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Systematix Research Report
We initiate coverage on Shaily Engineering Plastics Ltd. with a Buy rating and a target price of Rs 720 (42% upside potential), based on 30 times FY26E price/earning.
The company reported healthy uptick in margins despite flat revenue during 9M FY24 owing to superior revenue mix. Based on its strong order book and guidance received from key customers, we expect Shaily Engineering to report robust 19%/29%/46% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-26E (FY18-23: 14%/12%/8%), respectively.
A sharp recovery in the healthcare vertical, additional revenues from new verticals (steel furniture, drug discovery IP-led platform) and an uptick in Ebitda margin (19%+, arising from improving CU, value-added products and higher share of high-margin healthcare vertical in its revenue mix) support our argument.
With no major capex planned (~Rs 2 billion in last two years; till CU reaches 75% from ~40% in 9MFY24) and prudent working capital management (90-day cycle), we expect return on capital employed to double to 20% plus in FY26E from ~11% in FY23 to generate free cash flow of ~Rs 1.8 billion over FY25E-FY26E (to be used to pare debt by ~Rs 400 million annually).
We estimate healthy operating cash flow/Ebitda (~60%) and FCF/profit after tax (~100%) over the next two years.
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