Shaily Engineering Plastics (Nano Nivesh) Research Report By ICICI-Direct

Shaily Engineering Plastics (SHAILY)

SEPL has expertise in manufacturing precision components with high performance engineering polymers and earns ~75% of revenue from exports. It is one of the largest suppliers of home furnishing products to Swedish Furniture Retailer (SFR), which contributes ~55% to topline. SFR’s robust expansion plan in India coupled with SEPL’s focus on increasing utilisation of healthcare, FMCG business may drive revenue, earning at CAGR of ~33%, ~59%, respectively, in FY17-20E.

Highlights

 Betting big on SFR’s India expansion: SEPL has been a preferred supplier to SFR’s global retail stores for over 14 years. We believe SFR’s robust expansion plan in India (~| 11,000 crore capex for ~25 stores by 2025) would strengthen ~55% (from SFR) of revenue visibility for SEPL. With 100% dedicated export oriented unit in Gujarat, SEPL has geared up to raise SKU numbers for SFR (almost doubled to 38 last year) for its upcoming stores globally.

Despite rising contribution of other strategic business units (SBUs) in SEPL topline, we believe SFR will stay top contributor with furnishing segment revenue CAGR of ~30% in FY17-20E

 Focus to increase utilisation of healthcare segment

SEPL was first to design and develop 100% plastic insulin pens in association with UK based IDC in 2006. The company serves ~16 customers in the healthcare segment, including top MNCs like
Sanofi, Sun Pharma, Lupin etc. During FY18, the company received confirmation to develop and supply six different types of pens for different therapies/customers that would benefit the
company in FY19E-20E. We believe low competitive intensity and higher compliance cost in the medical packaging, device space would benefit SEPL in terms of higher utilisation and better
EBITDA margin compared to other business segments

 Strong earnings visibility to drive valuation; recommend BUY!

With robust growth in healthcare and furnishing business (owing to expansion of SFR in India) we believe SEPL’s revenue, earnings will record CAGR of 33%, 59%, respectively, in FY17-20E. Further, limited exposure to debt (debt to equity ~0.6x), higher profitability (~180 bps increase in EBITDA margin in FY17-FY20E) coupled with higher asset turnover (launch of various new products) is expected to translate to better RoCE and RoE of ~25% and ~23%, respectively (FY18E-20E average). We ascribe P/E multiple of 25x FY20E EPS of Rs 74 to arrive a fair value of Rs 1850 with a BUY recommendation.