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In line performance; expansions to drive earning trajectory; BUY

Shyam Metalics (SMEL) reported an EBITDA of INR6.1bn, broadly in line with JMfe. EBITDA/ton stood at INR13.3k for 1QFY23 vs INR15.7k in 4QFY22, primarily impacted due to higher raw mat. cost. SMEL has now had six consecutive strong quarters of INR6bn+ EBITDA. The company declared an interim dividend of INR1.8 per share during the quarter and maintains a net cash balance sheet position. 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. However, SMEL faced several hurdles in implementation of the resolution plan during the quarter, therefore the company has not considered Ramsarup Industries for consolidation. SMEL remains on track to increase its integrated installed facility to 14.5 mn tons by 2025, having incurred ~48% of total capex envisaged upto 1QFY23. 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. Re-iterate BUY.

* Higher volumes and realisations aid revenue growth: Shyam Metalics (SMEL) reported an EBITDA of INR6.1bn, broadly in line with JMfe. EBITDA/ton stood at INR13.3k for 1QFY23 vs INR15.7k in 4QFY22, primarily impacted due to higher raw mat. cost. The company reported Adj. PAT of INR4.1bn 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 ~48% of total capex envisaged upto 1QFY23. Further, the company commenced production at the newly commissioned Aluminium Plants delivering volumes of 1.5 kt during the quarter. 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. However, SMEL could not implement the resolution plan on account of several hurdles being faced by the company. Hence, in the absence of proper and complete handover of documents, the account of Ramsarup Industries Ltd has not been considered for consolidation.

* 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. Re-iterate BUY.

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