Buy Shyam Metalics and Energy Ltd For Target Rs. 900 By JM Financial Services
Beat in margins; niche positioning to drive earnings trajectory
Shyam Metalics (SMEL) reported EBITDA of INR5.2bn, higher than JMfe of INR4.8bn driven by higher realizations. Consequently, consol EBITDA/t came in at INR7.5k/t – up ~INR0.8k/t QoQ. Volumes in 4Q stood at 0.69mn tons, flat QoQ. Key takeaways from the call are a) FY26 guidance for capex stands at INR20bn comprising of INR4.13bn for steel, INR7.84bn for stainless steel and INR1.26bn for aluminium b) FY26 stainless steel revenue guidance stands at INR13-14bn c) company recently commissioned the wire division which is expected to take 3-6 months to stabilize given specific regulatory requirements by customers d) company ventured into the B2C market with the launch of food-grade aluminium foil under the brand SEL Tiger Foil - to aid margins. As of FY25, company has incurred a capex of ~INR66bn, representing ~66% of its planned capex of ~INR100bn. 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. We roll forward our target price to FY28 with an EV/EBITDA multiple of 6x. Maintain BUY.
* Margins improve given higher realisations: Consol. revenue came in at INR41bn, up 10% QoQ given higher realizations (+9% QoQ). SMEL reported consol. EBITDA of INR5.2bn vs INR4.6bn in 3Q primarily on account of higher sales realisation. The volumes increased marginally to 0.69mn tons in 4Q vs 0.68mn tons in 3Q. Consequently, consol EBITDA/t came in at INR7.5k/t – up ~INR8k/t QoQ. Company reported consol. Adj. PAT of INR2.2bn during the quarter, up 10% QoQ. Company expects margins to grow in the future with the growth of value-added products in the mix. During the quarter, merger of company’s subsidiaries SSEL and SMFPPL was approved by NCLT.
* Backward integration and value-added products to drive margins: Management believes margins are expected to witness an uptrend going ahead given increasing focus on valueadded products and cost efficiencies through backward integration. Company plans to increase the capacity of its color-coated plant from 0.25mtpa to 0.4mtpa, which is currently operating at 90% utilization level. SMEL remains focused on producing 200 and 400 categories of Stainless Steel to reduce its nickel dependency – to lead to lower volatility in SS margins. Company also ventured into the B2C market with the launch of food-grade aluminium foil under the brand SEL Tiger Foil. Company aims to increase the contribution of value-added products, including stainless steel, to 80% of total revenue.
* SMEL progressing well on capex plans: SMEL recently commissioned the wire division, which is expected to take close to 3-6 months given specific regulatory requirements by customers. As of FY25, company has incurred a capex of ~INR66bn, representing ~66% of its planned capex of ~INR100bn. FY26 guidance for capex stands at INR20bn comprising of INR4.13bn for steel, INR7.84bn for stainless steel and INR1.26bn for aluminium.
Key concall takeaways:
* FY26 guidance for capex stands at INR20bn comprising of INR4.13bn for steel, INR7.84bn for stainless steel and INR1.26bn for aluminium.
* As of FY25, company has incurred a capex of ~INR66bn, representing ~66% of its planned capex of ~INR100bn.
* SMEL recently commissioned the wire division, which is expected to take close to 3-6 months given specific regulatory requirements by customers.
* Company ventured into the B2C market with the launch of food-grade aluminium foil under the brand SEL Tiger Foil - to aid margins.
* The company is adding more DRI facilities with a captive power plant to generate power from waste heat and cater to existing downstream facilities of aluminium and stainless steel.
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SEBI Registration Number is INM000010361
