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Subdued quarter; expansions to drive earning trajectory; BUY

Shyam Metalics (SMEL) reported an EBITDA of INR2.4bn, significantly lower QoQ. EBITDA/ton stood at INR5.2k for 2QFY23 vs INR13.3k in 1QFY23, primarily impacted due to lower realisations, raw material inflation and high energy cost. SMEL has been handed over the custody and control of Ramsarup Industries Limited through SS Natural Resources Pvt Ltd an SPV wherein the company holds 60% stake. The impact of the resolution plan has been given effect to on the acquisition date. SMEL’s expansion plan remains on track, having incurred ~56% of total capex envisaged upto 2QFY23. Further, the newly commissioned aluminium foil plant delivered a volume of 4.4kt during 1HFY23. Capacity expansion over the next few years is likely to aid volume growth. The company continues to remain a net cash company with net cash position of INR7.8bn as of Sep’22. Shyam Metalics offers a unique play in the Indian metals space, with a combination of a) doubling of capacity in medium term and b) a strong net cash balance sheet. Further, the company’s close proximity to raw materials given its location in the mineral rich east Indian region and consumption of captive power is likely to drive cost efficiencies. SMEL’s track record of executing cost efficient expansion augurs well for return ratios. Maintain BUY.

* Lower realisations and RM inflation adversely impacts margins: Shyam Metalics (SMEL) reported an EBITDA of INR2.4bn, broadly in line with JMfe. EBITDA/ton stood at INR5.2k for 2QFY23 vs INR13.3k in 1QFY23, primarily impacted due to lower realisations, raw material volatility and high energy cost. The company reported Adj. PAT of INR1.1bn during the quarter.

* Capacity expansion to aid volumes: The Company remains on track to increase its integrated installed facility to 14.5 mn tons by 2025. The company has incurred ~56% of total capex envisaged upto 2QFY23. The company commenced production at the newly commissioned Aluminium Plants delivering volumes of 4.4 kt during the 1HFY23. ~75% of aluminium foil is being exported. End user industries for Aluminium foil include packaging companies in USA and Europe. Capacity expansion over the next few years is likely to aid volume growth in FY23/24.

* SMEL takes over Ramsarup Industries Limited: SMEL has been handed over the custody and control of Ramsarup Industries Limited through SS Natural Resources Pvt Ltd an SPV wherein the company holds 60% stake. The company acquired INR13.30bn worth asset of Ramsarup Industry for a consideration of INR 3.8bn.

* A high growth opportunity beyond front run names: Shyam Metalics offers a unique play in the Indian metals space, with a combination of a) doubling of capacity in medium term and b) a strong net cash balance sheet. The name also offers the opportunity to look beyond the front run, highly consolidated steel space in India. SMEL’s track record of executing cost efficient expansion augurs well for return ratios. Maintain BUY.

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