Buy Shaily Engineering Plastics; target of Rs 1670: ICICI Direct

ICICI Direct is bullish on Shaily Engineering Plastics recommended buy rating on the stock with a target price of Rs 1670 in its research report dated Jun 02, 2021.

An Edelweiss research report for Q4FY21 says road tonnage continued to improve, evident in e-way bill generation (up 6% QoQ) and improved core trucking rentals. “We estimate tonnage would increase by three–five percent for truckers. Asset-light plays Mahindra Logistics and TCI Express remain our preferred picks due to their ability to scale up/down as the environment demands,” the report said. Edelweiss is bullish on Blue Dart Express due to the pandemic-induced boom in e-commerce and its leaner cost structure. It has retained a ‘buy’ call on Mahindra Logistics, TCI Express and Blue Dart Express.

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ICICI Direct’s research report on Shaily Engineering Plastics

Shaily reported a strong performance in Q4FY21 with revenue, PAT growth of ~38%, ~40%, respectively. Further, the company has guided for strong revenue growth in FY22 despite lockdown related disruptions in Q1. A home furnishing major (HFM) remains a key contributor to the overall topline (55% of overall revenue). However, significant growth opportunities in the healthcare segment (revenue growth of 2-3x in the next three to five years) and strong order pipeline in the toy business provide strong revenue visibility in the next two years. With better operating leverage and a complete pass on mechanism of inflationary pressure to its clients (with a lag of three months), we see improvement in EBITDA margin in FY21-23E. Better cash flows, going forward, will be utilised to fund future capex and reduce debt (FY21 debt at ~Rs 173 crore). That is expected to result in a robust PAT CAGR of ~66% in FY21-23E.

Outlook

We believe Shaily is on a strong footing considering diversification into new product category and strong order book from existing customers. We maintain our BUY rating on the stock with a revised target price of Rs 1670 valuing the company at 25xFY23E earnings (earlier target price Rs 1060).

For all recommendations report, click here

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