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Niche positioning to drive earnings trajectory

Shyam Metalics (SMEL) reported consol. EBITDA of INR5.4bn, higher than JMfe of INR4.9bn driven by higher blended realizations (+9% QoQ). EBITDA was down 7% QOQ primarily driven by higher RM costs/t (+11% QoQ) and higher staff costs/t (+9.5% QoQ). Volumes (carbon steel + sponge iron) declined to 0.61mn tons in 2Q vs 0.66mn tons in 1Q. Consequently, consol EBITDA/t came in at INR8.8k/t – up ~INR0.1k/t QoQ. Key takeaways from the call are a) company has discontinued its DI pipes project following significant technological changes and demand shifting towards OPVC pipes - plans to re-allocate more capital towards value-added products (~28% in 1HFY26 vs ~25% in 1HFY25) b) total envisaged capex has come down to ~INR94bn from ~INR100bn earlier - to be fully deployed by Mar’27 c) stainless steel revenue (mainly from Mittal Corp) stood at ~INR6bn in 2Q and company expects ~INR15-20bn of revenue in FY26 d) company expects CAGR of 15-20% in the top-line over the next 2-3 years with a margin improvement of 200-300 bps. As of 2QFY26, company has incurred a capex of ~INR75bn, representing ~80% of its planned capex of ~INR94bn. Out of the capex incurred, INR49bn has been capitalized. Shyam Metalics offers a unique play in the Indian metals space, with a combination of a) increasing contribution from finished steel and valued added segments and b) diversified business across the steel value chain. Capital allocation towards niche business segments augur well for the company. Maintain BUY.

* Margins decline given higher RM costs: Consol. revenue came in at INR44bn, flat sequentially given higher realizations were offset by lower volumes (-8% QoQ). SMEL registered consolidated EBITDA of INR5.4bn, marginally higher than our estimate of INR4.9bn driven by higher realizations (+9% QoQ). EBITDA was down 7% QOQ primarily driven by higher RM costs/t (+11% QoQ) and higher staff costs/t (+9.5% QoQ). Consequently, consol EBITDA/t came in at INR8.8k/t – up ~INR0.1k/t QoQ. The volumes (carbon steel + sponge iron) declined to 0.61mn tons in 2Q vs 0.66mn tons in 1Q. Consol. Adj. PAT came in at INR2.6bn during the quarter, down 10% QoQ driven by higher interest costs. EBITDA/t across segments witnessed mixed trends during the quarter with Metallics, Speciality Alloys and Aluminium witnessing upward trends QoQ while per ton spreads for Carbon Steel and Stainless Steel remained muted in 2Q.

* Foray into wagon manufacturing; value-added products / SS to drive margins: SMEL earlier announced strategic entry into rolling stock segment – wagon manufacturing with a greenfield facility in Kharagpur at a total capex of INR3bn. Company has downwards revised its capex estimates for this project to INR2bn and the Phase 1 operations are now expected to begin in Sep’26 (as against Mar’26 guidance earlier). SMEL continues to focus on value-added products and cost efficiencies through backward integration. SMEL’s margins in Stainless Steel segment remains low compared to peers – company plans to increase this by foraying into flat products and building SMS for stainless steel at its existing plant. Company is focused to improve its downstream mix by adding SS wires and bright bars to the mix. Company also plans to remain focused on 200/400 series which has lower Nickel requirements.

* DI Project discontinued; other projects progressing well: Company has discontinued its DI pipes project following significant technological changes and demand shifting towards OPVC pipes. Company plans to re-allocate more capital towards the high value-added products mix (~28% in 1HFY26 vs ~25% in 1HFY25). Phase-I of the greenfield project of Cold-rolling mill in Jamuria remains on track with INR5.25bn capex incurred out of the IN6.03bn envisaged. As of 2QFY26, company has incurred a capex of ~INR75bn, representing ~80% of its planned capex of ~INR94bn. Out of the capex incurred, INR49bn has been capitalized.

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SEBI Registration Number is INM000010361