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Niche business segments to drive earnings

Shyam Metalics (SMEL) reported EBITDA of INR4.4bn, higher than JMfe of INR4bn. EBITDA/ton stood at INR6.4k for 4QFY24, vs INR6.3k/t in 3Q. Sequentially higher realisations helped sustain margins despit the raw material inflation. Coompany witnessed a ~7% increase in volumes QoQ driven by improved demand scenario. Further, SMEL’s strategy to foray into niche business segments - Aluminium foil, stainless steel TMT and colour coated sheets will offer growth optionality, besides improving SMEL’s margin profile. 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. The company has executed capacity expansion plans with precision over the past few years. Capital allocation towards niche business segments augur well for the company. Maintain BUY.

* Volume growth coupled with realisation increase:

Consol. revenue stood at INR36bn (up~9% QoQ), led by higher volumes and higher realisations in stainless steel & pellets. SMEL reported consol. EBITDA of INR4.4bn vs INR4bn in 3Q primarily on account of higher realisations and improved volumes. Volumes stood at 0.69mn tons in 4Q vs 0.65mn tons in 3Q. EBITDA/ton stood at INR6.4k/t for 4QFY24 vs INR6.3k/t in 3QFY24. The Company reported consol. Adj. PAT of INR2.2bn during the quarter, up significantly on lower depreciation during the quarter.

* Fundraising through QIP route:

Company had raised ~INR13.9bn through QIP during Jan’24 against total bid amount of ~INR41bn. Company issued ~24.1mn shares to 38 QIB’s at issue price of INR576 per share (premium of INR566 per share) and same has been used to repay working capital loan. Company had net cash position of ~INR12bn post QIP as at last quarter end.

* SMEL progressing well on capex plans:

SMEL continues to progress well on planned capex spends. The capex plan will help increase upstream capacities by 5.2mtpa at a cost of INR12.2bn. This includes a 3mtpa increase in pellet capacity (INR3bn), 0.5mtpa increase in billet capacity for flat products (INR2bn), 0.4mtpa billet capacity for parallel flange beam (INR1.1bn), 0.1mtpa stainless steel billet capacity (INR1.3bn) and 1.2mtpa DRI capacity (INR4bn). Downstream capacities are expected to increase by 1.8mtpa at a cost of INR15.9bn. This includes 0.2mtpa CRM for stainless steel (INR1.5bn), 0.6mtpa DI pipe capacity (INR6bn), 0.5mtpa capacity for hot flat products (INR5.5bn), 0.4mtpa capacity for parallel flange beam (INR2.4bn) and 0.1mtpa capacity for Steel Wire Drawing (INR0.5bn). Further, the company will also incur a capex of INR12.6bn towards enhancing captive power generation by addition of 240 MW of power generation in captive power plant and increasing renewable energy portfolio by 100MW

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SEBI Registration Number is INM000010361