Shaily Engineering Plastics Limited (501423) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Shaily Engineering Plastics Limited. [Operator Instructions] Please note that this conference is being recorded. Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and may involve risks and uncertainties that are difficult to predict. I would now like to hand the conference over to Mr. Amit Sanghvi, Managing Director of Shaily Engineering Plastics Limited. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone, and thank you for joining Shaily Engineering Plastics earnings call for quarter 1 FY '27. I'm joined today by Sanjay Shah, our Chief Strategy Officer, and SGA, our Investor Relations Adviser. I hope everyone has had the opportunity to review our financial results and investor presentation, which have been uploaded on the stock exchange as well as the company's website. The global operating environment remained challenging in the quarter with continued uncertainty arising from the geopolitical situation in West Asia and its wider impact on supply chain as well as commodity markets. This led to volatility in key raw material prices, particularly polymers alongside logistic disruptions, container availability constraints and elevated freight costs. Despite these external headwinds, we remain focused on execution. Through disciplined operational planning, supply chain management and calibrated pricing actions, including pass-through mechanisms wherever applicable, we were able to effectively mitigate much of the impact and ensure business continuity. Before I get into the highlights of the quarter, I'd like to take a minute to reflect on our health care journey and what we have achieved so far. The quarter 1 has been exceptionally exciting with launches. So I thought I'd take a moment and reflect on it. When I look at where Shaily stands today, our position rests on 2 principles that we have not compromised on, quality and innovation. Our focus is consistently on delivering the best possible outcome for our customers and for the patients who depend on our devices. That standard has shaped every decision along a very difficult path, one we traveled for years with much of the market unconvinced that we could deliver. We took on risks that few in our industry would accept, stayed focused on the objective and treated our early failures as critical information, one that we learned from, corrected quickly and moved on. Combined with the deliberate effort to hire the best talent in the industry globally, this approach has produced measurable results for Shaily. 6 of our 8 device platforms are now fully commercial and sold across global markets, developed within 7 to 8 years. Over the same period, Shaily has delivered the world's first generic semaglutide launches in multiple markets and also secured the first tentative U.S. FDA approval for generic semaglutide. Building on this, I'm pleased to announce that we have appointed dedicated heads of business development for both Europe as well as North America, our 2 priority growth markets. Both are senior industry leaders and with them in place, we are in discussions and confident of securing a partnership with a major global pharmaceutical over the near term. The health care strategy is clear: continue to scale GLP-1 and insulin and simultaneously get into niche areas like emergency use devices, on-body injectors and more sustainable reusable devices as well as forge partnerships with global pharma to take the next leap in Shaily's health care growth story. Now coming to the quarter. As committed earlier, our additional 25 million pen capacity is expected to become operational by end of September, taking our total installed pen injector capacity to approximately 75 million pens per annum. Moving to our segment-wise performance and key business developments. Healthcare continued to deliver robust performance during Q1 FY '27. Segment revenue grew 85% year-on-year to INR 142 crores, contributing approximately 51% of consolidated revenue and becoming our largest business segment for the quarter. Growth continued to be led by our pen injector platform, including devices used for GLP-1 and other chronic therapies. During the quarter, we received orders for injector pen supplies following regulatory approvals secured for the sale of semaglutide in Canada, Brazil by our pharmaceutical partners. In addition, we have also signed 2 new platform projects, further strengthening our long-term product pipeline. The Consumer segment reported revenue of INR 116 crores during the quarter, accounting for around 41% of consolidated revenue. Performance reflected softer demand in home furnishings across Europe and United States, our largest export markets for the business. During this period, however, we continue to expand customer relationships and add new programs that strengthen our future revenue pipeline. In Q1 FY '27, we secured a global project from an FMCG customer and also won new business in the LED lighting segment. The Industrial segment maintained its healthy growth trajectory with revenue increasing 25% year-on-year to INR 23 crores. Growth was supported by new customer additions and increasing opportunities across engineering applications, including consumer electronics. During the quarter, we received business confirmations for new projects from both appliance as well as automotive customers. We also onboarded a new customers with orders covering 5 consumer electronic components. Going forward, we remain focused on building sustainable revenue streams in this segment, particularly through consumer electronics and semiconductor trades. As we look ahead to FY '27, we aim to strengthen and ramp up our newly commissioned capacities, deepening strategic customer relationships, accelerating innovation through our IP-led platforms and maintaining operational excellence while delivering sustainable and profitable growth. With that, I now hand over to Sanjay, who will take you through the operating and financial highlights in more detail. Thank you very much. Over to you, Sanjay.

Thank you, Amit. Good afternoon, everyone. Let me now take you through the financial and operating highlights for the quarter. Commercial utilization improved to 50.2% during Q1 FY '27 compared with 48.7% in Q1 FY '26, reflecting a gradual improvement in capacity utilization. Exports accounted for approximately 58% of consolidated revenue during the quarter compared with 76% in the corresponding quarter last year. The change is primarily due to the growing contribution of our health care business where products are supplied to global markets through our Indian pharmaceutical customers. Coming to the consolidated financial highlights for Q1 FY '27. Revenue for Q1 FY '27 stood at INR 281 crores compared with INR 247 crores in Q1 FY '26, registering year-on-year growth of 14%. EBITDA stood at INR 83 crores from INR 70 crores, reflecting a growth of 18%. EBITDA margin improved by 120 bps to 29%. Profit after tax stood at INR 48 crores compared with INR 41 crores in Q1 FY '26, representing a growth of 17%. PAT margin improved to 17.1%, an expansion of 40 basis points year-on-year. Coming to segmental revenue breakup for Q1 FY '27. Consumer revenue stood at INR 116 crores compared with INR 151 crores in Q1 FY '26, a decline of 24%, largely due to softer demand across Europe and U.S. Healthcare revenue increased to INR 142 crores from INR 77 crores, representing an 85% year-on-year growth. Industrial revenue grew to INR 23 crores from INR 18 crores, delivering a healthy growth of 25%. That concludes the update from my side. We will now open the floor for questions. Thank you.

[Operator Instructions] We have our next question from the line of Shaleen Kumar from UBS India.

Congratulations on a good set of numbers. One -- first question, can we know how many pens we have done in 1Q?

So all devices, delivery devices put together, we've done about close to 9 million in the first quarter.

Right. So Amit, and what would be the ballpark proportion of insulin and GLP-1 in that?

You've got probably just more -- you've got a bit more than insulin and GLP-1. So there is other therapies in the mix, but rough ballpark would be consider 60% -- 50% to 60% GLP-1 and the rest would be insulin plus other molecule.

Got it. Got it. And I would like to know the status of the new line, right, which we have set up beginning of the previous quarter. So we were facing some issues in setting up and reaching the optimal levels. So where we are on that?

We have increased efficiency increased speed on that line by about 9%. It still needs further improvement. So we have a plan. There's some additional equipment needed on the line, which is still under -- it's not received yet. So as soon as that is installed, that line should be able to see another 30% jump.

That's great. And time line for that?

It's a constant struggle right now, Shaleen, but we're looking at essentially before the end of this quarter.

All right. And the next line, which we're getting in this or next month, do you think that you will face a similar challenges? Or we have some learnings from the current line and the upcoming line will be much smoother?

So one thing we've made sure we've delayed getting the line, the second line that is coming in. I mean not beyond what we had anticipated. But just if I look at the overall program, the line was to come in and then go through a ramp-up. Instead, we've kind of switched that strategy. We're going to do the ramp-up and get to an 80% plus efficiency at the supplier before we do the FAD and then ship the line. We're not doing any R&D here.

So effectively, once the line is here, maybe in a month or 2, we should be able to achieve similar efficiencies like 80% we're talking about?

Absolutely. Absolutely.

So Amit, on that basis, you have done 9 million in 1Q despite all the challenges. 2Q, your efficiency is improving. In 3Q, 4Q, your line will be double and operating at a much higher efficiency. So -- but your full year guidance is 36 million. I mean, mathematically, you'll be beating your guidance even with the single line already at a much lower efficiency. So is it fair to believe that you will do much better than your guidance?

I mean it's an evolving situation because it's not -- it's not just our ability to deliver. It's also partners -- customer partners having some short-term potential supply chain issues as well. But yes, I think we will -- we should be able to go beyond 36 million. Short answer is we should be.

Yes. So effectively, if nothing -- no other variable changes, demand there, demand remains strong. I hope it is strong and you're able to execute the strategy. So we should be in a comfortable position of beating our guidance of 36 million -- that's the way [indiscernible]

Yes.

Great. Great. A bit on consumer electronics and then I'll join back the queue. Any status update on the new plant, where we are? Have we started supplying commercially to the customer? How many parts have been qualified? Any update on that?

We have started commercial supply. We also got awarded 5 new components, as I mentioned that in my earlier speech, from a new customer in consumer electronics, which we should be able to put into supply just before the end of the year, end of the financial year. And in terms of starting up of the new plant, we are looking at -- I think you'll receive an update in the next quarter earnings call, but plans are quite solid and moving forward as projected.

Have you secured the location land?

Short answer, yes. We haven't announced it, but yes, we have.

[Operator Instructions] Next question is from the line of Ritesh Shah from Investec.

Congratulations for a good set of numbers. First question is on gross margin decline on a sequential basis. It's a bit perplexing given the health care pie in revenues has actually increased. So just wanted to understand, one is the pricing and second is the cost-plus arrangements that we have on insulin and GLP-1 devices. And a related one, any color that you can provide on pricing for these devices taking into account the 2 large Chinese companies, which are also likely to hit the supply curve. So how should we look at overall pricing, margins and cost plus? I think that's the first question.

So Ritesh, on gross margins, you have seen post March because of the war, commodity prices basically increased substantially. In addition to that, freight prices also went up.

And we've had some premium freight incidents where we've had to airlift material.

So while the pass-through with some customers would have been delayed, would basically have happened between May and June. And with some customers, the cycle would have been probably in July. So that was the reason why you see some gross margin decline. We expect that the gross margin would come back to normalized level by quarter 3.

That's great. On the pricing side?

Question was quite vague on pricing.

Yes. So I kept it vague by design. I just wanted to understand your sense on pricing for the GLP-1 devices, specifically with potentially Chinese competition also hitting the supply curve.

Chinese competition -- I mean, look, as far as my knowledge goes, Chinese are potentially putting their product on the market somewhere around $1.50 to $1.70. And again, copycat products, so not really anything novel. That's 20-year-old technology. Some products that the Chinese have put on the market do infringe not only our patents, but also other key suppliers globally. We're looking at a strategy on how to deal with that, but we're not too concerned about the Chinese pricing, very honestly. It's not that it's half of ours. It's -- yes, ours are, I think, somewhere above the $2 mark. So there's certainly a difference.

I just wanted to understand what is the frequency of price renewals. So typically, these are long gestation volume contracts you fix up a certain cost plus with a 2-year tenure? Or is it on a certain volume? How does it work?

These are not cost-plus contracts. They're basically just volume and market-driven pricing contracts with the mechanism to do price review annually. So it all depends on the type of agreement. It's not a cost-plus business, first of all, right? It's an intellectual property-led business. So it is never going to be a prosperous business. We look at a base index on various things, inflation and potentially polymers. But more importantly, we look at longevity of the contract and the commitment, and that's how pricing is decided.

Perfect. My second question is on -- we had put in a press release with respect to [ Dr. Reddy's ] INR 423 crores order a few quarters back. We understand that they have issues with regard to impurities in Canada. Brazil also is stuck with for technical issues. In this circumstances, how comfortable are we with our guidance of $36 million? So if not for DRL, do we have likes of [ Apotex ] or somebody else, who will comfortably lift our shipments? And in the current context as well, wherein there are certain issues with DRL, is the offtake ongoing? Or is it some other companies are actually taking out our products?

So Ritesh, I don't think we have named the customer. So we have secured business from a pharmaceutical customer, so we don't want to name the customer. On the volumes of it, I'll let Amit answer the question.

Yes. So whatever is happening on a particular partner, our device supplies are under -- so the fact is that we actually need to supply more because there's a gap and the gap needs to be filled. And right now, we still have most of the approvals in various markets across the world. So it's one of our partners selling. We still remain confident of the guidance.

We have our next question from the line of Harsh Shah from JM Financials.

A few questions from my side. So firstly, in terms of -- Amit, sir, if you could give some sort of color with respect to the sort of visibility or rather the type of conversations that you're having with your customers with regards to the Abu Dhabi capacity. Obviously, it is some time away from here, but some color on it in terms of the type of conversations that are going on.

I mean, look, I think we've said roughly 50%, 55% is kind of -- we've got commitments and indication on that kind of that capacity. The rest we are working on. The plant is supposed to start selling by end of FY '28. So we should get into commercial sales by the end of FY '28, which means the capacity, if you think about it, is really for the markets opening up in Europe in '28, plus insulin as well as the markets that will open up globally in 2030, 2031.

Got it. Okay. Secondly, on the consumer electronics vertical, right? So if I have to say join some dots based on the commentary that you all have been giving for the past few quarters. And also this time around, you did mention regarding the new win from a customer. How should one kind of think about the type of scale you can reach in the next 2 to 3 years? Or rather let me put it this way. When do you think Shaily as a company can realistically say, hit $10 million revenue? I mean, some ballpark, some color on it, I mean, just for the investing community for our financial models.

So Harsh, what we are doing is we're building up the portfolio and customers adding products to it. We'll continue to do that. I think 24 to 30 months is the short answer. That's our -- again, this is not a guidance. So this is what our projections look like. We think we can get to that number within 30 months.

Got it. And just to appreciate this customer win, could you -- are you in the position to give some qualitative details in terms of the time taken for you to get qualified for the customer? Anything on that side?

Some of these deals will be confidential, so it will be difficult for us to comment on that.

Sure. Just lastly from my side, in the U.K. subsidiary, right? So obviously, if we do consol minus stand-alone, that kind of includes both the U.K. and the UAE subsidiary. But if I have to kind of just do a normal calculation, I see a bit of a drop in the U.K. subsidiary kind of revenue. Is that more of a timing kind of issue that has come in for the subsidiary?

Yes, it is a timing issue. Look, there are certain milestones that were achieved at the very, very end of the month. But what we do is we need -- we don't raise an invoice until we get confirmation from a customer that the milestone is achieved. So it's a timing issue. It will come back over the next 3 quarters.

So safe to assume that for the full year, we can do at least 15% kind of growth in the U.K. subsidiary.

Harsh, we are not giving guidance here.

We have our next question from the line of Nirali from Unique PMS.

So I have 2 set of questions. One is on the consumer electronics. So I understand you don't want to name the customer. But on the product side, can you qualitatively share how critical or complex products are? And whether it is only one customer and we are in talks with more customers or not, some qualitative direction on the consumer electronics part.

So Nirali, what we have said is if you look at the presentation and what Amit mentioned in his speech also, it's one customer where we have added [indiscernible] it is a new customer. It's pretty complicated and very complex components which we are doing. As we move -- I would think of it this way that they would be -- everything that we do would be internal components. And as we move forward, yes, we will look at components of very small devices or small appliances, consumer electronic appliances. Very complex, by the way. A lot of these components would be more complex than what we actually manufacture in our pens and auto injectors.

Okay. Interesting. And secondly, on the health care side. So one, any update on -- we were in talks with innovators. So any directionally, how are we moving on that side? And in your opening comments, you also mentioned that other than GLP-1 and insulin, you are working on a few other health care products. If you can spend some time on that?

Yes. So what we are working actively on is first is emergency use. Emergency use typically has a very high reliability requirement, which is mandated by the U.S. FDA. So we're working on emergency use auto-injectors that can support customers across the world on molecules like epinephrine. It's not just epinephrine, but there are some molecules which are under confidentiality, so I will not name them. Second is that we're looking at sustainable solutions for auto-injectors. Essentially, auto-injectors, you have close to 1 billion auto-injectors that end up in the landfill every year just based on semaglutide and tirzepatide therapy. So we're trying to be -- trying to come up with and we're looking at launching by the end of the year, our reusable auto-injector. And the third therapy we're working on are on-body injectors. So on-body injectors are typically used in oncology treatments. We're looking at a molecule and developing the program further on, again, biologics or biosimilars, but we've got a delivery range from 3 ml to about 23 ml. We're not sure if we can do 23 ml, but from 3 ml to 15 ml is likely possible to be done on our platform. So those are currently under talks.

And on the innovator side?

Innovative side, like I said, I actually made it a part of my speech. I'm quite confident that we'll get somewhere over the next 4 to 6 quarters. We have dedicated staff now, senior industry leaders, both in the U.S. as well as in Europe. We're very hopeful that we can make some sort of an announcement in the next 6 quarters.

Perfect. And just one last clarification. So semiconductor side revenue should start from Q4 of this financial year, right?

Yes. That's the current Q4 semicon revenue, yes.

We have our next question from the line of Akhil Parekh from 360 ONE Capital.

Many congratulations to the entire team for solid execution. Amit, in your opening remarks, you highlighted that you have appointed 2 heads based out of Europe and U.S. probably for getting contracts from innovator brands. Would you be able to share some color on the background from where they have come from and probably the internal discussion with regards to what their key roles would be? That's my first question.

Yes. So our European business head comes from a -- education he's done -- he's done Masters from HEC Paris and business school from Burgundy School of Business and long experience in medical devices, drug delivery, particularly, but he's also worked in other industries. Our U.S. head comes from all of my competitors and some essentially West, Philips, Mericide, Stevando, Acquamair and [indiscernible].

And the role is probably what they are supposed to do, if you can throw some color.