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

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '27 Earnings Conference Call of Shaily Engineering Plastics Limited. [Operator Instructions]. Before we begin, a brief disclaimer. 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 the date of this call. These statements are not the guarantees of future performance, and it may involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Amit Sanghvi, Managing Director of Shali Engineering Plastics Limited. Thank you, and over to you, sir.

Thank you very much. My apologies to everyone on the call for running a few minutes late. Good afternoon, and thank you for joining the Shaily Engineering Plastics Limited Earnings Call for the second quarter and first half of FY '27. With me today are Sanjay Shah, our Chief Strategy Officer; and SGA, our Investor Relations advisers. Our results and investor presentation for the quarter ended September 30, 2026, have been filed with the stock exchanges and are available on our website as well. I trust you've had a chance to review them. Let me start with the headline numbers. Consolidated revenue for Q2 FY '27 was INR 320 crores, up 24% year-on-year and 14% sequentially. This is our highest ever quarterly revenue. EBITDA rose 25% year-over-year and 22% sequentially to INR 102 crores at a margin of 31.9%. Importantly, this is the first time we have crossed the INR 100 crore EBITDA milestone in a single quarter. Three points define this quarter. First, health care is now the primary engine of our business, contributing 55% of revenue and growing 78% year-on-year. Second, gross margins recovered to 60%, about 70 basis points higher than a year ago, following the cost pressures we highlighted in quarter 1. Third, the consumer business has finally stabilized over 2 sequential quarters, although it continues to operate below last year's levels. The quarter was shaped by certain geopolitical uncertainties, input cost volatility and divergent demand trends across markets. Development in West Asia continued to impact freight cost and polymer prices, while demand for home furnishings in Europe and the U.S. remained subdued. We navigated these pressures through pricing discipline, procurement efficiencies and a favorable product mix, prioritizing margin resilience and quality of returns over volume-led growth in consumer. The global GLP-1 market is also entering a significant phase of transition. With semaglutide patent protection expiring in the first wave of markets, generic competition is gaining momentum. Launches commenced in India in March, followed by Canada's approval of a generic in April and Brazil's approval of its first generic in August. The resulting price reductions are widening patient access to these therapies and increasing volume. For Shaily, this represents a significant opportunity. As affordability improves and patient access expands, demand for drug delivery devices is expected to grow. With established partnerships across multiple customers and geographies, we are strengthening our platforms and scaling capacity, including through our Abu Dhabi facility to capture this next phase of market growth. Let me turn to segments, starting with Healthcare. Revenue stood at INR 175 crores in Q2, up 78% year-on-year. Healthcare contributed 55% of revenue compared with 38% a year ago. For the first half, healthcare revenue was INR 318 crores, up 81%. Growth was led from our pen injector platforms, particularly the GLP-1 programs, alongside steady volumes in insulin and other therapies. We have delivered 10.4 million devices in the quarter and remain on track to exceed our full year guidance of 36 million devices. These results reflect the strength of our customer partnerships, our engineering capabilities and our ability to scale complex device programs with consistent quality and precision. On the innovation side, innovation has been central to the development of Shaily health care business. From the outset, we are focused on building our own IP-led platforms, creating differentiated solutions for our customers and patients. We continue to build on this foundation. During the quarter, we signed 2 new contracts for these platforms and launched our latest innovation, the Toby reusable auto-injector, our 2-step reusable auto-injector for next-generation GLP-1 therapies. Toby reusable retains the same simple 2-step interaction of our Toby disposable auto-injector while introducing a multi-use format. The prefilled syringe is housed in a single-use syringe pot, which attaches to the main mechanism the patient retains and reuses for over 200 injections. The device delivers medication subcutaneously and incorporates a needle lockout mechanism for added safety. The pod is made entirely from a single material and can be made out of recycled material as well, making it very easy to recycle as well as sustainable. Compared with the fully disposable auto-injector, Toby reusable is designed to reduce material consumption, energy use, shipping as well as cold chain requirements. Our initial assessments indicate that conservatively, it is 70% more sustainable than a disposable 2-step auto-injector. It combines the convenience of a disposable device with the material efficiency advantages of a reusable system. For a weekly therapy that patients may use over several years, this is very meaningful. It demonstrates how thoughtful engineering can address not just the delivery of a medicine, but also the patient experience, cost of treatment and environmental footprint. These are increasingly important consideration for patients, payers and our pharmaceutical partners across the world. We are also extending our platforms beyond GLP-1 into new therapeutic areas with a particular focus on emergency use and oncology. While GLP remains our largest growth driver, broadening our presence across therapeutic areas will make our health care business more diversified and resilient over time. In emergency use, a device has one critical responsibility to deliver the full dose the first time, often in stressful circumstances and in the hands of someone without medical training. There is very little margin for error. This is fundamentally a precision engineering challenge and one that plays directly to Shaily's strengths. In oncology, an increasing number of biologic therapies are moving from intravenous infusion to subcutaneous injection. This transition calls for devices engineered to handle larger volumes and higher viscosities. We are developing our platforms to address these more demanding drug delivery. Getting to consumer and industrial. Consumer revenue was INR 116 crores, down 14% year-on-year and flat sequentially. During the quarter, we received business confirmation for a new product from an existing customer and for higher volumes of an existing product from another customer. A few product lines, which still represent a relatively small part of the segment continue to grow rapidly. Industrial revenue grew 23% year-on-year to INR 29 crores, driven by customers in automotive, appliances and consumer electronics. During the quarter, we received business confirmation for 7 new power tool products and new knobs from an appliance customer. Semiconductor tray revenue remains on track to commence in Q4 '27 from our existing facility. Consumer electronics and semiconductor packaging represent another important engine for Shaily. Commercial supplies have commenced for consumer electronics, and we are progressively scaling production of the 5 components awarded by our new customer. We would start trial production of semiconductor packaging in Q3 FY '27, expect to start commercial shipments in Q4. In parallel, we're pursuing a significant scale-up opportunity in both these segments, which we expect to unfold over the next 36 months. This business calls for many of the same capabilities that underpin our medical device business, tight tolerances, high cosmetic standards, rigorous process control and consistent quality across millions of components. These capabilities are a result of sustained engineering investment, process discipline and a strong focus on customer requirements. We see considerable potential to leverage these strengths in a new market. Our approach will remain measured and disciplined with the capacity expansion aligned to customer commitments and the pace of business development. I will update you as we achieve key milestones. As we enter the second half of FY '27, our priorities are clear. We will focus on 5 areas: ramping up our newly commissioned capacity, exceeding our full year device guidance, advancing our platforms in emergency use in oncology, progressing the consumer electronics and semiconductor packaging scale-up opportunity and importantly, maintaining margin discipline as we grow. We remain confident in the underlying strength of our business. Our engineering capabilities, our growing portfolio of proprietary platforms, our customer partnerships and our ability to execute with precision and consistency at scale. Our ambition is to build Shell into a global innovation-led engineering and manufacturing partner, creating lasting value for our customers, patients and shareholders. With that, I will now hand over to Sanjay, who will take you through the operating and financial highlights in more detail. Thank you very much. Over to you, Sanjay.

Thank you, Amit. Good afternoon, everyone. Let me take you through the operating and financial highlights for the quarter. The changing mix of our business is now reflected in our improving capacity utilization and operational productivity. Machine utilization across our plants rose to 52.5% in quarter 2 compared to 47.8% a year ago. This reflects the growing contribution of our high-value health care business and our ability to drive greater productivity from our existing manufacturing base. Exports accounted for 62.9% of revenue in H1 FY '27 compared to 71.7% in H1 FY '26. The shift is primarily attributed to growth in the health care business where we supply Indian pharma customers who in turn serve global markets. While the reported export mix has changed, our participation in global markets continues to expand through these customer relationships. Our financial position continues to strengthen with returns improving further in the first half. In October, CARE Ratings reaffirmed our long-term bank facilities at CARE A+ with a stable outlook and upgraded our short-term facilities to CARE A1+ from CARE A1. The upgrade reflects our healthy operating margins, improving leverage and debt coverage and new business secured from both existing and marquee customers. It is a strong endorsement of our financial discipline, execution capabilities and growing customer confidence. Consolidated financial highlights for Q2 FY '27. Revenue was INR 320 crores compared with INR 257 crores in Q2 FY '26, up 24% year-on-year. EBITDA rose to INR 102 crores from INR 82 crores in FY '26, up 25%. EBITDA margins were at 31.9%, compared with 31.8% in Q2 FY '26. Profit after tax was INR 61 crores compared with INR 51 crores in Q2 FY '26, up 20%. PAT margin was 19.2% compared with 20% in Q2 FY '26. Segment revenue for Q2 FY '27. Healthcare revenue rose to INR 175 crores from INR 99 crores, up 78% year-on-year. Consumer revenue was INR 116 crores, down 14% year-on-year. Industrial revenue rose to INR 29 crores from INR 23 crores, up 23%. On the consolidated financial highlights for H1 FY '27, revenue was INR 600 crores as compared to INR 503 crores in H1 FY '26, up 19% year-on-year. EBITDA rose to INR 185 crores from INR 152 crores, up 22%. EBITDA margin improved by 60 bps to 30.8%. Profit after tax was INR 109 crores compared with INR 92 crores in H1 FY '26, up 18%. PAT margin was 18.2% compared with 18.4% in H1 FY '27. Cash PAT was INR 138 crores, up 19% from INR 116 crores. ROCE and ROE were at 41.1% and 29.7%, respectively, as of 30th September 2026. Debt to equity was 0.2x, and the fixed asset turnover was 2x as of 30th September 2026. Segment revenue for H1 FY '27. Healthcare revenue rose to INR 318 crores from INR 176 crores, up 81% year-on-year. Consumer revenue was INR 231 crores compared with INR 286 crores in H1 FY '26, down 19%. Industrial revenue rose to INR 51 crores from INR 41 crores, up 24%. That concludes my update. We will now open the floor for questions.

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

Congratulations for a good set of numbers. Sir, I have multiple questions. First is you indicated on Toby. Just wanted to understand how it will widen our TAM? What gives us comfort that it won't decimate our existing product basket? If you could add some comments with respect to pricing and profitability over here, that would be great. And lastly, indications besides GLP-1 that it can actually treat. That's the first question. Second, you did touch upon emergency auto-injectors, but is it possible to give some time lines with respect to monetization or launch for on-body auto-injector, which is Mira, emergency auto-injector. And I think on the last call, you had indicated about applicator as well. So that's the second question, 3 parts. And the third question is more of a clarification. I think there is a news flow with respect to one of the Ministry of Health advising a recall with respect to product impurities, incorrect dose display. and patching errors. So I think these are the 3 variables which have been indicated. But if one goes into further detail over here, it does indicate incorrect dose display as well as incorrect dose delivery. So just wanted to have clarification that this is something which doesn't impact Shaily. And if it does, then what is the impact it would have? These are the 3 questions.

Thank you. All right. I got to remember all the questions, Ritesh. So on the pipeline, look, I think we're close to finalizing a customer for the on-body mirror, post which we will have a 14-month time line to deliver clinical batches, which means the product will be fully design verified, and we will deliver clinical batches, but we've not finalized the customer yet. Now moving on to Toby Emergency use. We have 2 active customers on emergency use for whom we are developing this product. From a time line perspective, the clinical batches are due end of '27, which means that earliest commercialization to production will be probably end of '28 -- calendar '28. Now on to Toby reusable, whether it cannibalizes our existing market or not. To be honest, I don't think so. There is a place for pens and there is a place for auto-injectors. Now the reason auto-injectors are widely used is because how easy they are to use, especially when you have fixed dose therapies -- you don't want to go through the process of dialing, putting on a needle, et cetera, et cetera. So the idea behind Toby reusable is to find a way to give the same user use experience with the sustainability -- with a very significant sustainability angle. So at the moment, if you think about it just between 2 large players, one is Mounjaro or Zepbound and Wegovy, you'd be looking at a global auto-injector consumption of over 1 billion injectors that end up in the landfill every year. And to us, increasingly, every large -- Tobii reusable is targeted very much for innovator pharma. It's not -- because there isn't an innovator that has a reusable auto-injector, it's unlikely that a generic will take it forward. So a, it doesn't cannibalize any of our existing product portfolio. B, increasingly, most have commitments to cut waste, become more sustainable, various EU regulations and global regulations that account for it. So we have a very nice solution where I think you maintain either same or higher possibly profitability, but providing a very, very unique solution to the customer, which also then gets a differentiated product on the market, right, because everybody has a 2-step auto-injector now. Getting to -- does that answer your question on the first part?

Yes. Is there any time line with respect to the tie-up with respect to Toby or where are we in the process? I think that was one. I think I was also hoping...

I Applicator is now -- is just completed qualifications. We should be in supply by the end of this quarter, early next quarter. Toby... Yes, Toby Reusable was just launched at CPHI. It's a product where we have completed potentially 80% of development. There are still some bits which are yet to be completed, which we're working on at the moment. But the early launch was with the purpose that if there is interest in the product, which we -- which through the 3 exhibitions that happened in October, we know there is a lot of interest in the product. We can find a partner who then gets to put their stamp on the product in terms of feature, functionality, size, shape, et cetera. So we're looking for a partner as and when we acquire one, we will give you that update. Now coming to the product recalls announced by certain -- some of our potential customers in various markets. The -- I can't comment on the API impurity because I have no expertise in that domain. As far as the label and dose marking is concerned, it's the same problem. So essentially, there is a variant of the pen, which had an incorrect label on it. Therefore, the label indicates one dose, whereas the pen actually is for another dose. This has no bearing or no -- there's nothing attributed to Shaily for this particular recall. It's the end -- whoever are essentially either final assembly or packaging or or the distributors that are attributing to this particular issue.

So just to clarify, when the document says incorrect dose delivery, basically, there's nothing to do with the device. It is more with respect to the labeling. Would that be a fair understanding?

Yes, because your label will state the dose the pen is supposed to deliver. But the pen actually is -- it's a different SKU. It's not that SKU. So there's incorrect labeling on the pen. Does that clarify?

Just a follow-up. That clarifies. And this won't have any impact on our volumes, say, Q3, Q4 or going forward, if at all?

No, our demand is strong, even stronger, to be honest. And that's where we are focused right now on the -- we've just installed the Neo line, which we are now getting into qualifications next week.

The next question is from the line of Harsh Shah from JM Financial PMS.

A couple of questions from my side. So Amit, sir, if you could give some color as to what sort of feedback we would have kind of received from a number of trade fairs that we kind of participated recently. So basically, what I'm trying to understand is, is it something that the potential customers are kind of asking from us, which probably we wouldn't right now have, say, maybe related to certain specific therapy or anything else, something on that from the potential customers?

There is -- I think I mentioned in one of my previous calls, there's about 60-odd GLP-1s under development for various indications. eventually, all of them end up in either -- or 80% of them are injectables, which means they'll end up in either a pen or an auto-injector. 2-step auto-injector is a 2-step auto-injector, whether you buy it from us, one of our competitors or anyone else. There isn't a differentiation. And after single use, they end up in the landfill. So as I was telling Ritesh, that the reason people like it is because it's very easy to use. You have only 2 steps to basically pull the cap off and inject and you're done with it. So we wanted to maintain that same usability, but offer a differentiated solution and something that doesn't there's a very significant cost associated with cold chain with the amount of material that is being disposed of. So if you look at a size of 1 pack of auto-injector, we could put 4 pods in the same size. So essentially, if it's once a week therapy, then once weekly therapy, then you have -- your cold chain costs are down to 20%, 25%. Your material consumption is down to maybe...

The logistics cost of distributing it.

Yes.

Yes.

I see. And how was the overall feedback in the trade fairs?

Very high. I mean, feedback has been very good. We, in fact, had subsequent meetings with potential customers to showcase the product on a one-to-one basis.

Okay. Got it. Secondly, if I circle back to your previous con calls, even the latest annual report and even in the AGM, there seems to be a lot of confidence that you all have regarding an innovator that you would probably crack in. So what I'm trying to understand is that at what stage of discussion or are we with the innovator? Is it something safe to assume, say, that by end of calendar year '27, at least we could have 1 or 2 innovators onboarded?

Look, that's where all the efforts are. Conversations are also good. We're participating in RFQs. We're doing as much outreach as we can. The -- I'm fairly confident that, yes, by the end of calendar '27, we should be able to crack 1 or 2 innovators. Having said that, when you crack an innovator, the revenue isn't going to start flowing from '28. It's going to be a 3- to 4-year journey before you see revenue flow in.

Yes, yes, yes. Got it. Thirdly, similar to -- so I was going through your last 3 annual reports, there is a proper mention of aerospace and defense as a tangible opportunity for us. I am aware that you are kind of -- your hands are full, you have a lot to do. But just as a clarification, are we kind of either looking into these segments? Or are we supplying indirectly some of the high-precision components?

I think -- look, we've been supplying indirectly some of the high-precision components for quite a long time. But have we made any headway in that -- in aerospace and defense? The answer is no, we haven't.

Got it. Okay. And just last question from my side before I get back in the queue. On the consumer electronic part in the segment, just wanted to check, are we engaging in discussions, say, with other potential customers as well? Or the focus is currently to kind of ramp up with this -- the customer who gave us 5 components. Yes.

So Harsh, if you look at the last 2 con calls, what we have said is we were working with one customer. We are adding 5 components with another customer, and we will look at other customers also as we go and ramp up that business.

We already have 2 customers. And we are in discussions. We cannot make any disclosures in terms of customer names and whatnot. But yes, we are working with multiple potential customers for scaling up the business.

Got it. Just a follow-up on this. Is there a possibility that our CapEx for the consumer electronics as a start could be in excess of INR 100 crores? You did mention that minimum would be INR 100 crores, but is there a possibility of doing even more as a start?

Harsh, it's a little too early to talk about it.

I think it's a little early. And second, looking at all the discussions we've had, I think INR 100 crores still makes good sense. whether INR 100 goes to INR 120 crores or INR 80 crores, I don't know, but that is going to be about that.

The next question is from the line of [ Vineal Shah ] from Dalal & Broacha.

Congratulations on a good set of numbers. So my first question is with regard to the health care growth. So last quarter also, you had indicated that the FY '27 volumes would exceed 36 million tonnes. And now that we are seeing good growth and with our internal bottlenecks also easing out, do we wish to revise our guidance? And like is there a further higher speed -- higher rate of growth we are expecting in the health care segment?

I think we will exceed the guidance. Now how much we exceeded by, I have no clue. And short answer, -- we are not in a position where the pressure on ramp-up has eased off. It's easing off. It has not eased off. So it's still work in progress. Maybe end of this quarter, when we have our next call, we'll be in a better position to answer that question.

Okay. And sir, just one clarification I wanted. The capacity expansion which we are planning for Kabi, it shall be ready by end of FY 2020. Is my understanding right?

Correct.

And my other question was related to our other expenses for this quarter. So if we see it has been a rise of 45% Q-o-Q. So is this because of a change in revenue mix? Or is there some one-off OpEx, which we are putting ahead of the new capacity expansion? Could you just give some color...

Could you probably repeat your question because we lost your voice in between.

Sorry. I was saying that our other expenses for the quarter have risen 45% Q-o-Q. So I just wanted to understand that is this because of a change in the revenue mix? Or is there some one-off cost or a specific OpEx, which we are putting in ahead of the new capacity? So just wanted to understand what will be the cost base -- recurring cost base for us?

So other expenses basically includes a host of expenses as there will be some one-off costs which would have been incurred. But then yes, if you want to compare it against the last quarter, there is a change in the business mix for which there would be some higher expenses, which would have been there. So it's a combination of one-off expenses and some increase in expenses.

Would you like to quantify the one-off expense...

I don't think I'll be able to quantify that currently.

The next question is from the line of Akhil Parekh from 360 One Capital.

My first question is on the capacity by end of FY '28, while this 25 million capacity, when should we start expecting the commercial sales from it?

Commercial sales for which capacity?

The 25 million tonnes capacity, which we have added.

Yes. So it starts qualification next week. If all goes well, we should be in a position to start selling from that capacity in December.

Second, on the consumer segment, now is it fair to assume we have bottomed out in terms of the quarterly revenue perspective. And from here on, bare minimum, we should see what we delivered over the last 2 quarters and maybe grow over that number basically in subsequent quarters. Is that a fair assumption?

I think Akhil already mentioned that we see that business steady at a level. So I think this year, we think it will probably steady at this level. And then depending on how geopolitics and the global situation plays out, we should basically look at growth next year. We had also indicated, I think, in the Q4 call as well as the Q1 call, on a net level, I think business will -- on the consumer part of it will remain flat for the current year.

Got it. Got it. And 2 more questions from my side. One is the subsidiaries, right? If I look at consol minus stand-alone, our subsidiary is incurring losses for the last 3 quarters. How should one read that particular number?

So it's been -- it's making a loss for the last 2 quarters. There has been some revenue which we have not recognized in quarter 2 because as we have said last time also, there were some customer confirmation spending in, which have not come in. But I think on an overall basis for the whole year, we would not have a loss.