Since hitting its low of ₹191 in May 2023, the stock has witnessed an impressive appreciation, currently trading with a gain of 184%. During Tuesday’s trading session, the stock reached a new record high of ₹578 per share.
Looking back, the stock over the last decade delivered a whopping return of 4920%, spiking from ₹10.80 apiece to the current level.
In a recent note, domestic brokerage firm Systematix Institutional Equities has initiated coverage on the stock with a target price of ₹720 apiece. This target indicates a potential upside of 33% from the stock’s recent closing price.
Shaily Engineering Plastics is engaged in the manufacture and sale of customised components made up of plastic and other materials. Its wide customer base is spread across the healthcare, consumer, personal care, appliances, automotive, and lighting industries.
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The company operates in the niche segment of precision molding and caters to demand from global industry leaders in their respective segments.
Systematix Institutional Equities’ optimistic view on the company is driven by the following key factors:
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Decades of experience in manufacturing high-precision products in niche segments
Established in 1987, the company has diversified its business across various industries such as healthcare, consumer, personal care, appliances, automotive, and lighting sectors, catering to demand from global industry leaders (led by long-standing relationships with Swedish home furnishing majors Unilever, Gillette, P&G, Sanofi, GE, and Garrett).
The brokerage pointed out that the company’s foray into the steel furniture business helped it diversify its concentration beyond plastics and also cemented its relationship with its largest customer. Entry into IP-led insulin pens positions the company among the few global players specialising in such complex products.
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Consumer (largest) and healthcare (fastest) are the growing segments
The brokerage, citing estimates from CARE Ratings, highlighted that the company has generated 85% of its total revenue from the consumer segment, which includes home furnishing, personal care, steel furniture, and toys.
It projects that the healthcare industry will witness strong growth on the back of a robust order book of insulin pens.
The brokerage noted that Shaily Engineering has forged partnerships with major multinational companies in designing and manufacturing medical devices crucial for the launch of specific GLP-1 blockbuster drugs (the current market for Semaglutide’s pens, estimated at 200 million pens annually, is anticipated to reach 500 million pens by 2030).
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The company’s ability to develop IP and its own pen injector platforms is expected to enhance its brand as a research-led solutions provider. It currently has five pen injector platforms for various molecules and is working towards developing an auto-injector.
A ₹1.5 billion capex done in the healthcare division in the last 2 years provides 3x revenue potential in the next 3–5 years.
Strong margins ahead
The brokerage highlighted the company’s robust focus on capacity expansion in anticipation of market demands across various business cycles, which it says has bolstered customer confidence in consistent product supply.
Large capex ( ₹2 billion in the last 2 years) led to lower capacity utilisation and impacted the margins of the company, it added.
With no significant planned capital expenditures, the brokerage anticipates RoCE exceeding 20% by FY26, along with the generation of ₹1.8 billion in free cash flows over the period spanning FY25 to FY26.
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Overall, it expects the company to post a CAGR of 19% in revenue, 29% in EBITDA, and 46% in profit after tax (PAT) from FY23 to FY26 (compared to 14%, 12%, and 8%, respectively, from FY18 to FY23).
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 05 Apr 2024, 12:43 PM IST
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