Shaily Engineering Plastics Limited (501423) Earnings Call Transcript
February 9, 2023
Earnings Call Speaker Segments
Good morning, ladies and gentlemen. Welcome to Shaily Engineering Plastics Limited Q3 and 9M FY'23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sanghvi, Managing Director; Shaily Engineering Plastics Limited. Thank you, and over to you, sir.
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 advisers. I hope you've had a look at our investor presentation that is uploaded on our website as well as the stock exchange. Despite the challenging environment, we have registered sales of INR 446 crores in the 9 months of FY'23. As you're all aware, we are an export-oriented company with customer based primarily in Europe and North America. And given the current economic conditions, high inflation and the customer sentiments in these markets, we have seen substantial reduction in offtake over the last 2 quarters. We also expect the volatility to continue for the next 2 quarters. On the EBITDA front, margin was impacted due to slower offtake, which has impacted in lower utilization levels, leading to lower absorption of fixed costs. As utilization levels improve and raw material prices stabilized, we expect improvement in margins. We are working very closely with our customers to ensure optimal production, increase in offtake in and ensuring optimal inventory levels. We continue to watch the situation very closely. Our focus is purely on having consumers and markets and segments where we are present in order to increase our utilization levels and [ swept ] the asset base that we have invested and created over the last 3 to 4 years. Shaily is known for precision, quality, compliance and our engineering capabilities. We want to focus on business segments, both existing and new, where this is a must have. We see good opportunities in consumer electronics, telecom and other health care segments apart from [indiscernible]. We will use the existing infrastructure to a large extent, and only invest in critical capabilities that these segment needs and work towards building a business model where we are bearing to the customer. I will certainly provide more updates as [indiscernible] evolve and we see traction. At the last note, I would again like to emphasize that we will be very careful and prudent with any future investments and only do so when there is an absolutely. That is all from my side. I shall now hand over the call to Sanjay Shah, Chief Strategy Officer, to give you the operating and financial highlights. Thank you very much.
Thank you, Amit. Good morning, everyone. I shall share with you the height of our operation and financial performance of Q3 and 9-months FY'23, following which we will be happy [indiscernible] During the quarter, we processed 4,131 tonnes of polymer as against 5,321 tonnes in Q3 FY'22. For 9 months, we processed 16,026 tonnes of polymers as against 14,912 tonnes in 9-months FY'22, an increase of 15% year-on-year. Capacity utilization rate was 13% in Q3 FY'23 and 45% for 9-months FY'23. Export during 9-months FY'23 stood at 77% of total revenue compared to 17.7% in 9-months FY'22. Export during Q3 FY'23 stood at 79% of total revenue as compared to 78.7% in Q3 FY'22. I shall now brief you on the stand-alone [indiscernible]. Revenue stood at INR 134.2 crores during Q3 FY'23 as compared to INR 148.3 crores during Q3 FY'22. EBITDA stood at INR 18.2 crores during Q3 FY'23 as compared to 24.34 during Q3 FY'22. EBITDA margin stood at 13.6% for Q3 FY'23. PAT stood at INR 4.5 crores during Q3 FY'23 as compared to INR 9.3 crores during Q3 FY'22. That part stood at 3.3%. PAT [indiscernible] Q3 FY'23 was reported at INR 12.4 crores as compared to INR 16.5 crores during Q3 FY'22. Now coming to 9-month FY'23 highlights. Revenue stood at INR 466.2 crores in 9-months FY'23 as compared to INR 413.2 crores during 9-months FY'22, growth of 13%. EBITDA stood at INR 65 crores in 9-months FY'23 as compared to INR 68.3 crores during 9-months FY'22. EBITDA margin stood at 14%. PAT stood at INR 21.3 crores in 9-months FY'23 as compared to INR 27.8 crores during 9-months FY'22, that part stood at 4.6%. Gross PAT for 9-month FY'23 was reported at INR 44.6 crores as compared to INR 47.4 crores during 9-months FY'22. Our ROC and ROE stood at 12.1% and 7.7%, respectively, as of 31st December 2022. The global business companies achieved the disciplined use of capital. Our debt to equity stands at [indiscernible] permit and our long-term basis. On a consolidated basis, revenue stood at INR 472.6 crores with INR 16.9 crores and PAT at INR 25.2 crores for 9-month FY'23. This is all from our side. And now we can open the floor for Q&A.
[Operator Instructions] The first question is from the line of Mirali from [indiscernible].
As [indiscernible] very clearly mentioned in the last call that we are taking demand issues in Europe and North America. But if you can qualitatively help us understand like how are the three growth segments individually looking at? So Home Furnishings, Pharma and Toys. So is it [indiscernible] we had expected it to or we are facing issues there, too?
Mirali, when you look at Home Furnishings or you look at Toys, both of these are basically certainly focused on North Africa and the European markets, where we have seen demand slow down with our customers, and it is impacting our volumes that we've seen. We see -- based on whatever discussions we have been having with customers, we have seen this continuing for the next 2 quarters and some improvement happening [indiscernible]. If we move forward, we will keep you posted on what's happening. At the same time, what we are doing is we are talking to multiple customers across these segments to see how we can add new customers and new geographies to it. We should have some feedback on that also over the next 2 quarters in terms of the discussions which we have been having for. On the Healthcare, [indiscernible]
On the Healthcare front, we have not seen a slowdown to be honest. We have been more or less in line with new projects. Obviously, there is always a plus or minus 3, 4 months of time period where projects can sometimes get delayed on account of [indiscernible] or the customer, again, to do with development. But otherwise, in terms of supplies, we have not seen any drop in demand for our existing Healthcare portfolio.
Okay, sir. So in FY'22 on the [indiscernible] side, we have [indiscernible] end up about $7 million, $8 million. So what will be that number for FY'23?
So it will probably be around 50% of the number, which you talked about.
Okay, sir. On the pen side, you are guiding that in our own IP thing, we'll be doing a volume of about $3 million in FY'23 and that [indiscernible] to $20 million over the next 3, 4 years. So any update on that? Are you confident of doing $3 million in this year?
Yes, we've done -- we have already, I'd say, done 65% of that, and solid will get -- we'll move on to the next year. But because there is like an alternate sort of this order doesn't change from Shaily.
Okay. That's great to know. We were also hoping to get some plans in this band you had mentioned in the last call about the overall demand or any increase that our customer wants. So did you make any clarity that we are able to see further clarity on that?
So the clarity is that we don't see improvement for the next 2 quarters, unfortunately.
Okay. So we will wait for 2 quarters to give further clarity on the other new segments also that you mentioned?
That's right. [indiscernible] update, I think, on a quarterly basis and in terms of what's happening on the business front, while we are actively pursuing multiple [indiscernible] should have a much better update to you in the quarter 4 and quarter 1.
The next question is from the line of Manish Gupta from Solidarity.
Are you able to share 9-month numbers for Healthcare for FY'22 vis-a-vis FY'23, so one can understand what's the expected impact in the other business then?
Manish, we typically don't share individual numbers, but what we can say is when you look at 9-months FY'22 or 9-months FY'23, Healthcare, you would see a growth on the overall numbers.
Sanjay, I'm just a little bit curious that why do you not share the segmental breakup? Because I just want to understand what the concerns because clearly, the Healthcare part of the business is a far more attractive part of the franchise, right? So even if you just split the numbers of Healthcare and others. From our perspective, it gives a better sense of how the more attractive kind of the franchise is evolving. So I'm just curious to understand why you would not pick that number every quarter or in the half year. Surely, there's no competitive concern, right, because you're not disclosing means of customer or molecules or all that.
So Manish, I think points noted. Let us -- what we will do is we will have to think about this and certainly try to see if we can share this in the public domain from the next quarter. Next 2 quarter or next 3 quarter...
[indiscernible]
Yes.
Okay. Great. Next question is this entire macro theme that everyone is talking about China plus one thing. Amit, can you talk a little bit qualitatively about now that there's been some time evolved and you would have had daily discussions with customers, what part of this theme do you think actively would interest Shaily? My sense is, I could be totally wrong here, but my sense is the Toys part of the business might actually be a lower margin, and I see you guys as a very margin-focused company. So for example, do you really think the Toys opportunity, which is a big opportunity in numbers is something that would interest Shaily strategically?
It's a bit of a tough question. I'm going to try to answer it as it has evolved with Shaily and in terms of my costs. When we got into Toys, we certainly evaluated the margin profile. We certainly looked at how it's fitting with our existing capabilities and there is a good fit. Existing capabilities, compliance in terms of safety, chemical compliance, sustainability, engineering and then the sheer size of the opportunity and how quickly you can scale up the Toys business. But you're absolutely right. I think the Toys business is one where there is a lot of pressure on margin. So the first 3 products that we took on, we took on the higher end of the spectrum of Toys. We do not do very simple products, but we are seeing increasing pressure on cost. And even though China is supposed to be technically more expensive on manufacturing costs. They have a lot of support when it comes to capping raw material prices. They've also set up alternative infrastructure in countries like Vietnam or even in India for that matter. So we are seeing increasing pricing pressure on Toys. We will not be -- we're not -- we will not be making any further investments in Toys until we see a portfolio of products that customer consistently buys from Shaily.
Okay. One is just to add to what Amit said, when you look at the current situation. In a lot of cases, what we are seeing is the raw material prices or the input prices, which China vendors have, is controlled by the government there. It will be an advantage to Chinese suppliers as compared to suppliers in India.
An example, polypropylene is controlled at I think $970 a tonne in China, whereas what we would source it at somewhere between $1,100 and $1,200 a tonne. So there is a significant disadvantage in the input costs.
Right. So now that we've had a chance to study this a little bit more, which aspects of China plus one do you really think are an opportunity for Shaily? And what is just big picture stuff that won't really translate into an opportunity for you?
Broadly speaking, Manish, we see very good opportunity in consumer electronics, telecom, in industrial applications, potentially appliances as well. Again, too soon to talk about anything concrete right now, and we are under confidentiality with any one of these [indiscernible] we'll be having discussions with. But we see very good opportunity and have kind of probably a much better fit in terms of our engineering capabilities.
Okay. Next question is, Amit, there's been a lot of CapEx done in the last 15 to 18 months. And how much of -- how do you think about that CapEx that you've done vis-a-vis the macro environment that we are seeing? And how do you think about CapEx going forward? Are you going to link it to a specific opportunity? Or is this that we've got to build it first and then go and get the business. So -- and the related question is, can you talk a little bit about new logos that you have added in the last few quarters? And what exactly are we doing on business development in some of these areas that you just talked about, consumer electronics, telecom, are we adding to our team to pursue these opportunities? Or is this a business where really our technical competency sales we don't need [indiscernible] we just need these customers to visit our plants. Sorry, 2 or 3 questions rolled into one big question.
Okay. So on investments, I'm very, very clear, going forward, CapEx spent on -- the objective is that we're going to utilize our existing infrastructure. We have very, very good infrastructure to service even the new segment that we're getting into. We might have to do some specific CapEx in terms of very, very specific equipment, but I'm not -- we're not talking about any substantial CapEx in molding -- in injection molding, where for either servicing the existing segments, all the new customers that we are targeting. On business development, we have not added any new logos in the last quarter, to be honest. We are in discussions with several large multinational companies including big box retailers, electronic companies, we are confident that we will be adding new logos in the -- over the next 2 to 3 quarters. very, very confident. And from a -- what was the last question, Manish, again?
What are you -- the last question was that in order to add logos, do you need to add more BD people? Or is it that we have enough credibility in the marketplace. I mean there's no point adding BD people, we just need to show customers our technical competency in the factory. Because I don't see any -- I don't know if you have BD people to go and knock on doors and showcase Shaily. Other than the Swedish labor, I don't know whether you added any big box retailer over the last couple of years. So the question is we put this capacity out. We have technical competency but are we investing enough in a sales team to go and take our message to the world.
We have added to our BD team with a specific focus on also increasing in addition to the big -- other big-box retailers, also increasing business in the domestic market. So there are certain segments in which Shaily can play even in the domestic market, we see a lot of emphasis and investments happening in power infrastructure, especially. So we are -- we have added specific business development folks with a focus on these segments. One of -- no, you're right. A lot of our business development really happens if we can get a customer to [indiscernible] us. 60% to 70% of our BD is done daily basis. So the -- whether they should move forward with the Shaily or -- that is really comes down to whether you can come through a commercial agreement or not. But most of our job is done when there is in us, and that we are actively pursuing.
Okay. Next question from my side is that basis, you are coming [indiscernible] and whatever capital work in process you have and whatever little investments you have to make. What do you think is the peak revenue capacity of the company, this is current investments?
So Manish, if you were to look at March '23 CapEx including the CWIP, the revenue which the company's capital goal will be somewhere between 2.25 to 2.5x of the total growth.
2 to 2.6 -- 2 to 2.5x, March '23 [indiscernible]
Right, Manish. And Manish, just to go back to a few questions. I think we had a -- on the investments. So while I said that we will not -- we will be very careful about where we invest and use the existing infrastructure. The only area where we make investments and look for business in the future is Healthcare respond. That is one area where we will need to gear up in advance. So that's a scale that happens in the future.
Yes. So this is a related question on this, Amit. You see furniture investment. What percentage of the utilization are you on that right now?
[indiscernible] utilizations, but what we're doing is we are in discussions with the Home Furnishings customer and also to...
I think question was specific to pharma.
My apology. [indiscernible] and looking at -- we had the active discussions with the other guys. And [indiscernible] we hope to add 1 or 2 of these names in the next 2 or 3 quarters going forward.
[Operator Instructions] The next question is from the line Pritesh Chheda from Lucky Investment Managers.
So my first question is if Healthcare has grown and we were not supposed to let pricing adjustment if you recall your quarter 3 call. I'm surprised why has the gross margin continues to remain under pressure because Healthcare is supposed to be a fairly high gross margin business, right? And where are we on the pricing increases than with the other portfolio business.
Pritesh, most of our pricing adjustments have happened during middle of the current quarter, the last quarter. So they have been captured in Europe. What we are seeing is basically a higher fixed cost because of the lower utilization level, but price adjustments when we don't have anything. We sell less is what's causing this.
No, I don't see any gross margin expansion, right? So Q-on-Q, it is flat. Y-o-Y, it is down 300 basis points. So I don't understand what [indiscernible] and [indiscernible]. So keep the utilization part aside, so I can understand that...
Pritesh one difference, which you need to look at, when you look at gross margin, we look at the consolidated gross margin because in last year, we were doing development in India on the Healthcare front, we're now doing development in the U.K. So that revenue comes directly to U.K. So when you look at this, you basically need to look at it on a consolidated basis.
So even if I look at consolidated, your R&D sales is 62% in quarter 3 FY'22, R&D sales is 64% in quarter 3 FY'23 and your R&D sales is 64% in quarter 2, '23. So there is no expansion between the 2 quarters. And Y-o-Y, there is a decline despite the time that there is a growth in Healthcare. And you say that you have taken price increases between quarter 2 and quarter 3. So ideally between quarter 2 and quarter 3, there has to be a margin expansion, right, the gross margin?
[indiscernible]
When you look at -- what you need to -- if you were to compare Q1 to Q3, you'd have seen improvements happening on.
[indiscernible] So you say the price increases between Q2 to Q3 that I will see from Q1 to Q2 and then from Q2 to Q3. I cannot see from Q1 to Q3, no, sir?
I see. So there is a business mix exchange also which is happening around.
But sir, Healthcare has grown and everything else is not grown. So [indiscernible]
One thing that I know, Healthcare has grown, it's not that Healthcare has not grown.
So then gross margin should improve.
The gross margin is more or less at the same level in what I see in Q, and that's basically because of a lower utilization level. Because when we are at lower utilization level, you basically just having a little higher prediction or startup [indiscernible].
Okay. I'll see you separately, it's still not comprehend. So now where we see a lot of our traction depends on the progress in pharma. A lot of our traction then also depends on the progress in pharma, right? Where are we now? And is there any changes for our outlook for FY'24 in pharma by any chance?
Can you repeat the question, please?
Is there any changes in outlook for FY'23 -- 24 in pharma?
No, no.
So will we see the margin expansion for sure happening next year? Because this year we had first 3 quarters of higher R&D, which is not specific to you specifically a lot of companies, and you should be getting your price increases to flow into your P&L. There is a straight, I can see about 200 to 300 basis points at least because you were at 60% R&D sale. You were at about 63%, 64%. So there is a 3%, 4% there. It's not there is a pharma movement to happen. Will we see gross margin expansion? Or there will be something else to play in as we need to understand that?
You will see gross margin expansion as we go forward. And revenue increase, you'll also see.
Sir, that I understand. I see -- I understand operating leverage part. Even if you are operating at 50% capacity utilization, I understand the operating leverage part. Where I am unable to still comprehend is the GM part.
So GM part has also needs to be factored in when volumes are down, my logistic cost on my raw materials and everything go up, which is a factor on to my overall raw material cost.
Okay. Okay. We started the year with INR 700 crores revenue. What we think we will end the year now at? And where are the slippages? So quarter 1 was INR 175 crores. I think when we were at quarter 1 we [indiscernible] INR 175 crores [indiscernible] so we were quarter to be on [indiscernible]. So if you could build a bridge between quarter 1 and quarter 3 INR 30 crores, INR 40 crores reduction in business, where are the slippages? And how do we see it ending this year?
So, Pritesh, basically on Home Furnishings, export, Toys, mainly on that account and [indiscernible]. So if you were to look at these are four major [indiscernible], where there have been drops. I would say quarter 4 will be similar to quarter 3. Somewhere in...
But sir, your quarter 2 call also did not tend to say that. Suddenly in quarter 3, you are saying [indiscernible].
I believe I did say on the quarter 2 call that we will come back with an update, but we're not seeing a very good picture on demand. We did not expect a very large drop, but that is what's happened.
Okay. So now -- and how do we see now the FY'24 especially on the pharma side of the business, what kind of growth do you see?
On the pharma side?
Yes.
On the pharma side, we are looking at somewhere between 25% and 35% growth. And with that growth, you will, obviously, see margin expansion.
And where are we on the CapEx now? So the last CapEx that we announced was for pharma. And I'm hoping -- yes, that was for Pharma. So I think about INR 100 crores, right?
Yes.
That's the only CapEx which is ongoing, right?
Yes.
Where are we? How much have we spent? And what is -- when do -- when it commercializes?
So the pharma CapEx would be completed by quarter 1 FY'24.
But how much have you spent so far?
You'll put about INR 60 crores till date.
And because we had enough capacity elsewhere because we are running at 50%, 60% capacity utilization. You won't get into a CapEx unless you add a logo, which means some strategic CapEx.
Yes, Pritesh. We will be looking at setting over -- the pharma CapEx, the specific CapEx, which was regard to be done, because that's a [indiscernible] room and you need that CapEx...
Yes, I understand that.
Pritesh, just to add to what Sanjay said, when we're talking to the other big box retailers, their business models are different than the Home Furnishing major that we work with. A lot of these will buy off-the-shelf kind of product or something that we specifically do. So there will be some investment required, but we were investment in infrastructure.
It will be [indiscernible], which would be done.
Not in machines. Not in physical inflow?
No, right. That's correct.
Okay. So basically for the next 4 quarters -- 4 to 6 quarters because we're at 50% capacity utilization, we might not hear any CapEx announcement from your side?
That is what we foresee right now. The only way we can see if we would even think about it would be there's a substantial sizable opportunity which requires a [indiscernible]. But otherwise, for the next 4 to 6 quarters, we're not looking at any investments.
And what will be your maintenance CapEx?
Pritesh, that will be nominal. I would say around INR 2 crores to INR 3 crores. [indiscernible] so we do not gain maintenance CapEx there. Some of the old CapEx, which we have will not be substantially [indiscernible]
Okay. And lastly, sir, when you said 30% utilization in metal furniture. So has the utilization come down by any chance?
Yes.
And can you highlight the reason?
Demand growth. There's steel furniture with the customer has seen a much higher demand drop at the plastic [indiscernible].
Okay. And has the asset stabilized with respect to the [indiscernible] all where you had some challenges?
Yes. That has stabilized. And post that, we have -- as I mentioned earlier, we have started discussions with 3 pool other big box retailers to see how we can expand the automobile.
So the production line is moved from the auto industry to your company, he is able to manage the asset well for you now at least from the operation part?
Pritesh, the production is actually ex-COVID. And it's -- yes, it's doing very good job.
The next question is from the line of Aman Vij from Astute Investment Management.
Yes. My first question is on the pen side. We had talked about there was a launch plan in January. So is that launch happen? Or is it delayed? And when is it expected now?
We have -- because it's a commercial order, we have progressed with the production and our dispatching it to our customers. The customer is awaiting approval, any data, don't have a further update.
Sure, sir. And on the pen side, do you have a target of INR 3 million and [indiscernible] something we achieved that for this year? And what is our target for FY'24, sir?
Can you repeat that question, please? Maybe a little louder, I'm finding it difficult to hear you.
Yes. Yes. On the pen side, we had a target of $3 million for this year. And we achieved flow through that. What is our target for FY'24?
It's going to be roughly 35 -- 30%, 35% higher.
Sure. So you are talking about most of the growth that you also see pharma you've target, and the growth will come from this pens only.
Yes. See, there are pens and in addition to pen, there's also auto injectors that we have developed, and we are making the first supplies in June of '23. So we will see some additional orders for both products in FY'24.
Sure, sir. Then coming on to the Home Furnishings side. So we were expecting to reach and become the third largest supplier who are another the main customers. So given the slowdown in all those things, when do we expect to [indiscernible] becoming the third largest supplier to them?
The slowdown has happened for the entire supply base. I actually don't know where our ranking stands today. It could be probably be third or fourth anywhere. But if it's not being certainly -- I'm not as -- in terms of our own business, whether we become 3 or 4 is not so important is how much growth we see in the upcoming year. So we already said that the first 2 quarters were not -- we respect the current scenario to continue and hopefully, we see improvement post that. We track this. We have this discussion with the customer on almost a daily or every other day kind of basis. So it's something that we're tracking very closely.
So in terms of utilization, where are we curently in this Home Furnishings? And for next year, do you see a gradual improvement? Or...
Aman, we do not report individual utilization level. So I would not be able to talk about it. We have talked about overall utilization a little bit above 40%. If we speak, we would basically update you guys on how the utilization levels will improve over the next 2 quarters whenever we have these quarterly calls.
Sanjay sir, I just wanted to understand the impact on the slowdown. So is it like 10%, 20%? Is it much more? I'm not interested in exact number of utilization, but let's see, was the impact of slowdown in the Home Furnishings side?
So Home Furnishings [indiscernible] markets have been North America and Europe is there has been very equal contraction of demand, which has come in, which is why the slowdown which we are talking about is happening. As we speak, I think whatever stocks are there with, should get liquidated over some point of time. And over the next 2 quarters, we should basically get back to normal demand. But I think a lot of it will depend on how things pan out in these two geographies.
So sir, Russia had a lot of issues, the sale there in Russia. So we didn't get any benefit of that? Did we lose any business because of that issue?
Yes. We were making some shipments to Russia so those shipments that came down. But for the customer, Russia was a pretty large market and a very fast-growing market. So it may impact on operations.
Sure, sir. Sir, in the initial part of the commentary, sir talk about -- Amit talked about that we might enter into newer areas like consumer electronics and telecom. So if you can talk little bit more about it, will it be plastics only? Do you try to launch our capabilities in plastics and any other new material? If you can talk briefly about which we might slide.
Basically -- so we will not be able to talk a lot about it in terms of names, logo, things like that. But yes, it'll definitely to do something around plastics because, as Amit mentioned earlier, we will be looking at utilizing about the capacity which we have created and the capacity which we have created are in plastics.
Okay. But these will be totally new customers? A new segment? These will be new customers and new segments or the current one generally in these two sectors.
New customers and new segments, both and new geographies also.
Sure, sir. On the price side, you have talked about start slowdown almost I think, 30% to 50% fall in our sales. So has this been all across, we have [indiscernible] clients? Or is this success to [indiscernible]? Are we doing -- are you taking any [indiscernible]? Because we have very good FDs, and we were trying to increase our business over a [indiscernible]. But I understand slowdown is happening, but what are the facts as a company we are taking? And if you can also talk about, is it all customer or is it buying particular customer that we are seeing this big drop?
Aman, we have two customers on board. We are in discussions with both these customers to see how we can scale up and add more products and everything. Currently, the way the business is and with overall drop in volume. Technically, the customers would be looking at utilizing existing infrastructure with suppliers in China and anything, which is where we are seeing the market because of the drop, but some of the Chinese vendors have been very, very large. But at the same time, we continue to engage with them to see how we can add newer products and newer ranges, which we can supply to that. We would have -- I think we should be able to see some movement on that as we speak over the next 2 quarters and...
Sure. Final question is on the utilization side. So what kind of utilization are you targeting for next year? And when do we expect the full utilization of specifically CapEx we are doing in March 2023?
Aman, we would probably refrain from answering that question right now until we get further clarity. So let's pay over the next 2 quarters, and we will be able to give that number up.
We will give you an update every quarter on what we see in that.
Sure, sir. And final thing, sir, have we lost any kind of market share in any of our previous businesses like information.
No.
The next question is from the line of Ritesh Shah from Investec India.
Sir, first, very brief question, you did indicate that [indiscernible] $900 to $1200. For us, we are 60% of sales, it's a drawback. Just wanted to understand sir, any other fundament commodities where you enter [indiscernible] was there in China?
Ritesh, this is one that where we are aware of. But I think there have been multiple where the sort of input price per to has been there good suppliers in China. So that's where we have been seeing this across portable categories. Now we do not know what the extent of the difference would mean a lot of these, but in some cases, we know that some [indiscernible].
Right. I'm just trying to understand from the management process standpoint, FX, which we have just spent up, what is the risk mitigation strategy for the company going forward. So on the overall basket that we are looking at 3% is a sizable number. So just trying to get a sense at risk mitigation strategy in place or some commodity sources and there will be input [indiscernible] business in India, also it's Chinese company.
So this is -- I don't think this is going to be long-term sustainable pricing strategy, which will be clear. So probably there just for a short-term purpose. And we expect that this will get corrected over the next 2 or -- 1 or 2 quarters or something. You want to add on anything?
Yes. See, Ritesh, just add to that is, we need to -- there are obviously certain advantages that India has, whether it is logistics cost or our manufacturing costs. So we need to take advantage of that on an overall landed cost to any country, typically North America, weaker better. In Europe, with the additional advantage that we currently have on raw materials, it's very, very close. We're higher in some cases and lower in a few. We need to see how we can optimize this and still move forward. One of the key things here is that where there is a true partnership with the customer, there is an impact, but a less of an impact because you work on a sustainable long-term pricing business model where relationships are new, or the product is very, very price sensitive and the customer is under tremendous margin pressure themselves. It becomes difficult to sustain. So if there is a short-term advantage when they take it, certainly, they certainly will.
Al right. Sure. Second was on we were looking to advantages. Has there been any focus on that bit?
No, I think given where the margin stands right now and the utilization, we were actively pursuing it until the end of Q3, but we put a hold on it for now. So we will reevaluate this at the end of quarter 1 FY'24.
Sure. Sir, last question is relatively, I think what we have seen is both revenue from EBITDA margins [indiscernible] the call. What is it that you're doing about it? I understand and appreciate the amount because of expense went really well. Do you think new segment, is that right thing to do? How are we revisiting the [indiscernible] confident? But when it comes to certain Home Furnishings...
Ritesh, your voice was breaking in between. I think if you're on [indiscernible]
Am I audible, Sanjay?
Just a little bit better, Ritesh.
So my question was basically, if you look at the last 3 quarters, the slippage on both revenue growth and both EBITDA level margins.
Mr. Ritesh, sir, there's a lot of background disturbance on your line. The next question is from the line of [indiscernible] from Americas Capital Partners.
Am I audible?
Yes.
I just wanted to check what's the outlook for the Toys business in FY'24 that we have?
We're approaching opportunities there. And we will [indiscernible] in -- by end of quarter 4 -- early quarter 1 in terms of how we are going ahead.
Okay. So I think right now, we have two clients and it's largely the exposure. So are you even looking at domestic clients for, sir?
Yes. We will be looking at domestic clients also.
Okay. And just last one thing. How much CapEx has been done in the Toys business? And how much asset turnover do we expect there?
So the total CapEx, which we have done is about somewhere between INR 20 crores to INR 25 crores in terms of specific CapEx, which has been done. But that CapEx is something we'll across our business, so...
Okay. And roughly, what asset turnover do you look at? [indiscernible]
We typically don't, again, give out individual asset return, but probably higher than [indiscernible].
The next question is from the line of Manjeet Buaria from Solidarity Investment Managers.
Am I audible?
Yes, Manjeet. Go ahead.
Okay. I have three questions for Amit. Amit, the first question was, few years that we have discussed that our largest customer is looking to consolidate their supplier base globally. The supply chain, we'll be gaining market share for wallets share within their ecosystem. So has the hypothesis played out over the last 2, 5 years? Or that's not really played out as expected?
We saw good growth last year from that customer. We put up a new facility for them. We have talked about this in the past. So from a -- whether the hypothesis have played out, they have consolidated hypothesis has played out, but there is no dividend demand right now. So overall, have we seen the growth that we were anticipating? Absolutely not.
Got it. Amit, the second question is in the products which you're supplying to a larger customer today, there's the products you are already supplying. What would our share be in your global share with the work?
It would vary from product category to product category, but I can give you a broad range. It would be everything from 30% to as high as 90%, 100%.
Got it. And for categories where let's say, we're below 50% share. If you want to increase our share, is this business build out and do we get to book for all the opportunities? Or it's more of a one-on-one negotiation when we need to go in tenement business? So it's a tender or a build [indiscernible]?
See, I think -- two things happen, Manjeet. One is that when the customer makes a decision to have more than 2 or 3 sources for a particular product category; a, that product category has a very high service level requirement. We probably -- when we create 4 of our capacities globally, they want to ensure that they never run plant. Then allocation of regions or percentage of volume depends on how competitive one is on landed price. So it's not just certified, but our competitor one is landed in any of the markets that they supply. Once the market has been allocated, it doesn't really go away unless you fail to supply unless you're seeking an enormous price increase, which is outside of what the raw material market and the movement is. So markets don't typically go away. The problem right now is that each of the suppliers, each of their suppliers would be suffering like us. So it's not that they've taken business away from us and giving it to someone else. It's that they trying to balance out as much as possible, but there is just a significant drop in demand overall.
This is very helpful. One last question, Amit. In terms of adding more logos on set of our largest customer, right? I'm sure you would have tried some of that, but we're not really seeing market scale up anywhere over there. Given our relationship with this largest customer, or second type utility, is the surprising wise, we have not been being able to scale up more aggressively with some other peers. So some costs over that would be very helpful.
Maybe I'll give you a few examples. In the past, if you -- I don't remember the exact year now, but I think maybe 8 quarters ago or 9 -- or 12 quarters ago, we talked -- we did add a customer. It was a large driven supermarket. We've given the name, right? Yes. We have added legal and we had certainly made some supply. But the biggest model is very different from that of our current Home Furnishing major. You see, they have bicycles. So you make the investment in capacity or in tooling; a, you've not given any guarantees on whether they will buy or not; b, they have cycles, so they will buy twice or thrice a year. You will need to produce in advance and stock it and then ship everything in a matter of two weeks. So as a business, it becomes very difficult to manage the supply chain, manage the manufacturing. Unless you get into a constant cycle of doing this over and over again. We've not been able to track that cycle because we also don't have off-the-shelf products to offer. We are an OE. So we do contract manufacturing for our customers. Having that said, given the pressure we're under, we did decide to -- let's look at a sizable opportunity. And if we need to then make -- then have that offering offer share, we will develop it. So that's what we're trying to do right now. But we need business or a model where there is some consistency in ordering and supply. If you give us two large orders a year, it becomes very difficult to manage. And then these -- they give you a production schedule, not so much in order. So that production schedule changes, drops and you already made the -- you've already reduced the part, then you're kind of -- you're stuck with inventory.
Amit [indiscernible] So Amit, you're also trying to say is you're the largest customer and is more of a partnership business. Here is more opportunistic of from these customers. So that understanding is correct, is it fair to assume that a lot of our growth because of China plus one or [indiscernible] shiftimf to other countries. It is not actually a target addressable market for us because we don't really want to work with low-quality business partnerships, and which means we look to start finding something more like a Healthcare product. Is that a fair assumption? But the type of competency we have in our labor sector is not so fungible approach many of these large other customers probably. That's the quality of business perspective.
I think that's going to one end of the spectrum. Not -- there are many big box retailers. Everybody has work on a slightly different model. I give you an example of one of the largest in the world. But having said that, there are many out there who have white label products where you can have consistency in supply. And we are talking to most of them today and trying to explore a business model that suits us. So it's very close to what we're already doing.
The next question is from the line of Ritesh Shah from Investec India.
Sanjay, am I audible?
Yes, Ritesh.
Yes. I had one basic question. The sort of commercial contracts that we get in, when we have in past incurred pulling CapEx. So my understanding, it did have certain volume commitments. Given the scenario we are in, because of external factors, volumes are actually slow. So are we getting -- basically, do we do something up to us on back of the commercial contract that we had in place?
Yes. So It took -- volumes don't happen in that time frame, the time frame does that extended.
Okay. But sir, then the NPV will change, right? If it's the same quantum over a longer duration that it doesn't make economic sense from the company's standpoint. So how that [indiscernible]?
That also gets adjusted. In most of these cases, the investment is made by getting an advance from the customer. So typically, the premium will not change.
Okay. So sir, can you highlight given the volume slippages which are there because of the external variables. When do we see this impact could come in for any large contracts that you have? Obviously expected in first half of next year, but on the duration of contracts that you have.
Sorry, I did not [indiscernible]
Sanjay, you indicated like this a fixed duration contracts, right? So the volume uptake should have happened over 3 years or say, 18 months. So I don't know the start date and the end date for this particular contracts. Given the reporting that we have, a lot is attributable to the external slowdown. But I think the company has this volume of the arrangement in place. So I just wanted to understand when do you see this benefit on the margins given you might have different contracts or different SKUs. But is there a number that we have, I mean we can actually expect a benefit to put a lag even if the volumes do not come through, so in a bad case scenario, say, 2 quarters out or 3 quarters out?
So Ritesh, margin improvement can happen if your volumes pick up. right? So there two things here. When you talk about margins, one is the raw material pass-through and second is volumes tick up. For the business which we are doing right now, and the overall utilization level of 40%, you will not get that sort of part because these businesses are structured in a way that basically is on at very high capacity. And that may basically generate margin which you are able to do. When I meant, it's a 2-year contract. And if we don't get those volumes in 2 years, that contract gets extended for the next 6 months, 1 year, still that recovery does not happen. What there could be an upfront payment, which is made by the customer, extraordinary comp sales. [indiscernible] are not going to come back.
So Sanjay, my question is, specifically, you gave an example of 2 years given we have a significant revenue that is concentrated with Furnishings major. Last 3 quarters have been slow for some reason. And hence, I'm just trying to give when does this 2 year tenure ahead, where in label fees some additional payments because of this particular variable [indiscernible]
Ritesh, now see. You will not be able that you asking whether we import the product as an [indiscernible] paid.
Right. And sir, if the volumes don't come through, the money has to still come in. So when should we look at that scenario? Or has it not got reserved when do you expect that to reserved? Assuming internally, if I was in your pace, I'll do bad taste forecasting, and then I allow to update those numbers into my P&L.
Ritesh, I think I'm understanding your question right. You need to get back end or something. It will not make an impact on our margin, is the way I would put it out.
Okay. But then on the essence of a [indiscernible]
[indiscernible]
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Amit Sanghvi for his closing comments.
Thank you, everyone, for joining the call. We hope that we've been able to answer your questions adequately. For any further information, I request that you get in touch with SGA, our Investor Relations advisers. Thank you very much, and have a nice day.
Thank you. Ladies and gentlemen, on behalf of Shaily Engineering Plastics Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines.
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