Ladies and gentlemen, good day and welcome to Shaily Engineering Plastics Limited Q1 FY 2024 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Amit Sanghvi, Managing Director. Thank you, and over to you, sir.
Thank you very much. Good afternoon and a very warm welcome to all the participants to the post-results investor call with Shaily Engineering Plastics. I have with me Sanjay Shah, our Chief Strategy Officer, and SGA, our Investor Relations Advisors. I hope you've had a chance to look at our investor presentation that is uploaded on our website as well as the docs page. Let me start with giving you some highlights on the operational performance. Despite the challenging geopolitical situation, we delivered a top line of INR 157 crores, and we improved our gross margins and EBITDA margins, which stand at 41.1% and 17.6%, respectively. We've also stabilized operations in the U.K., and as we scale up and move forward, our emphasis is on broadening our horizons to encompass more intellectual property development and contract manufacturing of medical devices.
With that, I'm happy to announce that we have been granted patents for one of our new auto-injectors in the U.S. market. The efforts dedicated to developing our injection system platforms are now yielding positive results. In this sector, our scope is not only extensive, but we're seeing traction with commercialization of devices in the coming months and years. I'm also delighted to announce that we have been awarded new business from General Electric with a value of INR 30 crores per annum. Our second-largest revenue-generating sector today is healthcare, and we have adopted a scalable approach that will enable us to increase our revenues at a faster pace over the next five years. The money that we have raised in 2021 has been put into enhancing capacities and building new facilities for healthcare. We also plan to increase our own IP contribution going forward.
On the home furnishings front, we have been awarded business for three new products, where the total value stands at INR 50 crores per annum. We're further strengthening our relationship with the customer. We have ventured into steel furnishings business for the same customer and have also added an exclusive facility to service the steel furnishings business. We've received business confirmation to additional volumes, and this will improve utilization in the current year. In the automotive and engineering segment, we've added three new products with two new customers, where the total value of the business in the next year will stand at INR 5 crores per annum, but will grow somewhere between 15%-20% year on year from there. That is all from my side. I shall now hand over the call to Sanjay Shah, our Chief Strategy Officer, to give you the operating and the financial highlights.
Thank you very much.
Thank you, Amit. Good afternoon, everyone. I shall share with you the highlights of our operational and financial performance of Q1 FY 2024, for which we will be happy to respond to your queries. During the quarter, we processed 5,822 tons of polymers as against 6,760 tons in Q1 FY 2023. Machine utilization rate was around 43% in Q1 FY 2024. Exports during Q1 FY 2024 stood at 35% of total revenue as compared to 77% in FY 2023. On our standalone results, revenues stood at INR 153 crores for Q1 FY 2024 as compared to INR 172 crores during Q1 FY 2023. EBITDA stood at INR 22.7 crores during Q1 FY 2024 as compared to INR 21.7 crores during Q1 FY 2023, a growth of 9% year-on-year.
EBITDA margins improved by 290 basis points to 15.5% for Q1 FY 2024 from 12.6% in Q1 FY 2023. EBIT stood at INR 8.7 crores during Q1 FY 2024 as compared to INR 7.4 crores during Q1 FY 2023.
Profit margins stood at 5.7% as compared to 4.3% in Q1 FY 2023. Cash PAT for Q1 FY 2024 was reported at INR 15.8 crores as compared to INR 15.2 crores during Q1 FY 2023, a growth of 11%. On a consolidated basis, which includes Shaily U.K., our subsidiary, revenue stood at INR 157 crores during Q1 FY 2024 as compared to INR 175 crores during Q1 FY 2023. EBITDA stood at INR 27.7 crores during Q1 FY 2024 as compared to INR 24.3 crores during Q1 FY 2023, a growth of 14% year-on-year. EBITDA margins have improved by 370 basis points to 17.6% for Q1 FY 2024 from 13.9% in Q1 FY 2023.
PAT stood at INR 12.6 crores during Q1 FY 2024 as compared to INR 9.5 crores during Q1 FY 2023. PAT margins stood at 8% in Q1 FY 2024 as compared to 5.4% in Q1 FY 2023.
Cash PAT for Q1 FY 2024 was reported at INR 20.8 crores as compared to INR 17.8 crores during Q1 FY 2023, a growth of 20% year-on-year. This is all from our side. Now we can open the floor for Q and A.
Thank you very much. Ladies and gentlemen, we will now begin the question answer session. Anyone who wishes to ask a question may press star then one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Manoj Bahety from Carnelian Asset Management. Please go ahead.
Hi. Good afternoon. First of all, congratulations on a good set of numbers. My first question is if you can give some color on sustainability of the margins that we have seen, recent improvement in margins in the current quarter. Then I have one more question.
Manoj, your voice is breaking a little bit. Could you-
Hello. Is it clear now?
Yes, please. Yes.
Thank you. I have three questions. First one is on margins. If you can give some color on sustainability of the margins that we have seen recent improvement of margins in the current quarter. Secondly, if you can also give some color on ramp-up of our healthcare facility during the current financial year, and how it is going to impact our margins going forward.
Okay. What's the third question, you said you have three questions, Manoj.
Yeah. Third question is if you can elaborate on the new business wins, especially on GE Appliances, home furnishings, and also the carbon steel ramp-up in terms of improvement in capacity utilization. These are my three questions, Amit.
Okay. Amit, do you want to take the second question first, ramp-up on healthcare facility, and then I will take the second Amit on the other two questions.
Sure. I don't think the second question was a ramp-up on healthcare.
The question which Manoj said was what sort of ramp-up do we expect on the healthcare facility and an improvement in margins from that?
Yeah. I think question two is a little related to question one, Manoj.
Yeah.
You will see improvement in margins as the pie of the healthcare of the total revenue continues to increase.
We will see, I hope that we will see marginal improvement quarter-on-quarter. Quarter two seems one where we have some new projects that have been delayed to quarter three, which means that you'll see certainly a significant improvement in quarter three, may not be so much in quarter two.
Healthcare continues to scale up.
Okay.
This year we are anticipating a growth of roughly 60% on the healthcare business.
Can you repeat, Amit? I couldn't hear you. You mentioned some percentage.
We're on track to grow the healthcare portfolio by 60% this year in the current financial year over last year.
Okay.
As that happens, you will see improvement in margins, and these are sustainable margins.
Okay.
Manoj, I'll probably take the other two questions. Amit partially answered the first part of the question.
I think the improvement in margins is basically in three parts. One is, as Amit mentioned, you're basically seeing the healthcare pie grow up and which has better margins. Overall margins are going up. Secondly, we are seeing improved utilization levels at the GE factory. We're having longer runs and everything, which is basically improving our yields there and everything, which is also improving the combination of these factors which will play out and which will lead to improvement in margins as we go forward. On the new business front, the GE business, it's a knob which we are developing for them, and we will start supplying sometime in calendar year 2024. Similarly, on the home furnishings front, there are three new products which we are working with the customer, which revenue will start to come in from Q4 of FY 2024 and Q1 FY 2025.
That's the timeline which is being looked at. The revenue numbers which we have indicated are annualized numbers based on the current volumes which we have got from the customer. New business which we have talked about is on the automotive segment with two of our existing customers, where we're basically strengthening the relationship and adding more products as we go by.
Which is orders to about INR 5 crores a year right now, as Amit mentioned in his speech also, we will see that number growing as the ramp up happens.
Okay. Lastly, on the carbon steel part, do you see now the stability is behind and we will see gradual improvement in capacity utilization there?
That's correct.
Hello.
Yes, that's what I'm referring.
Okay. Thank you so much, Amit and Sanjay bhai, for taking my questions. Thank you.
Thank you.
Thank you. Before we take the next question, I'd like to remind participants, if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Nirali Gopani from Unique PMS. Please go ahead.
Hi. Thank you for the opportunity. Sir, to start with, if you can just give a general outlook on the home furnishing side also. We were seeing constant pressure over there due to the inflationary environment in U.S. and Europe. How is the situation now and how do we see the current year panning out on that side?
We are seeing gradual improvement in volumes. We're not seeing very large improvement in volumes. We're seeing improvement in volumes and what we're also seeing is we are seeing new business confirmations coming in. We are building up business for the next year.
Okay. Because all these new business wins will largely reflect in FY 2025, right?
As I mentioned, some of the furnishing stuff will start getting reflected from Q4, but the bigger impact will happen from Q1 FY 2025 onwards.
Right. If I want to see FY 2024 in particular, largely the growth will be driven by healthcare or any other segment you see that can support growth in any way?
FY 2024 growth, as we have mentioned earlier also, will come from healthcare. Part of it will come from improved utilization levels from the carbon steel segment where we are seeing traction in terms of higher volumes and everything. Third will basically be on automotive front and some of it on the home furnishings front. These are four areas from where we will see growth.
Okay. Fair enough. This quarter is also a very good revenue uptick on the U.K. side. I know Amit did touch upon it in his opening comment, but if you can briefly talk about it. What kind of difference are you seeing there and how should things look going ahead?
While we're not able to give you exact numbers, we're looking at a very significant ramp-up in revenue in the current financial year over last year. I would say at least 2x to 3x is what we're looking at in terms of revenue in Shaily U.K. this year.
Okay. This is largely the new development that we are working on.
Yes, Nirali, the way to look at it is, we have in the past communicated new business confirmations which we have received and new developments which we have received, as and when they've been received, large contracts or win quotes. Those are being executed through Shaily U.K.. That's the pipeline which is there, that's the reason what Amit mentioned, the growth we are looking at.
Right. GE Appliances seems to be a new customer. If you can just qualitatively share what kind of opportunity it can be for Shaily over a longer term. I know you have shared the short-term number, yeah.
Nirali, I think giving numbers will be difficult. We see pretty large opportunity there. Amit can add.
Look, it's actually a very old customer. We started doing business with GE in, God knows, 1995, I think.
This was our fourth export , Amit.
Yeah.
Yeah.
Okay, we have been working with GE since 1995.
Yes, they've never had focus on sourcing from India. I'd say that focus has changed significantly over the last 18 months, which means that we are seeing new opportunities and we are participating in them and have also been awarded this particular project.
Lastly, Sanjay bhai, if I see this quarter numbers, the expenses have grown quite significantly over Q4. Any particular reason like other expense, staff cost, power and fuel, everything has grown significantly.
Some of the expenses, if you were to look at it, are in line with the growth in the revenue. Power and fuel, we have had a growth in the current quarter because there has been some change in the power tariff. If you improve utilization levels in front of the carbon steel facility in India, we're having higher power costs there.
Okay. No further questions from my side. Thank you.
Thank you. Before I take the next question, I would like to remind participants if you wish to ask a question, please press star then one on your touch-tone telephone. The next question is from the line of Aman Vij from Astute Investment. Please go ahead.
Thank you. Good afternoon, sir. My first set of question is on the pharma business. On the CapEx side, if you can give an update on when is the pharma CapEx expected to complete and how do you see the ramp-up in FY 2024 and FY 2025? When do we expect full utilization of this facility?
Aman, we will basically be complete major part of the CapEx by September. Q2 is by which the major part of the CapEx will be done. Some of it will get spilled over to Q3, between Q2 and Q3 of FY 2024 is when the whole CapEx will be done. The ramp-up will basically be over the next four to six quarters when we will do the ramp-up. In pharma, you need to have facilities created ahead of time to basically get all the compliance and all the approvals from customers. That's the basis on which these facilities have been created.
You look at at least a three-year horizon for the capacities that you have created to be utilized to a greater extent.
Sure, Amit. Is my understanding correct that almost maybe two-third or even more is meant for pens, this new facility? Is my understanding correct?
All of it for pens. Yes.
Sure. You talked about what kind of growth we see in healthcare. In terms of number of pen tools, where do we target? What is our target for this year?
Aman, I honestly think if any just look at the total number of pens, it probably does not give you a right sense because these pens are at different price points. We have contract manufacturing for devices, we then have our own IP-led pens. Each of these pens has different price points and the price variation is very large. Looking at total number of pens, I can give you a number or something, but I am not sure whether it will help you in terms of looking at that number.
Okay. If you have to say, can we assume the growth in pens, not the number of pens, but say in the pens business, in terms of INR for this business, will be in proportion to 50%-60% kind of growth we are targeting in healthcare? Is my understanding correct?
Yes, that's right. Yes.
Sure. On the utilization of our facilities, it was good to see the ramp-up happening in Q1. If you can talk about for FY 2024, what kind of utilization do you think we can achieve? Similarly for next year, if you can talk about the same.
Aman, we don't give out what we think will be revenue guidance or something for the current year or for the next year. You would refrain from interpreting that way. Probably answer it in a little different way. As business improves, you will see utilization levels improve going forward.
The reason for asking was when do we expect the full utilization of these facilities? That is the question. If you can talk about the same.
My sense is probably sometimes by second half of FY 2025.
On the steel business side, last time you had talked about, I think it was still loss-making if my understanding is correct. If you can talk about, Is it profitable in Q1? When do we expect it to become profitable? Again, we have talked about FY 2025, we expect full utilization. Is it safe to assume that even for FY 2024 we can maybe do 50%, 60% kind of utilization?
Yeah. I think this year we will be positive in terms of bottom line and everything. In terms of utilization levels as compared to last year, we are at an improved utilization level. We will be over the number which we indicated in terms of utilization levels for the facility for overall for the whole year. Getting to 100% of full utilization FY 2025 is a stretch goal, safe to say right now. We are working with the customers to build up the book in terms of products and so on. If we have clarity, we will give that clarity to you.
Sure, sir. A final question before I come back in the queue. Any positive offshoot on the toys business, if you can talk about the same?
No.
No.
I don't see anything right now.
Okay. Thank you. I'll get back in the queue.
Thanks, Aman.
Thank you. The next question is from the line of Paras Adenwala from Capital Portfolio Advisors. Please go ahead.
I had a question on your fixed asset turnover ratio. My software says that in March 2018 is when you had a peak fixed asset turnover ratio of 2.6. Since then, there has been a gradual decline. I think as of FY 2023, it's lower than 1.5. Would you say that with this quarter now, the fixed asset turnover will start improving?
Paras, we have said in the past then that based on the investments which we made in the business, we should basically be looking at fixed asset investment to revenue of somewhere between 2.25x-2.5X, depending on the current product mix and the customer profile which we have. I think you will basically see that ratio improving as we move towards the end of the year. At the same time, what also needs to be looked at is we are capitalizing a large part of our pharma facility in Q2 and Q3 which will increase our fixed asset, where you will see revenues coming in over the next two to four quarters.
Okay. Bhai, do you think over the next 12-18 months, you should be reaching a fixed asset turnover ratio of close to 2.5, 2.6 once again?
I'm not sure whether we will get to that level, you will see that number improve. Once we have better clarity, I think we can probably talk about it. Yeah, we do see that ratio improving.
Paras, the only thing I would add is maybe not 12-18 months. Look at more from 18-30 months, you will certainly see, like Sanjay bhai has said, that number improving.
Okay. Through the course of our various conversations today in the call, you mentioned about clarity and unpredictability. In the overall business environment, are you witnessing some amount of haziness in terms of how you see your future over the next 12 - 15 months?
Amit, you want to take it or?
Yeah, I will take it. No, Paras, it's not so much haziness on how business or the environment is. The environment is certainly not great right now. We're not going to see a full recovery in the current year, and we've said that at the beginning of the year as well. I think the haziness comes partially from there's so much movement on this, whether you call it China Plus One or just people looking at alternate sourcing, India being a great part of that strategy. There's so much opportunity, but it's just about finding the right opportunity that we want to participate in, where we can make a contribution that will help us to have sustainable growth as well as profitability. Toys is a classic example of how we try to de-risk from our home furnishings major.
Saw an opportunity which could be scaled up fairly quickly, had very similar margin profile or slightly higher margin profile than the home furnishings major. It's not a business where our abilities are valued, to be honest. Do we want to continue down that path? I would say probably not. We will certainly participate in high value add opportunities if they come our way, but it's not a business that we will actively pursue with the customer because there's no stickiness to the supplier. It's basically a very transactional relationship, and I don't think it enables long-term growth. The haziness probably came from building that strategy for Shaily more than the business environment.
Now, I think FY 2023 was quite a challenging year for you. Even prior to that, I think we did notice some amount of slowdown in the business. Now with this quarter, would you say that things have turned around and we should at least cross the turnover or reach the turnover that we had in FY 2022?
No. Give it one more quarter. The jump we saw between March 2023 and June 2023 may not be there between June 2023 and the coming quarter. We will certainly see an increase, but it may not be so substantial. I think quarter three and quarter four will see much better numbers.
Okay. Just two more questions. On the toys business, it's a work in progress as it seems right now. Can I know what is the amount of investment that you need in the toys business, and as per your budget, what is the kind of payback that you see on the investment?
Paras, we've invested somewhere between INR 25 crore-INR 30 crore on the toys business. That's mainly in molding machines and another facility which we have taken.
We will be utilizing the molding machines for other purposes which we have. That will address the result is also growth that eventually will be used for further growth.
Would you say that the payback would be in what? I would say two years, three years? What's the kind of estimate that you have in your plans?
When we got the business, estimate was that the payback would be somewhere close to five years.
Okay.
It'll probably get stretched a little bit more.
Okay. As of now, it looks like you have only one client in the toys business.
Yeah.
Okay. Finally, on the margins, 17%, I think that's a very decent jump that you've seen. You did give some clarification on the margins. Would it be fair to estimate that now this is something which is sustainable, or would we see some kind of volatility as we move along?
I think these are sustainable margins if you look at it more from a long term or a medium term basis and not look at it on a quarter- on- quarter basis.
As Amit also indicated earlier, as the pharma business grows, overall margins should improve.
Okay. Any question that I'm asking you, Mr. Sanjay, is more on an annual basis rather than quarterly. I fully understand. Quarter to quarter is very difficult in a volatile scenario like today.
I just wanted to clarify that because I should not be misunderstood.
Yeah. On an annualized basis, I think what you've done in this quarter seems to be absolutely sustainable, right?
Yes.
Okay. Great. Thank you very much, and all the best.
No problem. Thank you.
Thank you.
Thank you. A reminder to the participants if you wish to ask a question, please press star then one on your touchtone telephone. The next question is from the line of Harshil Shethia from AUM Fund. Please go ahead.
Hello, sir. Two questions. One is regarding the carbon steel business. You mentioned in your presentation that you're going to improve utilization. Just given the long lead time so far, where do you see that the end of 2024 and maybe 2025 based on your current conversations?
If you were to look at last year to this year, we've basically been improving our utilization levels by 100% over last year. We are talking with the customer to see how we can improve that from that percentage to the next year also. Further improvement next year.
Sorry, last year was a very small base. Just trying to understand the absolute percent of utilization, because this was obviously a dedicated plan for a specific project and different from our other strengths in the plastics area earlier. Just trying to understand what point will it come to the level that was originally anticipated, maybe investment. You think it'd be around the 50% range by FY 2025 or by the end of 2024, or you don't think so?
It'll be 30% + for FY 2024, for sure. Closer to 50%, then we should probably be looking at improving that on the year after that.
Okay. On the same call, is it possible to just get a sense of the current utilization levels for both the other, the home furnishing major, the dedicated for the automotive and the GE?
We do not give out individual utilization levels, and it will be difficult for us to do that.
I know. I understand. I'm just saying that.
These are also actionable across businesses.
Yeah.
Putting out this sort of information in public domain will not be correct for the company.
Sorry. After this, I don't know how we can get this because given that our business model largely consists of your dedicated plant and machinery for dedicated customers, and overall utilization of 42 just seems a bit low, especially when nothing seems at a very early stage. We put the carbon steel on the side for a moment. Just going forward, how do you expect on average for continuing businesses? Could we expect overall utilization to be higher than this, or how do you look at the business model here? Once the business has stabilized, what kind of consistent utilization do you expect to receive?
We expect utilization to improve. Sorry, Amit, go ahead.
No, go ahead. I thought you left that for me.
No. We expect utilization levels to improve. Probably by the end of the year, you should see some improvement in utilization levels from where they are currently. Then you will see further improvement in FY 2025.
You also have to keep in mind that our new pharma facility will, like Sanjay bhai mentioned earlier, will go on stream and will be capitalized in the coming quarter. Which means that while utilization of the existing business will improve, existing capacities will improve. When you look at a number on the presentation
In the coming quarters, it will also include new facilities. Likely that the number is going to not change very significantly, be either marginal or no change at all.
Sure. No, Amit, it was not the question related to, as I said, for new business, we understand they take time to ramp up. Once they have stabilized, how do you think of the business model when you take new business? Do you expect that in year two at least you expect a healthy 60%-70%? I'm not asking a specific business, so you don't need to worry about that. Just when you take on new businesses, is it okay for us to expect that in year two after stabilizing, you should get to a 60%-70% utilization level because that's what gives us reasonable return ratios, et cetera. Otherwise, it takes these long lead times to really reduce our return on capital.
Absolutely. No. The answer is yes, we should in year two expect 65%-70% utilization at a minimum. Unfortunately, if you look at the consumer portfolio, that's also how we cost it out. If it doesn't happen, we're increasing our payback period by that amount. Very unfortunate what happened in FY 2023. At the beginning of the year, we had a solid business plan. Didn't happen. Forecast kept coming down. It kept decreasing. In FY 2024, we're not seeing a full recovery. We're seeing slight improvement, which is why I said that look at a horizon of 18-30 months, where you'll see our utilization levels improve substantially.
Great. Last question, maybe just an addition on the same tone that, what I guess happened with the toys and the steel businesses, I think they were slightly different for us. Going forward, do you see new areas as well where it could require very different processes and different products from us, or you expect more growth coming from generally products aligned to our plastics facilities and maybe with some more fungible capacity?
I think from a capability perspective, we're looking at making enhancements when it comes to complex assemblies. We do complex assemblies in pharma today, we're now looking at doing even more complex assemblies with more components. A typical bill of material could run into, let's say, upwards of 70, 80 parts in a particular sub-assembly or a product. We'll try to gain that capability. Also look at various means and ways of automating part of these processes. Going forward, if we don't get into complex products, then we're going to end up eroding our margins at some point. Getting into more complex products means that we will need more value add and more manufacturing processes and more complex processes.
Okay. I guess somewhat similar to what you have done with injectable. Is that fair?
Yeah.
Okay. Thank you so much.
Thank you.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Ritesh, going on the first leg. A couple of questions. First is, last year, we were looking to hire a new CEO. Any specific update over here? Anything in thought process or the thought process?
I am very hopeful, Ritesh, that we will be able to give you an update in the next quarter. Our next earnings call, we should be able to give you an update. We had paused the process in the last financial year, looking at the decrease in forecast. We restarted it about three and a half, four months ago. We have been actively interviewing, and we have released offers. We hope that we will be able to give you more concrete details in the short term.
Sure. If you had to appoint a CEO, what objective will it attain for the firm? Any specific KRAs that you have drawn out for the new appointee?
Given we're a manufacturing organization, a very strong emphasis on operations. What we have looked at in the candidate or in terms of the profile is we also wanted someone with a technology background, which means someone who's extensively worked on product development. Above all else, it's the organizational building of an individual, from that perspective. We're looking at a person that's obviously a good cultural fit with Shaily, but can also build the organization, take the people along with the growth that we see coming.
Sure. There might be some background noise there, sorry for that. I have a few more questions. Amit, you did indicate about utilization levels from an 18 - 30-month duration. Just trying to understand how do you come at this timeframe? Are there any specific underlying variables that you are monitoring? Is it the inventory in the channel or the order book position? If you could shed some color, that would be really useful.
On the pharma side, we have mentioned a few times before that we will see one of our first big products being launched in 2025. Not FY 2025, in calendar 2025, which is why I said that look at a horizon which is higher. Plus the fact that we're putting in new capacities right now means that we will only see that ramp up over three years at a minimum. With the existing business, we know that the current year there is slight increase, but otherwise more or less muted from the last year. The hope is that there will be a global recovery post the next 12 months, which is why I look at a horizon of 18-30 months. Even if there isn't a global recovery of existing business, we are adding new strategic businesses that should be our utilization levels go up.
Right. I think you have detailed about pharma, when we look at home furnishing, is that channel inventory element that you are looking at, how should we understand this part of the business?
Yeah, go ahead, Sanjay bhai.
Go ahead, Amit, go ahead.
No, I was just going to ask him to repeat the question because I heard a lot of background noise. If you got it, please answer.
Also, what we monitor is not the inventory, but the 52-week rolling forecast, which we get on a weekly basis. We are seeing some traction or some improvement there, and that's what we constantly monitor. We are also adding newer products. We just talked about three new products being added, which we will be commercializing by Q4 and Q1 in the next year. Which will also lead to an improvement in utilization level. It will be a combination of new products and increase in volumes on the existing product, which would improve utilization levels.
Sure. This is helpful. Amit, we just couple of questions on the pharma side. I think couple of quarters back we had indicated that we are very hopeful that we can actually develop the revenues in a three-year timeframe. Where are we on that? I think Sanjay bhai did explain that number of pens is not the right way to look at. Historically we have given a number that we have capacity of around 20 million pens, and I think last year we had around 6.8 + which we had sold. If we quantify the number of pens, probably from a capacity utilization just from understanding standpoint and a headline number of doubling the revenues on a three-year timeframe. Should we look at that number by FY 2024, 2027? How can you look at that?
We are looking at a 60%-70% growth in the current year, which means doubling the revenue in three years is going to happen, as we had indicated in the past. On the pens, in terms of absolute numbers of the pens also, we are looking at nearly that percentage increase. I would say maybe not as much as 60%, but a very substantial increase in the number of pens that we will be selling in the current year as well. With the new capacities coming up, we have added capacity to manufacture another 20 million pens. That ramp up is not going to happen in FY 2024. It is going to take time. We will see some volume in 2024, then steady increases over 2025 and 2026.
Sure. Just one last question. Sanjay bhai just indicated that there is this INR 90 crore of incremental business, which is flowing from Q4 and Q1 onward. Is this all margin accretive?
Is this margin?
Accretive? At the top level. The reason I ask this, earlier we had this scenario wherein when we deal with the home furnishing major, we were asked to do the tooling CapEx, and hence it was imperative to look at numbers from a PBT level. How should we look at this INR 90 crores of incremental orders? First question, is it accretive at EBITDA margin level? It should give some color at ROC. Secondly, is there some tooling CapEx element which is there over here? Or if it's not something which is relevant? Okay.
There will be some. Yeah, go ahead, Sanjay bhai.
Ritesh., if y ou want to look at it from an ROCE perspective, yeah, it will be accretive. At an EBITDA level, it will be more or less similar to levels of EBITDA which are there on the current quarter.
Okay. From a purely C apEx standpoint, is there some incremental commitment that we have to go for?
No.
Sure. This is helpful. Thank you so much.
Thank you. The next question is from the line of Richa from Equitymaster. Please go ahead.
Sir, thank you for the opportunity. My question is on this orders from GE Appliances. Just wanted to get a sense of, do you see stickiness in this kind of order? What kind of run rate going forward? Will it grow over time? As of now, could give some color on that.
We have been working with this customer, as Amit mentioned, since 1995.
Yes.
We have close to a 30-year relationship with this customer. All the current products also, which we do, including these two new products which we will be doing, we will be the single source for this customer worldwide.
Okay.
We're looking at growing the relationship, as Amit also mentioned earlier in his speech. On one of the questions where somebody asked, we are looking at growing with the customer and to add more businesses in the year.
Okay. Sir, let's say we speak from, three-year perspective. How do you see the business mix changing between both pharma and non-pharma? The reason I'm asking is that I just want to get a sense on what kind of margin from a longer-term growth perspective should we expect.
I think pharma will grow at a much faster pace as compared to the overall business. That will basically mean you will see margins improving from a fiscal year perspective.
Okay. What kind of margins do we have in pharma? Can you give any kind of range, if not?
No.
Okay. Sir, could you also talk about or give some more color on the process of winning new orders, new clients, something like that.
Sorry.
What kind of-
I didn't understand the question. Can you explain that a little more in detail?
Yeah. Let's say we got the toy business a few years ago, and currently you're saying that we have got an order for which we'll be the only client. I understand this client is a long-standing client. When it comes to targeting new clients in new areas, if you could add a little more color on what is the process to increase visibility on what we are doing in targeting clients, in targeting new business stuff.
There are a few areas that we're actively pursuing. Like I said, we prefer to get into more complex products, which fit our capabilities and engineering strength, and not so much non-highly commoditized businesses.
With that in mind, h ello?
Yeah. Go ahead.
Am I audible?
Yeah.
With that in mind, we are working with a few companies to see how we can start a relationship. You'll see, again, the theme is basically consumer electronics, appliances, and even industrial applications. At this point, Richa, it would be immature for us to shed any further light or give you any names. As the conversation matures and we actually have something more concrete in hand, we will be providing an update.
Okay, fair enough. Sir, any kind of guidance on CapEx for this year or in the coming two years?
I think CapEx for this year, we've already indicated that whatever we are doing on the pharma front and our tool room is what we are doing. We will not be doing any large CapEx other than that in the current year. Next year, we'll again be basically looking at how utilization levels improve on the automobile front. Once they improve, we will basically be looking at CapEx.
Okay. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Priyank Parekh from Abacus Asset Management. Please go ahead.
Yeah, thanks for the opportunity. Just wanted to understand what sort of metrics you take for your operational purpose. Is it like per ton revenue, per ton realization, per ton GP margin, both GP or absolute number you take, or it is certain percentage of GP margin on this much revenue? How you look at internally?
Priyank, could you just repeat your question please?
No. Wanted to understand, when you are planning your business internally, what metric you target? Is it absolute gross profit per ton or is it percentage of revenue or something like that? How you plan it internally?
Priyank, we never look at gross profit on a per ton basis or anything. We never look at it on a per ton basis. There will be different matrices which we will look at. What are the resource pool to existing capacities? Are there investments required? What sort of an EBITDA margin of ROCE or something which are there given to you?
Sanjay bhai, I think internally, there are a few expense lines that we look at in % of revenue.
Yeah.
Most of our internal operational metrics would be measured, for example, what is the material yield? Material yield, typically for us, a target would be 98.5% or 99% plus, which means that we don't want to scrap raw material more than 1%. We look at downtime, cycle time, cycle efficiency. If we've gotten business at a 30-second cycle time from a customer, as an example, then is the plant running the machine at 30 seconds? Is it running it at 32 seconds or is it running it at 28 seconds? These are the type of, I guess, parameters or indicators that we track internally.
Okay. In your last con calls, you indicated an expected utilization of 50%-55% percentage for FY 2024. Is it going to be same even today?
I think Amit just answered that earlier, that whatever we are currently, we will see some improvement, but it will be a gradual improvement over the current year. That's what we indicated also.
Okay. 50%-55% would be the right number to take?
I think we won't join in a number, we would refrain from giving a number there.
Okay, fair. Yeah.
You will see the improvement in the coming quarters.
Okay. Thank you.
Thank you very much. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Thank you, and over to you all. Members of the management.
Thank you.
Yes.
Yeah. 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 you to get in touch with SGA, our investor relations advisor. Thank you and have a great day.
Thank you. On behalf of Shaily Engineering Plastics Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.