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The volume/realisation data of Shyam Metalics and Energy (SMEL) for Apr23’ reveals that the company has made a good start in FY24 despite price/demand headwinds, particularly in long products. Key points: 1) Volume of metalics and semis rose as newly-commissioned facilities in Dec22’/Jan23’ ramped-up production; 2) rebar volume declined 15% MoM to 103.4kte owing to seasonally lower demand; and 3) aluminium (Al) foils sales volume was down 9% MoM though there is an impressive ramp up YoY. Going ahead, we expect volume growth YoY to sustain as capacities ramp up. Additionally, new rebar facility of 330kte by Jun23’ end may further boost the share of rolled products. On profitability front, we expect an improvement in Apr23’ compared to even Mar23’ mainly driven by lower thermal coal cost- both domestic and imported and steadily declining iron ore prices. Going ahead, while we expect realisation to decline, lower cost is likely to result in EBITDA rate of Rs6-6.5bn per quarter. Hence, we do not envisage a risk to our FY24E EBITDA of Rs29bn (up 93% YoY). We maintain BUY on SMEL stock with an unchanged TP of Rs570/share on 4.5x FY25E EBITDA.

* Steady operating performance in April23’: SMEL’s operating performance in Apr23’ stayed stable with the newly-commissioned upstream and semi-finished steel capacities ramping up. Key points: 1) Despite sharp decline in realisation YoY, we expect revenue to stay steady owing to sales volume uptick; 2) higher sales volume of semis and metallics is likely to partially mitigate the impact of lower steel sales volume owing to seasonal factors. Besides, offtake in induction furnace (IF) segment has been impacted by need-based buying by the dealers ahead of monsoons; and 3) realisation was broadly stable MoM. Going ahead, we believe sales volume is likely to get a further boost as additional capacities in pellet, sponge iron and steel are commissioned by end-Jun23’. Besides, stainless steel sales volume from Mittal Corp is expected to add further revenue.

* Margin likely to get better owing to lower thermal coal cost: Despite possible revenue decline due to seasonal factor in rebar, we expect SMEL’s margin to improve owing to steadily declining thermal coal cost and iron ore cost. We envisage Apr23’ EBITDA margin between 14-16%, higher than our FY24E EBITDA margin of 14.8%. We believe additional revenue from rolling stainless steel billets at Mittal Corp may be margin accretive.

* Outlook: Long–term prospects intact: We stay upbeat on SMEL’s prospects largely due to new steel/DRI capacity getting commissioned by end-Jun23’. As a result, at this stage, we don’t see a risk to our FY24E EBITDA of Rs29bn (up 93% YoY). Maintain BUY on SMEL stock with an unchanged TP of Rs570.

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