Prabhudas Lilladher recommended accumulate rating on Shaily Engineering Plastics with a target price of Rs 312 in its research report dated Jun 02, 2020.
Prabhudas Lilladher's research report on Shaily Engineering Plastics
Shaily Engineering Plastics (SHEP) Q4 Revenue/EBITDA/PAT grew by 2.9%/ 32.9%/ 98% YoY to Rs796m/Rs152m/Rs70m. CU improved to 65% versus 62% in Q4FY19. For FY20, revenues were flat at Rs 3360m, while EBITDA grew 10.4% and PAT by 22.4% to Rs 236m due to lower tax rate (23.4% v/s 35.6% FY19). EBITDAM improved 430bps in Q4 & 170 bps in FY20 due to better product mix & economies of scale in RM procurement. Covid-19 impacted SHEP's supply chain & ability to ship from 14th March. Pharma operations resumed from 22nd March & others from 23rd April. During Q4, SHEP received business confirmations for 2 parts from existing auto client. Further, they made commercial supplies of CRC caps to 2 companies. The pharma segment (packaging & devices) witnessed strong traction and is now the second largest revenue generator. 13-14 pens will be commercialized in FY21E & 22E. Signups are expected for 5 existing medical platforms (investment already made) resulting in better return ratios too. Commissioning of CSF plant at Halol is delayed due to Covid-19 and now expected to be commissioned in June with trials in July. It will contribute ~Rs 300m to revenues in FY21E and full impact of Rs 1.3bn in FY22E. Impact of Covid-19 has lead to 27% cut in FY21/22 revenues and 35%/29% in PAT.
With labor problems out of the way, CSF capacity on brink of commissioning, greater focus on sweating existing medical platforms resulting in multifold growth in pharma revenues, higher traction in toys (in talks with new clients), further growth opportunities in home furnishings which will be better addressed with wider management bandwidth as a new CEO has been appointed and 2 new directors (with rich experience in Pharma sector) been inducted in the board and favorable macro tailwinds (business shifting out of China) will result in revenue/ EBITDA/PAT CAGR of 19.6%/19.1%/25.2% to Rs 4805m/Rs 824m/ Rs370m in FY22E.
Outlook
Due to the steep correction in price, the stock appears attractively valued at 9.7x FY21E and 6.0x FY22E earnings. We upgrade our rating to ACCUMULATE with a price target of 312.
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