Shaily Engineering Plastic

Stock Opportunities
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Shaily Engineering Plastic
(Scrip Code – 501423).
CMP: 346 Rs. – Face Value: 10

Shaily providing end to end solutions in plastic products and services

Company Over View

Shaily Engineering Plastics Limited (SEPL) is involved in the manufacture of high precision injection moulded plastic components, assemblies, moulds and dies for OEM (Original Equipment Manufacturer) requirements.

Established in 1987 at Halol, India with 2 molding machines Today – 5 Facilities with 87 Injection Molding Machines (35TON to 800TON) .Market Segments Home Furnishings, Appliances, Medical, Automotive, Consumer Goods, Electrical/Switch gears, and Engineering Applications

Revenue Growth in last 3 Year

Net profit(in Rs Cr):

2013 – 3.62;
2014- 6.59;
2015-13.01

Client List of Shaily

Consumer: Ikea, Unilever, P&G, MWV-Calmar
Medical : Sanofi, Clearspec , MWV, Sun Pharma, Wockhardt, GE healthcare, Lupin , Dr. Reddys , Zydus Cadila
Appliances: GE, Electrolux, MABE
Switch Gears: Siemens ,Schneider , ABB, L&T, Lucy
Automotive : GE Lighting, Honeywell , Amvian, FAG,Turbo Energy –
Engineering : Emerson, KPT, Phoenix Mecano, IHC , Photoquip

Sales Break up - Segments

Some Interesting Facts Noticed

Promoter holding 54.09% -
Corporate & other biggies – 41.03% (Hardly 5% shares with retailers).
Total Number of the share holders 435 as on 31 March 2015 Report (It was 241 on 31 Dec 2014) Recently started to release some shares to public
Ace Investor Ashish Kacholia Accuired 12% stake in the Company through Preferential Share method
As per Dec 2014 details Company revoked pledge shares and no shares are pledged now
Topline and Bottom Line are growing Continuously.

Outlook on Opportunities

SEPL’s domestic as well as overseas business is developing very fast and getting more and more enquiry for capability to manufacture parts for the clients due to its commitment of standard quality of goods to its present customers and therefore sustaining operations and growing in even tough time. If Shaily can Scale up the operation as per the expectation tremendous scope is there.

Outlook on Threats, Risk and Concerns
The Company’s business depends on customer requirements as the Company is an OEM supplier and any fluctuation in the customers demand can affect the Company’s performance. The Company is also exposed to project risks due to delays in project implementation/cost escalation, risks on account of fluctuation and in FX rates and fluctuation in raw material prices on account of fluctuation in oil prices.

http://www.shaily.com/userfiles/file/Company%20Corporate%20Presentation.pdf

Disc: Invested

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Shaily Announced an excellent Result - 97.5% Profit growth in year to year basis. Top line Increased 19%, Dividend declared 2 Rs Per Share. Overall looks Very Impressive performance. Chance to go even many multi bagger from current level

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Updated earlier post - Added Some more information about the company

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Why should we think about Shaily?

     Because of low  floating or nil shares in the market Shaily was not in  investors radar  till Dec2014. But things changed after that and company started to release the shares to public. My assumption is that shaily going to unlock the real value.

     How shaily differ from other traditional plastic manufacturing companies? Shaily  doesn’t fit a profile of a Typical indian molder.  Shaily is one of the few companies in India that can take an idea from concept through engineering drawing, prototype, testing, tool design and manufacturing of final components and assemblies . Shaily plans to win business with its Technology and design skills. 

   The company, for example, helped design and manufacture India’s first all-plastic insulin pen that uses 100% plastic components; The World’s First. Shaily’s joint Venture with design house Industrial Design consultancy Ltd. (IDC) of Datchet, England was instrumental in that project. Patented the design and all IPR’s transferred to Wockhardt on project completion.

           Another example, Shaily Designed rods in plastic to replace metal rods using in Vehicles. Plastic rod increased Productivity by 300X and Cost reduced by 40% . Honeywell started to replace metal rods on BMW. Shaily is the only supplier globally to successfully accomplish this conversion. (I don't have much detail about this project)

Overall I feel that Shaily is one of the best and well known companies in Indian Industries with great future prospects but unknown company for the public. I welcome other boarder’s view about Shaily.

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Article About Medical Plastic

Designing Components for Drug-Delivery Systems that . . . Deliver
Posted in Medical Plastics by Camilla Andersson on February 12, 2013

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Shaily Eng seems interesting.

But before getting too excited about yearly growth in profits, one needs to see the operating profits which have shown only around 10-12% growth against a revenue growth of 20% for full year.

For full year basis, finance costs have come down, tax paid has come down due to MAT credit and all this has led to net profits nearly doubling from 6.5 to 13 crores for the full year.

If one goes thru the shareholding pattern, then 41% is held by guys holding 1% and more including Ashish Kacholia and an old investor Motika who also has a board seat. With promoters holding 54%, total of 95% is held by guys holding 1% and more. That leaves only around 5% shares as effective free float. That could lead to very low liquidity and its associated problems.

The above are just observations on casual first glance from easily available info from the net. But from some details provided in fy 14 AR, and on website co seems to be interesting to keep on the radar.

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Thanks for your valuable thoughts, I would like to explain few points…

Technically we can say that growth of operating profit is only 12% or net profit is 97% etc. But what I was trying to point out that gradual growth of the company for the past 3 years even in this difficult financial Conditions. I am more excited about future potential of the company rather than the figures. Look at some of the product manufacturing by Shaily.It seems high entry barriers for others or secured by patents,

One side, manufacturing products for IKEA and other commodity firms will ensure volume for the company, Same time they do concentrate in high entry barrier Medical products like 100% plastic Insulin pen (Currently producing for Wokhardt & Sanofi), Here is the potential What i am seeing. If Shaily can design and manufacture few Innovative products like above we can expect a huge growth in future, Nothing wrong to expect from them because the owner of the Company Mr. Mahendra Sangvi has more than 25 years rich experience in this field and They have 50:50% Joint Venture with IDC (Industrial Design Company, UK) Company name as Shaily-IDC (India) Private Ltd

Regarding Liquidity issue, after close watching of the share for last 2,3 months. What I understand that on behalf of promoters someone distributing shares to public in regular intervals and they make sure that enough shares are available for trading in the market.(Purely my assumption). That is the reason after the several years of listing, total number of shareholders increased from 230 to 450 in just last 3 month only. Iam taking it as positively why means I feel they are trying to unlock the real value of the company based on their performance and merit. It is showing confidence of the Management. (Invested and Positive Biased about the company- I might be wrong)

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good work @kpthanvy. On first look, I liked the company fundamentals. My initial analysis suggests:

Positives:

  1. Best thing they did in past 3-4 years is improving fixed assets turnover and effective working capital management. FAT rises from around to 2x level pre 2010 to 3x level in 2011-14

  2. The also started generating meaningful positive cash flows. this is mainly helped by working capital management. This help them to grow without destroying balance sheet with high leverage.

3.Company gross margins are very high 40-45% it will give more operating leverage to the company in coming years.

  1. Started paying dividend as u mentioned.

Negative:

  1. On thing i noticed, As per there cash flows, in last 3 years company spent approx 32.4 crore on capex. But as per balance sheet gross block (diff between 2014 and 2011) is just ~14 crores. Don’t know where this money flew. This cross check always suggest me to be more careful and analyse.
    Because capex is the most preferred way used by promoters to withdraw company’s cash.

  2. Single customer with 47% sale, concentration risk is there.

I will keep it in my radar. views invited.

Cheers,
Jinesh

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Very interesting company but very difficult for an investor of size to pick up any meaningful quantity.

ROIC is very good for a company in plastics space. Mid 20s.

Pricing power is question mark as they work in a big way with IKEA. If they can diversify, then a better valuation can be justified.

At the moment, a 20x PE seems to fully value the company. They are better companies at similar valuations to be honest.

Either the price goes around 240-230 or the price should move sideways for a while till earnings catch up.

Its almost a certainty that there is an operator who is managing this counters liquidity. And thats the scary bit.

I would say very interesting find…but too late in the day to make immediate returns. This is a great 3-5 year play.

Definitely warrants a call to the management to ask some questions on client deleveraging, margin and pricing power with ikea, growth expectations ex-IKEA, capex plans for FY16, debt repayment plans etc.

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Also interesting to know how they plan to fund future capex?

I am an investor in a sort of similar company called Mold-Tek since 2 years but recently they diluted the shareholders via a QIP. The growth outlook is tremendous for plastics and IML…specially for these value adding companies.

Trick is to have a high ROIC, grow at good rates without taking on debt and diluting shareholders!! But with these plastic players, mid 20s ROIC is good…but that still leaves you with the risk of dilution.

Dilution is OKAY as long as execution is proper and doesnt take more than 6-12 months to streamline new capacities.

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Another Prominent Investor Mukul Agarwal entered in Shaily Engineering. He and his investing company Param Investments acquired 9% shares from open market. Buying rate 301 Rs/shares. The seller Motika reduces their holding from 12% to 3%

Mukul Agarwal Profile:
(A Commerce Graduate from Bombay University. Presently he is an Investor and Trader in Capital Market. He is a Director of Namah Capital Resources Ltd (Member of the National Stock Exchange of India Ltd). Param Capital Research Pvt Ltd. (Member of the Bombay Stock Exchange Ltd Derivatives segment) And Pranam Reality Pvt Ltd. He is also a member of the Multi Commodity Exchange.)

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@neil991 ~

How can u be certain about this? It would be very helpful if an investor able to recognized that stock backed by an operator. It will save us as an investor to caught into trap and save our hard earn money.

Disc: Not invested yet but on radar.

Jinesh Jain

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In my last five years experience in stock market I have never seen such a beautiful combination of positives in single stock at a time; Would like to point out…

1)Quality: Client List and product list itself speak the quality of the company

2)Gradual growth: Please see last few years Financials.

  1. Future growth potential: Scope is always there for plastic manufacturing companies like shaily. It is up to management ability to scale up the operations. Iam positive here.

4)Share holding pattern: Only 5% with retailers and less than 1000 share holders. I believe demand will grow up gradually till they maintain their standards. Investors would love to be part of good companies always. And supply going to be limited. (It may happen Vice Versa also for the dubious management)

  1. Presence of Ace Investors: Recently entered many prominent Investors & Investing Companies.

  2. Dividend: After 7 years gap Shaily has given Dividend 2 Rs per Share on Current Financial Year

  3. Revoked promoters Pledged Shares completely on Dec 2014. No more shares pledged now

  4. Desire to unlock the value: My gut feeling is that after long years of sleeping, Management decide to unlock the real value of the company. Above are the signs of that

Overall I feel that even an above average growth will take Shaily Engineering to new heights in coming days.

Note: Shaily will announce their Quarterly Result today. Expecting a positive result.

Invested: Positive Biased

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Quarter Ended 30th June Result

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Source: Value pick (Blogger) - Face Book Page

(Below message is Copy Paste from his FB Page)

The Swedish home accessories giant IKEA ( €29.293 billion Sales in FY 2014) is expected to open their first store in India by next financial year.Even now , one BSE listed company supplying products to IKEA for their overseas operations . More than supplying products , this company running an exclusive and dedicated manufacturing facility for IKEA even before they come to India . As per Indian Single brand retail policy , any foreign company opening single brand retail stores in India must ensure that an average 30 percent of the production value of sold goods should be sourced from India itself . Arrival of IKEA may immensely benefit this listed company going forward

In the last three years ,this company reported steady growth in its top-line and its bottom line grown by more than three times during this period. One well known investor in Indian equities holding more than 10 % stake in it ( Stock in lock-in period) in his personal capacity.

The company indicated with given clues is SHAILY ENGINEERING PLASTICS LTD

This high precision engineering plastic component manufacturer is a preferred supplier to many MNC’s . Almost 50 % of total sales coming from IKEA . I believe , their relation will further strengthen once IKEA starts operations in India . Now company is paying attention to develop its medical/pharma related business through its separate division named Shaily Medical Plastics .This also help to reduce risk associated with single sector/single client concentration.

Though this company’s 52 week low is around Rs.50 , there was no trading volume upto Rs.325 level. Floating stock of this company is as low as 5 % of its total equity and the supply above Rs.300 came mainly from a Cyprus based investment firm named Motika Ltd. Motika Ltd acquired shares in a private placement of PCCPS during 2007 @ Rs.56 when company raised funds for its expansion. Majority of shares sold by this firm in past few months acquired by big investors in bulk deals. Earlier Motika’s holding was around 17.5 lacs shares and as per June 2015 share holding pattern it reduced to just 2.5 lacs . After June 30, Motika sold another 2 lac shares as per bulk deal data and their off loading may be at the last leg at present . Recently ace investor Ashish Kacholia subscribed 1000000 shares of Shaily through a preferrential allotment @ Rs.251 each ( these shares are still in lock-in period) .Company planning to utilise this fund for capacity expansion. Company reported a net profit of Rs.13 Cr and an EPS of Rs.17.20 in last year.Since its floating stock and number of share holders are very small ( altogether less than 600 share holders) , movement to either side may be sharp based on positive or negative developments . So , think and decide .

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Will double sourcing, suppliers from India by 2020: Ikea

Read more at: http://www.moneycontrol.com/news/business/will-double-sourcing-suppliersindia-by-2020_2732381.html?utm_source=ref_article

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“It also plans to double sourcing and suppliers from India by 2020.”

Ikea plans to double the suppliers as well…which means shaily may have competition from other players . Though I don’t expect its current orders from ikea to reduce due to other vendors but the future growth pie might have to be shared with other vendors. Nevertheless shaily should get decent growth in orders from ikea with its establishment in india.

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Supreme industries seems to have better RoE with lower debt…and both are almost at the same P/E…so why not supreme ? though I feel both are fully priced with no MoS…just my thoughts…

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@remonc, No one claim that Shaily is going to double their supply to IKEA. But one of the companies may immensely benefit from IKEA entry in India should be Shaily Engineering because of their strong business relations with IKEA. Apart from IKEA, shaily has many other areas to explore the opportunities.

Comparison about Supreme Industries: Supreme is world class company that we cannot compare to Shaily. (Even their product ranges are not matching). Then where we have to invest that is purely individuals calls after understanding the fundamentals and future opportunities of the firms. I feel Shaily made a strong foundation all ready, now it is time to grow up more faster than previous years.

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@remonc Your question about competition:

In general my thought is, 'WHAT SHAILY MAKE WILL MAKE SHAILY ONLY" that is the way they are building up their relation with clients.

First of all we have to understand that Shaily is not a traditional plastic Moulding company. They are something unique in their approach. Shaily involved with their clients from the beginning such as Idea generation, product design, testing, Mold selection and till the end to finish the final product (In some cases for acquiring patents too). Very few companies in India providing that kind of complete solution to customers. It helps them to eliminate competition and will ensure them a long term contract with their clients.

Please check their last 10 years topline growth. Average 20 to 30% growth in sales and 10 to 15% growth in operating profit for every year except one or 2 years. Sales increased from 32 crore to 180 crore in between 10 years from 2005 to 2015.

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Positive Biased always :blush:

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