Shaily Engineering Plastics Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
SEPL/SE/Jun/22-23 August 16, 2022
The General Manager, Corporate Relations/Listing Department
The Manager, Listing Compliances Department
BSE Limited
Floor 25, P.J. Towers, Dalal Street,
Mumbai – 400 001 Scrip Code : 501423
National Stock Exchange of India Limited
Exchange Plaza, Plot No. C/1, G Block, Bandra – Kurla Complex, Bandra (E),
Mumbai – 400 051 Scrip Code : SHAILY
Sub
: Q1FY23 Earnings Call Transcript
Ref
: Regulation 30 of the SEBI Listing Regulations, 2015
Dear Sir,
We refer to our previous letter dated August 08, 2022, wherein the Company updated the audio link of Earnings call held on 8th August, 2022 to discuss the operational & financial performance of the Company for the quarter ended on June 30, 2022.
In context therein, kindly find attached herewith transcript of the referred Earnings call.
A copy of the same is also available on the Company’s website at www.shaily.com at https://www.shaily.com/investors/investor-presentation-updates.
Kindly take the same on record.
Thanking You
Yours truly, For Shaily Engineering Plastics Limited
Preeti Sheth Asst. Company Secretary ICSI M. No. ACS36624
“Shaily Engineering Plastics Limited Q1 FY23 Earnings Conference Call”
August 08, 2022
Disclaimer: E&OE - This transcript is edited for factual errors. In case of discrepancy, the audio recordings uploaded on the stock exchange on 8th August 2022 will prevail
MANAGEMENT: MR. AMIT SANGHVI – MANAGING DIRECTOR
MR. SANJAY SHAH – CHIEF STRATEGY OFFICER
Page 1 of 19
Moderator:
Shaily Engineering Plastics Limited August 08, 2022 Ladies and gentlemen, good day and welcome to Shaily Engineering Plastics Limited Q1 FY23
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 guarantees of future performance and involve risks
and uncertainties that are difficult to predict.
As a reminder, all participants’ lines will be in the listen-only mode and there will be an
opportunity for you to ask questions after the presentation concludes. Should you need assistance
during the conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone
phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Amit Sanghvi – MD, Shaily Engineering Plastics Limited.
Thank you and over to you, Sir.
Amit Sanghvi:
Thank you very much. Good morning and a very warm welcome to all the participants to the
Post-Results Earnings Call of Shaily Engineering Plastics. I have with me, Mr. Sanjay Shah, –
our Chief Strategy Officer and SGA, our Investor Relations Advisors. I hope you have had a
chance to look at our investor presentation that is uploaded both on our website as well as the
Stock Exchange.
I am very happy to share that while we have registered our highest quarterly revenue in Quarter
1 of FY23 at Rs.172 crores. However, I'm sure everyone has this question on their mind, so I'd
like to address it upfront that we've also registered lower than normalized margin. We’ve had
some very significant challenges in Quarter 1 of FY23 particularly with respect to rising material
prices, as well as weakening rupee against the dollar, which have both resulted in margins taking
a hit. We anticipate these margins to normalize by Quarter 3 of this financial year. We have
witnessed significant improvement, improved traction across various verticals. We have very
strong visibility that gives us immense confidence that we will be able to scale up further and
grow including margins.
We are deepening our foray into the intellectual property that we're developing in the UK for
Healthcare. Healthcare is now our second largest revenue contributing segment. During the
quarter, we finalized contracts for two additional pen injectors with leading pharmaceutical
companies. We built a scalable model which will help us achieve higher revenue growth in the
coming years.
We've also embarked on a journey to create a new drug delivery technology that will be
groundbreaking and leading world leading for oncology, where currently therapies are
administered by healthcare practitioners in hospitals; we intend to change this by taking the drug
delivery at home.
Page 2 of 19
Shaily Engineering Plastics Limited August 08, 2022 We're also deepening our foray in contract manufacturing of medical devices, where I'm happy
to announce that we've just signed an agreement with the customer to manufacture dry powder
inhalers for them.
Under our automotive and engineering we have started commercializing orders that we received
and expect ramp up in the current year as we had mentioned in earlier calls. Last year, we raised
funds and have started utilizing it to expand our core business of home furnishing, toys as well
as towards healthcare. We are planning a CAPEX spend of approximately 200 crores over the
next two years out of which more than half of the spending will be towards the pharma part of
our business. This will be towards scaling up the existing devices that we have spent years
developing and putting on clinical batches for customers as well as for new IP led devices that
we're currently in the process of developing them and handing over to customers.
That is all from my side. I shall now hand over the call to Sanjay Shah, our Chief Strategy Officer
to give you the operating and financial highlights. Thank you very much.
Sanjay Shah:
Thank you Amit. Good morning, everyone. I shall share with you the highlights of our
operational and financial performance of Q1 FY23 following which we will be happy to respond
to your queries.
During the quarter we processed 6,544 tons of polymer as against 4,098 tons in Q1 FY22 an
increase of 60% year on year. In Q1 FY23, we've already achieved 24% of the volumes of FY22
in the current quarter. Machine utilization rate stood at around 50% in Q1 FY23. Exports during
FY22 stood at 80.4% of total revenue as compared to 76.1% in FY22.
I shall now brief you on the standalone result highlights.:
Revenue stood at Rs.172 crores during FY23 as compared to Rs.121 crores during Q1 FY22 a
growth of 43%. This is our highest quarterly sales as mentioned already. EBITDA stood at
Rs.21.7 crores during Q1 FY23 as compared to Rs.20.2 crores during Q1 FY22 a growth of 8%.
EBITDA margin stood at 12.6% for Q1 FY23. As mentioned by Amit, margins have been under
pressure for a couple of quarters due to increase in raw material prices. These costs would be
passed on as we go in the future. PAT stood at Rs.7.4 crores during Q1 FY23 as compared to
Rs. 8 crores during Q1 FY22. PAT margin stood at 4.3%. Cash PAT for Q1 FY23 was reported
at Rs.15.2 crores as compared to Rs.13.9 crores during Q1 FY22 a growth of 9%. On a
consolidated basis, revenues stood at Rs.175 crores, EBITDA at Rs.24.3 crores and PAT at
Rs.9.5 crores for Q1 FY23. We don't have a comparable for Q1 FY22, so we're not having any
comparable numbers there.
We would like to highlight that on the basis of recent developments, including operational and
financial performance of the Company:
Page 3 of 19
Shaily Engineering Plastics Limited August 08, 2022 CARE ratings have upgraded our bank loan ratings from A – to A stable outlook for our long-
term facilities of Rs. 270.17 crores and the short-term bank facilities have been upgraded from
Care A2 to Care A1.
This is all from our side. We can now open the floor for Q&A.
Moderator:
Thank you very much. We will now begin the question-and-answer session. The first question
is from the line of Manish Gupta from Solidarity Advisors. Please go ahead.
Manish Gupta:
My question Amit is that my understanding is that your business model is primarily a complete
raw material pass through model and with our largest customer our billing is in rupees. So, we
are also hedged for currency. My question is that, how does one interpret the quarter-on-quarter
gross margin decline, I'm saying practically from a medium-term perspective, this metric, does
it mean anything? Because if your revenue is on a formula basis, linked to raw material prices,
even if raw material prices were to crash or move up, over the medium term your absolute cash
gross margin remains the same. Is that understanding correct?
Amit Sanghvi:
Yes and no. . See, there is a material margin that is charged and there's also a manufacturing
margin, which is charged. What happens in a scenario when you have rising material prices,
quarter on quarter is that we get the effect of the rise in the last quarter during this quarter and
the rise of this quarter, in the next quarter. Then the other thing that plays out is the product mix
for each quarter and the volumes that we manufacture and sell. For example, if we've done the
best quarter we have in the current quarter and sales go up and we get the price increase, we
benefit out of it or we at least negate the margin erosion of the previous quarter. But if volume
comes down, even though you get a material revision, you benefit less; you will have some
losses that you make because you've not done the same volume. Product mix volume also plays
a little bit of role throughout. In a given year it balances out. But unfortunately, we are in some
unusual times at the moment. So, we are seeing product mix changes. We are seeing certain
products going up in volume, certain products coming down in volume. It has a little to do with
the customer strategy as well, because there's limited capacity in terms of logistics available.
Prioritizing products which are their best sellers is always going to be key for them to sustain
their business. Does that make sense for you?
Manish Gupta:
Yes, so I have a follow-up on this. What I hear you say is that under the assumption, for example,
you were only selling one SKU and let's say it was hundred unit and that remains flat, then no
matter what happens to commodity prices or the rupee, your cash flow remains preserved over
time is that understanding right?
Amit Sanghvi:
Yes, as a percentage it goes up or down, but the value part probably remains the same over a
period of time.
Page 4 of 19
Manish Gupta:
Shaily Engineering Plastics Limited August 08, 2022 Okay. What I didn't understand is that now I understand product mix, but if volumes go up. Let's
say that you're growing pretty rapidly your volumes are up 50% QoQ give or take. If commodity
prices have gone up, are you saying that you will lose out because you will get a lower raw
material adjustment based on the higher volume is that what you're saying?
Amit Sanghvi:
No. So, think about it. Our raw material buying cycles on average are we will keep, we will have
stock of no more than 20 days in raw material, for example, whereas the price revision with the
customer is quarterly. So, you have one price revision every three months, whatever I have
supplied in Q1 FY23, I've also bought substantial, barring three weeks I bought the most
substantial amount in Q1 FY23. The prices we have paid in Q1 FY23 are substantially higher
than Q4 FY22. We will see this revision in Q2. We will get this adjustment in Q2Manish Gupta:
If the prices completely collapse, it's not as if the customer will not give you the
adjustment, they will give you the adjustment for the higher price.
Amit Sanghvi:
No, the same formula applies. So, prices collapse, our margins go up because for example, we
paid the highest I mean, material have been at the highest in Q1 FY23. If prices start to come
down, then we will benefit from prices going down.
Manish Gupta:
Okay. My second question and final question on it is that we are seeing across the board,
opportunity in China plus one, I guess, in some of the segments that you are in that opportunity
is quite strong toys, furnishings. Can you just talk little bit you mentioned some of this in your
prior calls, but what are we doing for talent retention as we scale up because this is
manufacturing, so, I guess you need a lot of talent on the design and manufacturing side. Can
you talk a little about what you're doing for that?
Amit Sanghvi:
Sure. I'm glad that you asked this question. We've brought down our attrition from 14-15% down
to very close to 10% over the last two quarters. We have great comradery within the teams. What
we have done is we've introduced the performance link incentive or a portion of our employee
salary up to level of senior management 2 is all based on PLI, based on performance, quarterly
performance of the company as well as quarterly performance of the team and then the
individual. We've seen that this has been a great motivation for people to a) to perform higher,
to do better continuously and we see the results of that especially when it comes to
manufacturing. Unfortunately, our utilization is low because the order book, while we've done
Rs.175 crores, the order book is not what we anticipated it to be. That's playing a bit of a downer,
but in overall, our retention has gone up. Employee retention has gone up substantially and we
are introducing long-term wealth creation up to a certain level of employees so that we improve
that further.
Manish Gupta:
Okay. Perhaps if I can flip in the last one, given what you're seeing, how the world is evolving,
I guess there are some recessionary headwinds but there also tailwinds of global supply chains
Page 5 of 19
Shaily Engineering Plastics Limited August 08, 2022 diversifying on a rolling five-year basis would you venture a number of what you'd be
disappointed by if Shaily does not reach in five years from now?
Amit Sanghvi:
Well, put me on the spot right. I think if Shaily does not achieve an average CAGR of 17 to 20%
year on year, I would be very disappointed. Given here to debag but overall, I think we should
still get there,
Moderator:
The next question is from the line of Ritesh Shah from Investec. Please go ahead. Yes.
Ritesh Shah:
A couple of questions. First continuing with prior question, what percentage of our volumes will
have a cost of arrangement, you explained on the price revision that was useful, but just wanted
to get a number on percentage of volumes, which will have a cost pass through arrangement?
Amit Sanghvi:
How far is pass through arrangement, some pass through on a quarterly basis, some pass through
on a six-monthly basis, some pass through on a yearly basis.
Ritesh Shah:
But most of our volumes, right. Did I hear right?
Amit Sanghvi:
I would say 80% of our business passes through on a quarterly basis or more.
Ritesh Shah:
Okay. That's quite useful. My second question is in your initial remarks, you did mention about
healthcare. You did mention about inhaler device and the new mechanism to get the delivery at
home. Possible if you could provide some more color over here. Thank you.
Amit Sanghvi:
Two separate projects. One is we've developed a new technology. I will explain about it more in
upcoming quarterly calls, too soon to talk about it, but basically, it's for oncology therapies where
patients are required to take very large volume drips currently at hospitals. We're trying to
develop something which where they can do this same activity at home. Second is that we have
gotten into a contract with someone to manufacture dry powder inhaler.
Ritesh Shah:
This is a dry powder inhaler any quantum any timelines over here, the size of the market that we
are looking to cater, approval and other things?
Amit Sanghvi:
No, it is a contract manufacturing, because it's a contract manufacturing job, it purely depends
on how the customer does. Here I will not be able to give you any further information at this
point, once product is fully industrial, we will be able to give you some indications. That's going
to be 12 months out.
Ritesh Shah:
Lastly, in our prior conference calls, we have indicated about, ramp up trajectory that we are
looking at insulin pens. We are also indicated that we have a number of innovative products,
which are there any color over here?
Page 6 of 19
Amit Sanghvi:
Shaily Engineering Plastics Limited August 08, 2022 That business is growing well. We are making a lot of headway in now also different geographies
of the world. We've currently targeted Middle East where we see great volume opportunity scale
up in 24 and 25. The earlier indication stands through even today,
Ritesh Shah:
Would it be possible to indicate the number of pens produced? I think the earlier number was I
think, 7 million pens per year and we were looking to a ramp up of nearly 20 million over the
next two years. Any updates over here and if we could split it up between contract manufacturing
versus IP that will be useful?
Amit Sanghvi:
All right. Currently. contract manufacturing would account for 60% of the pens. I would say
sixties, maybe 65 or 55 or 65. Let's say somewhere around there, it changes. It's quite dynamic
and the rest would be our own IP. We see the IP growing significantly so when we gave the
indication of 20 million over three years, most of that will come from our own pens.
Ritesh Shah:
That's, that's quite encouraging. And where are we right now, what does this 20 million pens
number? Are we roundabout seven or have we moved up?
Amit Sanghvi:
Yes, somewhere around six, six and a half million pens.
Ritesh Shah:
Sure. Last question, I think in the prior question, you did indicate that the order book is not to
what we expected. Can you provide some color segment wise and any particular reason I would
presume it would be on backup logistics or the global macro, if you could provide some color
on that?
Amit Sanghvi:
Purely the global slowdown and logistics and price rise, but from a segment perspective we've
not provided in the past. Unfortunately, I will not be able to provide that right now.
Moderator:
Next question is from the line of Ritesh Chheda from Lucky Investment Managers, please go
ahead.
Ritesh Chheda:
Just two questions. One on the gross margin side, we were about 40%, now we are about 33%.
There's about 5 to 7% loss in gross margin. When do you see this, getting recouped? When do
you see the incremental contributions or the incremental business from the pharma side start
kicking in, which would then influence the next leg of gross margin expansion? So, this is my
first question. My second question is usually at the beginning of the year, you have some broader
revenue target for fiscal ongoing year. It would be nice if you could share what should be now,
the expected revenue for FY23 if it is possible to share?
Amit Sanghvi:
Thanks Ritesh. I think, let me answer your second question first. We're very hopeful and we
maintain similar momentum as we have done in Quarter 1, Quarter 1 has been exceptional. I will
not lie. Quarter 2 is at best going to be as good as Quarter 1, but we anticipate ramp up in Quarter
3 and Quarter 4. On the margin side as well with the pharma kicking in, you will see margin
Page 7 of 19
Shaily Engineering Plastics Limited August 08, 2022 expansion. You will first see normalizing of margins in Quarter 3 and then an expansion of those
margins, I don't know how much, but some expansion of those margins in Quarter 4, because
we do have significant deliveries planned in Quarter 4 for the pharma business.
Ritesh Chheda:
Okay. When you mentioned that you will be hopeful to maintain Quarter 1 traction, is it 175
crores (x) 4 is that how we should look at your business with Quarter 4 seeing further expansion
on the revenue? Because pharma will start kicking, that's how I should read you your answer or
different answer?
Amit Sanghvi:
It's very difficult for me to tell how demand will pan out this year. What we see is Quarter 4,
we'll have additional pharma revenue from the 175 that we have done. So, we should grow in
revenue in Quarter 3 and Quarter 4, but Quarter 2, I'm telling you right now because we're
already in August, so I know for a fact that at best we're going to do 175 or somewhere a little
less than that.
Ritesh Chheda:
Lastly, sir, what is the progress now at the furniture factory, which, you were trying to stabilize
and ramp up over past 1 and 1.5 years. So where are you on that journey?
Amit Sanghvi:
Sorry, Sanjaybhai did you say something?
Sanjay Shah:
Yes. Ritesh meant the steel furniture factory, that’s what I clarified.
Amit Sanghvi:
Again, steel furniture factory our manufacturing capability has improved. We are come over the
learning curve when it comes to fabrication of sheet metal. We have some challenges in powder
coating, but we have improved significantly. Again, what we're seeing, Ritesh unfortunately is
that we've seen demand drop in Quarter 2. Whatever manufacturing gains we have in terms of
efficiency, in terms of quality, in terms of rejection, unfortunately will not really give great
numbers in Quarter 2.
Ritesh Chheda:
Have you stabilized the teething problems in the factory?
Amit Sanghvi:
I would say, I would say 80% of our problems, 85% of our problems have been resolved. We
have some for which we have sought external expertise, external consultants as experts and we
will be resolving them.
Ritesh Chheda:
What is the utilization at the furniture factory?
Sanjay Shah:
We don’t give out individual utilization, you know that.
Ritesh Chheda:
No problem. Lastly sir if you could share the CAPEX number now, for 23 and 24.
Page 8 of 19
Sanjay Shah:
Shaily Engineering Plastics Limited August 08, 2022 CAPEX numbers will stand same as what we talked about last time, we are looking at investing
about somewhere between Rs.100 and Rs.120 crores this year. A majority of that will go in our
expansion of our pharma facility and that's what's going to be on the CAPEX numbers this year.
Moderator:
The next question is from the line of Aman Vij from Astute Investment Management. Please go
ahead.
Aman Vij:
First on the gross margin and EBITDA margin side. Gross margin has fallen by 7-8%, but the
fall in EBITDA margin has been less, at around 4%. In Q3 or Q4, we expect gross margin to go
back and maybe then pharma will kick in. Can our EBITDA margin be much, if not much but
higher than the average 16 -17%, which we used to do historically?
Sanjay Shah:
Yes, that's, that's what we expect going forward. I don't know, in terms of a timeframe, what it
would be, but Yes, if we were to look at between this year and next year, we do expect a margin
improvement happening over the period.
Aman Vij:
Next question is to Amit on the pen side, you have talked about, we'll see most of the traction
for this year in Q4. Are we on track to our target of around 9 million pens this year and around
12 million pens which you have talked about for next year?
Amit Sanghvi:
No, no, it's 6, 6.5 million pens going to 20 in two to three years. That is what we have said. We
are on target for that, and we have done decent pharma sales in Quarter 1. We are manufacturing
more and selling more in Quarter 2 for pharma as well. You will see good pharma traction
before the end of this year.
Aman Vij:
That 10 million numbers halfway do we expect to cross next year? Do you mean ramp up will
happen next year?
Amit Sanghvi:
From filing to launch is a two-year cycle typically. Next year I think we should get somewhere
closer to 10 million at least. I don't know how much, maybe 9, maybe 8.5.
Aman Vij:
It's totally back ended because from 6 to 20, we are not really sure of this year or next year ramp
up happening, but then two and a half years will happen.
Amit Sanghvi:
Because there's always going to be like that, that's the cycle, that's the approval cycle.
Sanjay Shah:
Aman it’s not that we are not sure.
Amit Sanghvi:
Global volumes are there.
Sanjay Shah:
It's just about how it's going to happen. There's an agreed plan with the customer in terms of…,
as Amit mentioned, there will be exhibit batches, given there will be batches given for trials and
Page 9 of 19
Shaily Engineering Plastics Limited August 08, 2022 everything. For those trials, you know what quantities we are supposed to give and post that we
know with the ramp up, which is going to happen. That's the cycle which happens for this
business.
Aman Vij:
Sure. Next question on the toys division, we have talked about this year to be a little soft, any
change on this part, any new customer addition we are trying any new campaign we are trying
because a lot of we hear a lot of emphasis on the toy manufacturing in India given we have a
lead we have done quite well up to now, but to reach to the next level, are we putting more
effort,are wetrying to talk to more customers, more orders from same customer if you can talk
about the steps that we are taking to ramp up toys business?
Sanjay shah
What we are doing is that we are in discussions with existing customers to add more products.
At the same time, we are in discussions with new customers also. Again, here what's happened
is because of the global slowdown and unwinding, which is happening, global demand for toys
has come down as compared to last year. So, while we are in discussions, we should be able to
give you some better clarity as we move forward.
Aman Vij:
Sure, sir. Final question on the employee addition which we are targeting for this year, if you
can talk about the same.
Sanjay Shah:
Sorry, I didn't understand your question.
Aman Vij:
We have 1800 to 2000 employees. Any number you have in mind for the addition for this year?
Amit Sanghvi:
We are not planning any additions; anything major this year for additions of employees at least.
Sanjay Shah:
We are adding people in key positions as required. Amit, do you want to talk about the CEO
which we are looking at, give some just some broad picture.
Amit Sanghvi:
We have said before, we will close the CEO mandate before the end of this calendar year and
we will have someone on board with us and that remains, we are on the right track in terms of
timing to achieve that.
Moderator:
Thank you. Next question is from the line of Nikhil Jain from Galaxy International. Please go
ahead.
Nikhil Jain:
Just a couple of questions. Looking at your commentary in the initial commentary, it seems at
least to my mind, it was that we are shifting towards more on the healthcare side as an
organization. So, three years down the line or three to five years down the line, where do you
see Shaily, let’s say the healthcare contribution right now is second largest, will it become the
largest contributor to the business in maybe three to five years?
Page 10 of 19
Amit Sanghvi:
No, it would remain second largest even in three to five years.
Shaily Engineering Plastics Limited August 08, 2022
Nikhil Jain:
Okay. The second question is related to the patents that you have acquired actually last quarter
and this quarter also I think there are some IP on the cards. So, what is that let's say, if you can
throw a little bit of light on what are the patents that you acquired and what's the kind of use that
you would see on that?
Amit Sanghvi:
Last quarter we talked about in auto injector or the quarter before that.
Sanjay Shah:
Yes, Amit.
Amit Sanghvi:
So, the difference between a pen injector and an auto injector is that typically an auto-injector is
a twostep device where the amount of medicine to be injected is already predetermined. So, the
user does not have to dial a dose like you do in a pen injector or decide the quantum of the dose.
Here the user simply has to take a cap off and inject. So, it's meant for different therapies. And
typically, in a pen injector you are delivering lower volumes whereas in an auto-injector you
would typically, I am not saying this is true all the time, but you typically deliver I think no less
than 0.25 ml to as high as maybe 2.25 ml in one shot.
Nikhil Jain:
So, we acquired some IP related to that device, right?
Amit Sanghvi:
We developed, yes, we acquired, and we developed further. So, we are looking at
commercializing that auto injector in the current financial year.
Nikhil Jain:
Okay. And one more question that I just wanted to ask was that on the pen on one of the peptide
devices that you have some customers on, so has any of our customers refused the tentative
approvals?
Amit Sanghvi:
We are anticipating our first part of the approval this year and we seem to be on track for it.
Nikhil Jain:
Right. And it would be a global MNC, right?
Amit Sanghvi:
It is, yes.
Nikhil Jain:
Okay. And just the last question. So, the CAPEX of Rs. 150 odd crores that we are spending
over the next 1.5-2 years so can you just give the breakup? I missed it actually in your initial
remarks. So, if you can just highlight it again, how much to healthcare and how much to other
businesses?
Amit Sanghvi:
It is going to be more than 50% to healthcare and I think about 50…we didn’t do the exact
number; sorry how much is it Sanjay bhai? 60% to healthcare and 40% of non-healthcare?
Page 11 of 19
Sanjay Shah:
No, it will probably be 70:30, Amit.
Amit Sanghvi:
70:30, fair enough.
Shaily Engineering Plastics Limited August 08, 2022
Nikhil Jain:
Right. Okay. And see, generally the terms on especially the healthcare CAPEX should be
reasonably high as compared to the other CAPEX that is more on contract manufacturing basis.
So, do you agree with that or is my understanding correct?
Amit Sanghvi:
No. You have to be patient with time.
Sanjay Shah:
Your sales turnover would probably be lower as compared to contract manufacturing, your
margins at an EBITDA and a ROCE level on a long-term basis would be much higher.
Moderator:
Thank you. Next question is from the line of Bhavin Rupani from Investec. Please go ahead.
Bhavin Rupani:
I have one question, sir. Can you give us some visibility and idea about your toys and home
furnishing segment, please?
Sanjay Shah:
So, home furnishings as compared to what we did last year, we will grow this year. We would
probably grow at a slower pace as compared to what we would have thought about growing six
months back, but we will still grow this year. On toys, as we had talked last time , whatever we
did last time, we would basically be looking at similar numbers in the current year and then
growing next year.
Moderator:
Thank you. Next question is from the line of Manish Gupta from Solidarity Advisors. Please go ahead.
Manish Gupta:
Wanted to check that how many years actually do we depreciate our equipment over and what
is the true useful life of the equipment?
Sanjay Shah:
So, Manish, typically for all machines we take useful life as 15 years for our equipment and
then we run three shifts, so equipment get depreciated between 7 to 10 years. Useful life is 15
years based on a single shift working so when you look at a three-shift working it basically
depreciates between 7 to 10 years depending on the usage. At the same time, if you look at
injection molding machines and everything, we have machines which are 15-year-old, 20-year-
old, or even higher which are in operation and which are running very well.
Manish Gupta:
So, would it be fair to say that the useful life is at least 2x the life over which a typical machine
is depreciated?
Sanjay Shah:
I think that would be a fair sense to assume that, yes.
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Manish Gupta:
Shaily Engineering Plastics Limited August 08, 2022 And Sanjay bhai, do we take maintenance CAPEX through the P&L account or through the
balance sheet?
Sanjay Shah:
Some of it goes through the P&L account, some of it goes through the balance sheet, depending
on, say if it's a major overhaul of an equipment where you are adding years to the equipment, it
could probably be through the balance sheet. If it's a normal routine wear and tear and
everything, it would basically be on the P&L.
Manish Gupta:
Okay. And you mentioned that you are undergoing a CAPEX program, a lot of that is for the
pen, and there will be a portion of the CAPEX that I guess is for toys and for furnishings. Now,
given that you I think either you or Amit made a comment that you are not seeing so much of
demand pick up for toys, how do you think about CAPEX in the context of businesses which
could face recessionary headwinds, given also that the steel furniture business is not picking up
so, how do you guys think about making CAPEX decisions when you see the rest of the world,
we are seeing the developed part of the world facing quite a lot of recessionary headwinds. Could
you just talk us through the thought process there?
Amit Sanghvi:
Manish, typically pharma is a business where we make CAPEX decisions based on our
judgment, calculations, discussions with customers and the pipeline that we have. And if you
look at this year's CAPEX, a very significant portion is going to the pharma business, not the
others. On the other businesses, we only take CAPEX decisions based on confirmed businesses.
We don't invest anything without confirmation. Now again, we are in unusual times right now
where confirmed businesses have seen drop-in volumes. We try to be as meticulous in taking
CAPEX decisions as possible on the non-pharma business and unless we have confirmation, we
will not invest in anything upfront.
Manish Gupta:
Okay. And when a particular customer will not meet say a confirmed or a high probability order
book, do you get compensated for that in some way, higher margins in future orders or perhaps
higher volumes, how does the customer compensate you?
Sanjay Shah:
So, Manish that probably takes time to happen. It does not happen immediate, but yes immediate
discussions and negotiations which you have with the customer, the customer would take that
into account and keep that in mind when new businesses get awarded or higher volumes get
pitched for. So, those are the things which the customer does take into consideration in terms of
commitments made by them.
Manish Gupta:
Okay. And my last question is what are some of the risks that you guys are seeing right now or
risks that you are conscious about?
Sanjay Shah:
So, Manish let probably Amit answer part of it, but a couple of things which we are seeing is
with what's happening on global headwinds, if actually a recession happens in the US or
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Shaily Engineering Plastics Limited August 08, 2022 something, you really do not know how the demand will pan out. So, that's one thing which we
see as a risk.
Amit Sanghvi:
So, Manish our goal is to create a business vertical which is also more domestic. We need to
increase our domestic supply and that's what we see as a risk right now. That's what I see as a
very significant risk. And we will continue to do whatever we are doing for exports, but we want
to increase our domestic business very significantly.
Manish Gupta:
Will you get the same margin on domestic orders vis-à-vis export orders?
Amit Sanghvi:
The immediate answer is no. If we do the same thing we do for exports in domestic market, we
will not likely get the same margins. We have to think of a different product portfolio. So, there's
something in the works, we can't comment on it right now, but we don't think it will pan out in
the current financial year, but in the upcoming financial year we would see some progress, good
progress there.
Moderator:
Thank you. Next question is from the line of Chirag Jain from Kamayakya Wealth Management
Pvt. Ltd. Please go ahead.
Chirag Jain:
I had a broad question. If we compare Shaily in 2018 versus Shaily in 2022, so we had Shaily in
2018 which had a long order book, but it couldn't be executed due to some labor issues or due
to operational issues. But now we are seeing to that, we have order book reducing and operational
capacity increasing. So, what would you like to say on that?
Amit Sanghvi:
The good thing is we have sorted out our operational issues which means we don't have labor
issues. Our efficiencies are also higher in the plants. Our processes have become more
streamlined, more robust, and fingers crossed, we will see demand pick up again which will
really benefit us.
Chirag Jain:
So, what's on the order side. What are we doing to grow the order book currently? Because I see
that capacity obviously because it has dipped due to some capacity additions, but it's low which
we used to have 70% in 2018-2019.
Amit Sanghvi:
Because we have added a lot of capacity in the last two years. If you think about sheet metal
capacity as well as the new plastic factory that we added last year. As of now, like I said, quarter
two is not going to be better than quarter one, but we anticipate quarter three and four to be better
than quarter one.
Chirag Jain:
So, do we hope to soon 70% utilization which we used to have historically?
Amit Sanghvi:
We hope to end the year with that number.
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Chirag Jain:
Shaily Engineering Plastics Limited August 08, 2022 Secondly, on the healthcare segment, so that's also a big drag on our segment because the
capacity utilization on the healthcare segment hasn't been as per you have set your targets. So,
what would you like to comment on that?
Amit Sanghvi:
No, I didn't say anything about capacity utilization on the healthcare segment than what we have
anticipated. We don't report individual segment capacities, but utilization on the healthcare
segment has been very good.
Chirag Jain:
I had joined the previous con calls also, so I had mentioned the same question regarding the
healthcare segment. You mentioned that it was below our target, so it was obviously one year
prior and that time I asked and that was your response. So that's why I'm asking.
Amit Sanghvi:
I think your question was probably to do with CR closures and bottles.
Chirag Jain:
Yes.
Amit Sanghvi:
This has been mentioned on several calls, we do not actively market those products anymore.
The same capacity is fully being utilized to manufacture the pen injectors and the other devices
that we have.
Chirag Jain:
Okay, got that. Also, lastly would you like to provide a color on the UK subsidiary which we
had incorporated, what's going on there?
Amit Sanghvi:
We have three active projects in the UK at the moment plus a fourth one that I spoke about
briefly on this call where we develop some new technology which we will be taking forward
now. Out of the three active projects currently ongoing in the UK, we plan to commercialize two
before the end of this financial year. Third one we are going to production only next year. And
the fourth one, the new technology is at least 24 months away from being a full product.
Moderator:
Thank you. Next question is from the line of Aman Vij from Astute Investments. Please go
ahead.
Aman Vij:
Sir, we had talked about plastics business on the furniture side, we are becoming third largest
this year in terms of supply to our key customers. So, are we on track on that. And if yes, is there
opportunity in the next three to five years we can even become second largest.
Amit Sanghvi:
I certainly think so. Whether we become third largest this year is a little unknown. We might
end up at position four, but in the next three years we certainly do see us Shaily moving up in
position.
Aman Vij:
Even second, if possible, you are saying that?
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Sanjay Shah:
Yes.
Shaily Engineering Plastics Limited August 08, 2022
Aman Vij:
On the field side, what we understand again the opportunity even bigger than the plastic, so we
had some teething issues initially. You have explained that 85% problem is solved, but the
remaining 15% odd, especially on the steel;. So, is that the reason we are ramping up slower
than the opportunity, because even if say there is some recession generally in field, but we are
so small a player, shouldn’t our ramp up be much faster? And any targets we have, like can we
reach the top five in the next three, five years in steel also? If you can talk about the same?
Amit Sanghvi:
No, top five in 3-5 years is probably not possible because in steel with the customer we are
talking about, their typical suppliers are all the way from €100 million to someone being as large
as €350 million. So, that's not going to be possible in three years or even five years. We are
looking at, steel as an opportunity is larger than plastics within the customer. Customer is ready
to give new business provided we are able to ramp up what we have currently taken on. So, I
think from an opportunity perspective, there is no lack of opportunity. We are working very
closely with the customer, and they are also helping us in this ramp up and solving the issues
that we have. So, it's a very active dialogue. It's a very active business where they are also
participating, providing us with all the expertise they have. We are very-very hopeful and
confident that this year we should be able to solve basically teething issues or learning curve.
Aman Vij:
Do you expect ramp up happening or new orders coming mostly next year in steel?
Amit Sanghvi:
Sanjay Shah:
Yes.
Yes.
Aman Vij:
Sure, sir. Final question, you have talked about four projects in the UK subsidiary. Two we are
maybe commercializing this year, one next year, and maybe the final one which we have recently
talked about in two years. The final one, the way you are hinting maybe our understanding what
we could guess is something related to the bag or the patches. But is the opportunity big enough
in these products, the question was that, maybe I am wrong, but that technology has been there
in the last 3-5 years, it hasn't scaled as much. So, if you can talk about that.
Amit Sanghvi:
You know wearables or patches as you call it, there is a slight on-body injectors and patch pumps
are different. What you are referring to are meant for diabetes treatment which have been on the
market for quite some time, they are mostly the pumps. What we are developing is a single use
on-body injector. So, there's a difference. And they are meant for different therapies. Yes, you're
right that the scale up hasn't happened because new molecules are going into such therapies or
existing molecules which are in IV form are going into such devices. We are also targeting a
different type of customer for this new device. We are not necessarily targeting the generic
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Shaily Engineering Plastics Limited August 08, 2022 pharma companies that we target with our pen injectors and auto injectors. With the wearable
we are also looking at different kinds of customers.
Moderator:
Thank you. Next question is from the line of Ritesh Shah from Investec. Please go ahead.
Ritesh Shah:
I have two questions. One is, given a significant percentage of our incremental CAPEX is going
towards healthcare, if I have to understand the payback for this, how should one look at the
numbers?
Sanjay Shah:
So, Ritesh, payback I would say we would still look at somewhere between four to five-year
period for incremental investments which we are making. And this is keeping in fact that we
have basically done, we are making investments for developments which have already been done
and we are now looking at ramping up on these products.
Ritesh Shah:
Sanjay bhai, would it be possible for you to give more color on the CAPEX if you would like to
split it between say R&D efforts and physical infrastructure just to better understand the payback
five years?
Sanjay Shah:
So, a large part of our CAPEX is going to be in physical infrastructure and expansion of facilities
and everything. R&D or the development would probably be little lower. I don't have the
numbers in front of me right now, but it'll probably be not more than about 10% to 15% of what
we are investing overall.
Ritesh Shah:
So, say 80%-85% is towards physical infra to my basic understanding, correct me if I am wrong,
I think we have significant spare capacity when it comes to insulin pens. So, is there anything
incremental that we are looking at, is it towards inhaler or is it towards the pen?
Amit Sanghvi:
Ritesh, we don't have capacity when it comes to pens. I mean, we don't have significant capacity
when it comes to pen. We are managing whatever we currently are manufacturing and the
demand we have in the current facility, but the ramp up for which we have, of course, secured
customers as well as the orders needs to come from the new facility, new expansions.
Ritesh Shah:
Okay. Do we have land and building already in place for this? And so, the incremental
investment will be only towards machinery? Would that understanding be right?
Sanjay shah
We have land available, but we are adding 125,000 square feet of building space to our existing
pharma facility. This is mainly being added for all the new projects which we have talked about.
We are looking at ramp up on these projects happening from this year onwards for the next three
years. So, it's essentially for that.
Ritesh Shah:
Sure, that's helpful. My other question is for Amit. I'm just taking a step back. I'm just trying to
connect the dots. Basically, for home furnishing what we indicated Rs. 2 crores on a year-on-
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Shaily Engineering Plastics Limited August 08, 2022 year basis but it was not as we expected. Secondly, toys, what we indicated will grow in next
year. So, if I have to read between the lines what we are saying is probably will be flattish on a
year-on-year basis which looks, put some color over here. And pharma you have indicated the
pipeline is actually back ended. And the last year you indicated the order book was lower than
expected. How should we read through these whole data points Are we facing headwinds across
business segments because of exposure to US? I think one of the participants earlier made a very
valid point where time is actually our advantage. So, do you think that the headwinds should
actually come to us and hit us when our revenue trajectory actually goes down? How do you
look at this?
Amit Sanghvi:
Pharma business does not have really any headwinds. It's just very simple process. From the
time our customers file to the time they can commercially launch it's a 24-month process. So,
when it comes to pharma, I don't think there's any global scenario which is playing out, economic
scenario which is playing out against us. It really depends, I mean, portion of that anytime we
do a new product in the pharma space, we have 50% of the responsibility and customer also has
50% of the responsibility. So basically, cycle starts from when they file. Some customers have
been very good at hitting their targets in terms of filing. Some have had setbacks, various
reasons, some could be attributed it to us sometimes or could be attributed to their own
formulation or final assembly processes, etc. So, there are various reasons for delays that
happened. But right now, what we are seeing and the numbers we have said for pharma remain
true because they are mostly for products which have been either filed or are on stability. On the
non-pharma side, again when we talk about a slowdown, we are not talking about a slowdown
using the last financial year as a yardstick. We are talking about a slowdown from the perspective
of the capacity that we have created based on the orders that was awarded to Shaily. So, we are
not seeing volume up to that level. We are certainly seeing growth from last week that you guys
can see in the quarter one results as well. We are not seeing the volume that we had anticipated
and built capacities for in quarter two. We are hoping that ramp up will happen in quarter three
and four.
Ritesh Shah:
Sure. If I have to just rephrase it, probably Sanjay bhai can chip in, if one has to look at the
volume growth versus the value growth, pharma and non-pharma, will it be a right way to look
as it, something like toys and home furnishing will be a volume growth, obviously value growth
is something which has moved up and probably it now inching down. What would be a right
way, a yardstick for us for guys externally to actually look at the company?
Sanjay Shah:
So, Ritesh, even on the non-pharma part of the business while there would have been very high
or we were looking at very high-volume growth, we were also looking at improvements at a
ROCE level. This was basically keeping in mind higher than normal asset turns which we would
have gone on that business. Unfortunately, because of what's happening globally, we have not
got to those volumes. I hope things get corrected. I do not know whether it's three months, six
months, nine months. That's what it is. While pharma, as you rightly said, yes, it's value growth
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Shaily Engineering Plastics Limited August 08, 2022 where you need to make investments upfront which we have done in the past and investments
which we are now making basically help us scale up that in the coming years.
Moderator:
Thank you very much. I now hand the conference over to the management for closing comments.
Amit Sanghvi:
Thank you very much. Thanks everyone for joining the call. We hope that we have been able to
answer your questions adequately. For any further information I request you to get in touch with
SGA, our investor relations advisors. Thanks again and have a great day.
Sanjay Shah:
Thank you. Thank you everyone.
Moderator:
Thank you very much. On behalf of Shaily Engineering Plastics Limited, that concludes this
conference. Thank you for joining us. You may now disconnect your lines. Thank you.
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