user steps are the same and the experience is the same as that of [indiscernible]. So at the moment, we don't have any competition globally when it comes to a spring-driven injector. We feel confident that the customers should not switch over to someone else after launch.

Okay. So maybe asking a more direct question. Liraglutide more to us to commercialization. Have we seen any of our customers shift from our pens post the clinical trials?

No, not at the moment. We are not. So there's 2 liraglutide therein. One is Victoza and Saxenda. So Victoza, we used a different pen-injector which is the Protean platform. And for Saxenda, we use our Neo platform. So for either cases, we have -- we do not have a customer that has switched over platforms.

Got it. And if I heard it right, we are to launch liraglutide commercially from November?

No, I didn't say that. We are hopeful that we'll get approval in the current year for liraglutide launch. I don't know whether it will be November or it would be March, but we're hopeful that approvals should come in, in the current year.

Okay. How many customers were we able to get hold off in comparison to the total filings for the molecule as on date, of course in the ROW market?

The ROW market filings aren't always known. But I'd say in the ROW markets, in the regulated markets, we have a fair -- we have a fairly significant share on semaglutide. And on ROW markets, if we look at, for example, let's say, some of the larger players in the Indian landscape than Indian pharma landscape, and I think we have a fairly good share of that as well.

No, sir, I was asking for liraglutide.

For liraglutide, I mean, lira was -- many people file lira before we started to sort of the whole business of getting into injection pen platforms. So on liraglutide, particularly Victoza, we will certainly not have the highest market share. There will be many other players who have filed with other devices.

Okay. That's helpful. So for liraglutide only, out of these customers we are in talks with, how many have started generating IP revenue?

No, there's no commercial launch for liraglutide yet. None of our customers have received approval.