Shaily Engineering Plastics Limited (SHAILY.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shaily Engineering Plastics Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sanghvi. 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 quarter 1 FY '26 results investor call of Shaily. 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 as well as the stock exchange. So let me start with giving some highlights on the operational performance and business overall. In quarter 1, we have delivered strong revenue growth of 38% year-on-year to INR 247 crores with an EBITDA margin expanding by 840 basis points to 28.5%. The growth is attributable to improved traction in our Healthcare segment, which shows a growth of 181% year-on-year to INR 77 crores. The Healthcare segment's contribution to the overall revenue mix has doubled to 31%. Now giving a brief on business update. In the Healthcare segment, in response to increased customer demand, we have installed a capacity, which consists of 19 injection molding machines, an assembly line and a printing line to add an additional 25 million pen capacity per annum. We intend to have this capacity expansion completed and on stream by the end of Q2 FY '26. We have also received plant machinery for the manufacture of an eye applicator and have also successfully signed a new contract for supply of pens. We have officially started the commercial manufacturing of GLP-1 of pens for semaglutide. In addition to the above-mentioned capacity expansion, we're also planning an additional line of 25 million pens for one of our other variants of semaglutide. We plan to invest a total CapEx of INR 125 crores for the same in FY '26. The set expansion is expected to be completed between the end of FY '26 and the beginning of FY '27. We are seeing significant growth on our IP-led pen platforms going forward. We're in discussions with multiple customers regarding volume commitments and capacity requirements for the next 3 to 5 years and would be aligning our manufacturing capacity and global manufacturing footprint accordingly. Our focus is in line with expanding our horizons to include contract manufacturing for medical devices, products featuring our intellectual property and personalized packaging solutions. We're on track with our guidance expecting health care business to contribute significantly to our revenue and profitability over the next couple of years, thereby enhancing the organizational value. Coming to the Consumer segment, we have been awarded business for the supply of mixed material products, steel and plastic. We have successfully received business for the supply of mail accessories from one of our marquee customers in the FMCG space. We've also seen an improvement in our carbon steel business for the year. Revenues from the overall segment grew by 14% year-on-year to INR 251 crores. We have good visibility across our business segments and confidence to expand our reach and performance. That is all from my side. I shall now hand the call over to Sanjay Shah to give you the operating and financial highlights. Thank you very much.

Good evening, everyone. Thank you, Amit. I shall share with you the highlights of our operational and financial performance of Q1 FY '26, following which we will be happy to respond to your queries. During Q1 FY '26, we processed 7,016 tonnes of polymers as against 5,902 tonnes in Q1 FY '25. Machine utilization rate has improved to around 49% in Q1 FY '26 as against 39% in Q1 FY '25. We expect utilization levels to improve quarter-on-quarter. Exports during Q1 FY '26 stood at around 76% of total revenue. I shall now brief you on the consolidated results for Q1 FY '26. Revenue stood at INR 246.7 crores as compared to INR 179.4 crores in Q1 FY '25, a growth of 38% year-on-year. EBITDA nearly doubled to INR 70.4 crores as compared to INR 36.1 crores in Q1 FY '25, a growth of 95% on year-on-year basis. EBITDA margins have improved to 28.5%, an increase of 840 bps on a year-on-year basis. PAT has grown to INR 41.1 crores as compared to INR 17.4 crores in Q1 FY '25, showcasing a growth of 136% on a year-on-year basis. PAT margins improved to 16.7%, an increase of 700 bps on year-on-year basis. Cash PAT stood at INR 52.6 crores as compared to INR 27.6 crores in Q1 FY '25, growth of 91% on a year-year basis. Now coming to consolidated segmental revenue breakup for Q1 FY '26. In the Consumer segment, revenue stood at INR 151.4 crores as compared to INR 132.8 crores in Q1 FY '25, a growth of 14% year-on-year. In the Pharma segment, revenue stood at INR 77.2 crores as compared to INR 27.4 crores in Q1 FY '25, a robust growth of 181% on a year-on-year basis. Industrial segment revenue growth stood at INR 18.1 crores as compared to INR 19.2 crores in Q1 FY '25. We saw a minor degrowth on a year-on-year basis. This is all from our side. Now we can open the floor for Q&A. Thank you.

[Operator Instructions] First question is from the line of Harsh K Shah from Dalal & Broacha.

Firstly, congratulations on a strong execution. I have a few questions. So firstly, in the Healthcare division, so the capacity that you mentioned, right, the 25 million getting executed, coming on stream by Q2 and another 25 million by -- at the end -- between the end of this financial year and the starting. So, is it the number that I'm putting out, correct that our capacity at the beginning of FY '27 would be around 90 million tons in totality?

No. No, it will not be 90 million. The effective capacity will be closer to somewhere between 70 million and 75 million.

Okay. So, this is post the expansion. So, then what is the current capacity then?

With the expansion that -- there's 2 expansions, right? One that goes on stream by Q2 FY '26. With that, it's about 3 million, 45 million. And with the additional 25 million, the effective capacity will become 70 million to 75 million. You have to keep some space here for changeovers and the effective capacity is what we intend to manufacture and sell. And essentially, it's never going to reach 100% of what we're installing.

Correct. Got it. And also, if you could help us quantify, say, in Q1, what is the number of pens you have sold? And if you could split that between, say, GLP-1 and non-GLP-1?

Good question. Number of pens, I actually don't have that on the top of my head, but we can come back to we can come back to you guys. I'd say the quantum of what we've sold in quarter 1 is our IP-led devices, which contains a mix of GLP-1 and insulin. Again, with GLP-1 taking the lead, which means close to 60% will be -- 60% to 65% will be GLP-1.

Got it. And also, I mean, if you could give some color in terms of how the momentum is building in terms of, say, the new clientele for GLP-1. So basically, where I'm coming from here is that are you facing any situation wherein your existing customers are demanding more capacities as against, I mean, what probably you would have discussed earlier on? And I mean, is it safe to assume that, by the next financial year, say, FY '27, the capacity -- the effective manufacturing capacity that you're putting up should be more or less kind of fully utilized?

It's hard to -- it's really hard to give an answer when the product has not launched. Yes, customers are discussing increased capacity, wanting more product or having an adequate buffer to cater to the potential upside. Many such conversations are happening, many such conversations are being negotiated into commitments and contracts. But as far as '27 goes, whether we'll fully utilize the 70 million, 75 million capacity that we put up, it's very hard to answer that right now. But there's obviously some math and commitment behind setting up the capacity. So, we feel that given a 24 to 36-month kind of time frame, capacity is obviously going to be fully utilized.

Got it. Last 2 questions from my side. So, on the consumer part, sir, I believe the U.S. as a geography for us remains to be a very large one. So how has been the response from the end customers in terms of the order ramping up? Or are you facing any sort of delayed ramp-up or maybe orders getting canceled or anything of that sort? Some color on it would be very helpful.

So Harsh, around 16% of the revenue comes from U.S. which is spread across consumer and industrial. Currently, we are not seeing any delays or any request from customer for change in orders or something. But it's a fluid situation. We really do not know how things will pan out. So, I think we will probably know over the next 60 to 90 days in terms of how things are panning out. If you ask us today, I think we are currently making shipments to U.S. as we were doing earlier.

Got it. And lastly, on the consumer electronic part, so I just wanted to pick your thought. Any role that Shaily may place in the PLI scheme for component manufacturing or anything of that sort? I mean, is there a possibility or I mean, if you could give some color on it?

The PLI scheme is very specific for components, for specific components. What we would be looking at is doing multiple components. So, we will have to look at in that perspective. I think basically, you have the CapEx incentive and sales turnover incentive. The CapEx incentive, the deadline has passed and so that is no longer applicable to us. But we will be applying for a sales turnover incentive.

Next question is from the line of Anand Jain from HNI.

Congrats on a great set of numbers. My first question is on the teriparatide launch by our customers. And when do you expect -- or when can we expect the first Shaily own IP product in the market? It's almost been a year that we had thought it would come in. So that's the first question. Second question is, how are our new lines coming up? Any challenges that you are seeing to run our lines at 80 parts per 80 ppm and even 160 ppm? How much of our capacity is current 40 million and eventual 70 million to 80 million are backed by customer commitments? And how much are backed by customer commitments and how much are backed by customer advances, if you could just give that? What is the market share in terms of number of customers filing for Canada/Brazil/India, like separately, like if there are like 10 customers filing for Brazil, then how many are through Shaily device? Are we also looking or any of our customers looking to launch a pen in China as well? You mentioned in the call that there is one new customer which got added for GLP-1 in Q1 FY '26. Which platform is this customer on? And in general, is it fair to assume that -- or if you could give some idea which platform is the most used platform or most platform that the customers are looking to go with as of now? I have many more questions, but I think if you can answer these, and I will come back with later.

Teriparatide launch, really fingers crossed. There's no further CRLs to our customer should be this year -- this calendar year, at least. I don't know what the timing are, but we have obviously supplied batches. Now it's about just when they get approval to launch. That's to the first question. Second was on capacity.

On the lines, 80 ppm and 160 ppm.

Our 40 ppm line is running actually quite well. We have an overall equipment effectiveness of roughly 81% to 82%. That is what we expect from the new lines as well. So, we think somewhere you would max out at 85% uptime. So, the OE is never going to go beyond 85%. It will be somewhere between 80% and 85%. Does that answer the second --

No, I'm more interested in the newer 80 ppm and 160 ppm.

The 80 ppm line will now be installed. So, we have not installed it yet. The 80-ppm line is going to go on stream over the next 60 days. And I think it will be at least 6 months beyond which we will be able to comment on what is the overall efficiency that we're getting. Your third question was what is our most durable capacity and how much of it is backed by customer. Out of the total, let's say, 70 million, 75 million pens that we are setting up capacities for, I'd say somewhere between 50% and 60% would be backed by commitments. And again, they're not -- the commitments don't run exactly a financial year. They would run a period. So it could be more in some years, potentially less in some others. It's hard to comment right now. But it's -- let's say, 50% to 60% is backed by some sort of a commitment. Third -- sorry, fourth question was regarding customers focus in Canada and India. I think I can comment on Canada. Brazil, again, our customers also licensed to other pharma companies. Now that information is not always updated with us particularly. So, I'll let Brazil be. But I think in Canada, if I look at all the filers which are available in the domain -- public domain right now, I'd say 70% are ours. I'd say 60% to 70% are Shaily's.

India?

India, again, we would have a very significant share. And that number should remain more or less the same across various geographies. What was the -- any customer taking the pen to China? Do we have a customer taking the pen to China? Not that I'm aware of right now.

Which platform is a new customer that got added?

Neo, and Neo is likely to be our highest selling platform over the next 5 years.

One or 2 more questions, which is how many customers did we supply Tirze exhibit batches in -- we have supplied in Q1 and will you supply for the rest of the year?

Sorry, can you repeat the question, please?

So can you give some information about Tirze exhibit batches that we have supplied for how many customers.

I mean, this has been over the last -- what you -- over the last, I guess, 24 months. Is that the question?

Yes.

I'd say probably -- I think same -- even same customer as new variants of semaglutide are added by the innovator, we also supply those variants to existing customers, right? So effectively today, I think there are now 11 variants of semaglutide across various strengths and cartridge sizes. So, I would say last 2, 3 months, we would have supplied to 3 customers exhibit batches.

Okay. Last question from my side is this eye applicator plant and machinery supplied by the customer. How big is this opportunity for us? And when can we start seeing this in numbers?

We are in the process of qualifying the full asset base. Post qualification, there will be an approval time, not a very long approval time, but I think by Q3, we should start supplies of the -- sorry, Q4, we should start supply. Q4, we should start supplies of the application.

What would be the size -- annual size of this product?

I mean I think that maturity would be somewhere around INR 25 crores of business.

Next question is from the line of Mohammed Haris from Monarch Networth Capital.

Sir, my questions pertain to the current pen capacities we have. So, can you give the split between GLP and non-GLP and also our own IP, pen platforms and third party? And on the additional capacity we are setting up, could you give the same split as well?

So, Mohammed, I think when you look at the current 40 million to 45 million capacity, it's fungible between our own pen and contract manufacturing. So that capacity is fungible? Effectively, at the end of the year or let's say, by beginning of '27, we'll have roughly 45 million GLP-1 pen capacity and balance in non-GLP-1. And all the new capacity which we are creating is basically for our own pen platforms.

Okay. And can you also share the incremental CapEx that would be done over this financial year and the next one, including the expansion.

That was part of my speech that we're doing INR 126 crores CapEx.

Okay. And -- last question is regarding the CapEx we are doing; will we incur any land costs in terms of if we will be doing the expansion will be greenfield or brownfield?

We don't require any land -- additional land for the CapEx that we've already -- INR 125 crores CapEx is being done in the current plant, which we have which is there. And any new expansion, which we do also will always be greenfield, but not be brownfield.

Okay. And if you could also mention the utilization figure for the Pharma segment, that would be helpful, sir.

We don't report that individually. We report utilization only at the committee.

Next question is from the line of Gautam Trivedi from Nion Capital LLP.

Great set of numbers and really amazing progress. Question I had was with respect to the diabetes and GLP-1 in particular. India clearly is home to 100 million -- unfortunately, 100 million diabetic patients and probably another 30 million, 40 million, 50 million who haven't got themselves tested. So, the market clearly is vast. Question really is with respect to injectables versus tablets. What's your view on that? Because I mean the prices will come off starting January 2026. But how do you view that? And is that potentially -- I wouldn't use the word fed, but is that something that could impact your ability to add more capacity?

So, I will answer that, Gautam, in 2 ways. First is citing the latest published study by Lilly on Orforglipron, which showed only a weight loss of 12% -- 11%, sorry. That's the first thing. So fairly significantly under the actual numbers of injectables right now. Second, I think -- and again, I'm not in the manufacture -- in the business of doing pharmaceuticals. But what I understand from the experts in the industry is that the bioavailability of the oral is 1/10 or 1/8 of the injectable, which means the effectiveness is very low. And therefore, when you look at the orals, you see a very significantly higher API content in the tablet, even what I believe Novo is going for in the U.S. if I'm not mistaken, it's a 25 or 50 mg daily tablet against the highest dose, which is currently available in injectable is 2.4 mg for the whole week, once a week. So, you see the economics 50x, 350 mg in a week versus 2.4 mg in a week, the math really has to add up. Now will tablets, orals take a market. Yes, I think orals are predicted to have somewhere around 20 -- between 20% and 25% of market share. That's always going to happen. I believe injectables for the foreseeable future will continue to dominate, especially when orals are only going to be available from innovators, but you will definitely see injectables domination on the generic side.

Next question is from the line of Ankit Gupta from Bamboo Capital.

Congratulations for a great set of numbers. On the pharma front, we have recorded almost INR 75 crores of revenue for the quarter. Given how the launches are expected -- the prelaunch quantities that we'll be supplying going forward in Q2, Q3 and Q4, can we expect that this will be the new base for the pharma, and we should start growing from this in the subsequent quarters?

So, Ankit, you're right that this is the start of it and bulk of our revenues on the pharma business in terms of GLP-1s will happen in Q3 and Q4. So, you should look at higher revenue from the pharma business as we move forward.

Sure. And on the consumer electronics side, have we got any approval from some sort of our products from our customer? And do we expect some of the revenues to start from FY '26?

Without commenting on any specific project or customer, we do expect to accrue -- we do expect to start revenue either by the end of this year or early next year.

Two questions on the technical side. As you are saying, Neo is expected to be a very good product. So, have you done any comprehensive human factor studies for this spend? And how has been its error rate compared to the RLD device or the innovator device?

No, we've done -- I mean, yes, we have customers who've done the human factors on our devices. And the best thing about the Neo is that it doesn't actually require human factors because it's a like-to-like device. It's not a device with any differences against the innovator, which is why you don't -- the other mechanical devices require comprehensive human factor studies to prove that they have the same rates of error as the innovator, whereas the Neo doesn't because it's a spring-driven device. Having said that, yes, we have data available, which tell us exactly how the user behaves with the device.

Sure. And sir, one thing on the pen assembling and fill/finish speeds. Like what we understand is from the fill/finish side as technologies evolve, the pen assembling finish speeds improve. So, are pens able to sustain higher PPM speeds compared to our competition? And if yes, what is the maximum PPM that pens can support?

I think the pens can very well support 300, 400 or 500 parts per minute line where we have not tested it. I think our largest line that our customers have procured is 160 parts per minute line. So, I don't see a challenge in terms of pen not being able to manage the high-speed assembly line. It's designed for high-speed assembly. And you have to keep in mind the Neo is an in-licensed product, right? So, the Neo was developed by one of the largest innovators in the world experts on pen devices. And it's an in-licensed product, which means it is very capable of running at upwards of 300, 400 parts per minute.

Okay. Okay. Just last question. Do we make our cartridges PFS in-house? And if not, like are pen compatible with PFS cartridge from just 1 player or 2, 3 players or multiple players?

Our pens are compatible with the ISO standard of cartridges. So, there's an ISO standard for 3 ml, 1.5 ml, 1.8 ml cartridges. Our pens will be compatible with all of them.

But we don't make them in-house?

No. I mean, we don't do any glass manufacturing, so.

Next question is from the line of Dhwanil Desai from Turtle Capital.

Sir, my first question is regarding Shaily U.K. So if you can give some sense in terms of number of customers added, number of new projects and whether anything on the innovator side? And also, our employee cost has increased significantly because we were hiring a lot of people there at a top level. So, when do we see the resultant increase in that business, Shaily U.K., Dubai? So how should we look at that from FY '26, FY '27 perspective?

I mean, we've got some very nice projects ongoing in Shaily U.K. Some are confidential, which I will not be able to comment on, but we have a new product launch coming up at CPHI in October in Frankfurt. We're very much looking forward to that product launch. It's what we think is the next generation of GLP-1 devices, and it's targeted towards large innovator pharma. So, there's a lot of user research and studies have gone into coming up with a set of functionality for that device, and we intend to showcase it at CPHI in October.

That's very encouraging, sir. So, for such products, do we work -- our design team works on their own? Or does it -- is it based on the feedback from some innovators with whom we have done this tie-up, and we are jointly developing this part.

No, we're not jointly developing it. We work on technology ourselves based on user research feedback, looking at -- if you look at the MA database, it will essentially have information on issues with the current devices on the market. You look at human factors, videos, you get a sense of what is lacking, right? So, you then look at trends of what people are -- patients are generally doing, and which is what you base your device on, add sustainability to the equation and then you come up with a set of traits that you want in your device. And that's how we've developed it.

Sir, on the industrial side, I think we were -- we had won that large projects and on the North side also our supply had started. But on Q1 FY '26, I think we saw a slight negative growth. So, can you help us understand, have we lost some business, or this is just a shift of business from a quarter-to-quarter?

We have not lost business. A lot of this also depends on -- if you look at quarter 1, we had a launch happening in quarter 1. So, we had large volumes in quarter 1 last year, which has evened out in the current quarter. But otherwise, business continues to remain steady, and we continue to add business there.

Okay. Got it. And sir, you talked about some improvement on the carbon steel business. So, are we expecting breakeven this year? Or -- and I think eventual goal was to reach to company level or at least consumer side of the business level margins over a period. So how should we look at that business for this year and next year?

EBITDA level, we were positive last year. We hope that, yes, we would be at a net level -- probably end the year on a positive basis. We see -- if you look at it, we have added businesses in the last 2 quarters, which we should be commercializing between quarter 3 and quarter 4. So, you would basically see again revenue going up from quarter 4 onwards into next year. Simultaneously, we are looking at adding more products and adding volumes on existing products. So, I think revenue should go up next year also.

Next question is from the line of Rupesh Tatiya from Shriram Managers PMS.

Congratulations on a fantastic results. I have a few clarifications on -- to the responses you gave to one of the earlier participants. So first, I mean, one question, sir, is these 10 assembling devices that the fill/finish formulator guys have to buy, the 3, 4 vendors is my understanding. Tofflon is there, EMA, Micron is there. So, are these guys now able to provide 10 assembling machines to the fill/finish formulators? Is there like one or now many of them can provide 10 assembly machines?

I mean you've got a dozen companies who -- or maybe less than a dozen, but close to 10, 12 companies globally. You have ATS, you have EMA, you have Micron, you have Harrow, you have Team Technip, you have Tofflon out of China. You have -- I'm sure there's 3 or 4 more available. But yes, they can all provide an assembly machine. Is that the question?

Yes, yes. So, I mean, there will not be any supply issue, right? If the fill/finish guys want a machine to assemble, these people have already ready machines, especially Neo. Everything is like sorted from a supply chain point of view.

There are no ready machines. They are ready platforms. And the platforms then need to be customized for the device. And one machine can handle multiple devices. But again, it has to be designed in that manner. Having said that, I think machine manufacturers are quite busy right now. So, is there a capacity constraint? I don't think there's free capacity available anyway. So, you'd have to -- customers would need to plan this well.

Okay. Okay. Clear, sir. Sir, the other question is for Shaily Neo. I mean, you are very confident that it's similar to R&D device. And I think in one of the older calls, you have said that you have taken a lawyer opinion that we will pass any patent challenge. But if in case -- in Canada, do you expect the patent challenge? And in case, let's say, in worst case scenario, we don't pass through the patent challenge, then do you have the CUHF regulatory support that you can provide your customers after the patents expire? I mean I know some of these patents will expire in '26. So, there are 2 questions there. So, can you please answer those?

What is the question again? Could you repeat like I think regulatory support for a patent challenge is not really needed. We provide our customers anyways.

In Canada, do you expect patent challenge for Shaily Neo?

No, I don't. But patent challenge will depend on -- there's nothing that prevents someone from litigating against one of my customers. There's a lot of extensive FTO work done on the end and not today. This was done over the last 3 years. Customers have verified the FTO against -- with their own attorneys. And so, we feel good that we shouldn't have any -- and again, having an FTO doesn't prevent someone from litigating anyways.

Okay. Okay. And then, let's say, my understanding is some of the spring-related patents expire in June or July '26 in Canada. So, let's say, if we are some -- in unfortunate scenario, we can't launch till July '26. After July '26, if regulator asks you for a CUHF user study, formative CUHF study, have we done that study? And you didn't answer to earlier question, how is our rate compared to what is our user rate compared to an R&D device?

Again, my question to you, Rupesh, is that what does a user study have to do with the patent challenge? I mean, the regulator is not concerned with patents. The regulator is concerned with the effectiveness of the therapy and they're approving it. Am I understanding this incorrectly, maybe.

Your pen would be different, right, sir, in case if your pen is deemed different from the innovator, then you have to do.

It's not different. That's what you're saying. The Neo pen is not different than the innovator.

But then if it is not different, then they might be -- So that's what I was trying to understand both sides of the equation. I got my answer.