Shyam Metalics: Well set to deliver steady growth

12 Apr 2024 , 10:47 AM

Shyam Metalics’ continues to deliver well on the planned capacity expansion across carbon steel, stainless steel and Al downstream products. These would drive volume growth and increasing share of downstream VAP and should support 28% Ebitda Cagr over FY23-26 at current product prices. This would support healthy OCF generation sufficient to meet the Rs49bn planned capex over FY25-27 and ensure that it remains a net cash company. Analysts of IIFL Capital Services raise their TP to Rs721/share (5.5 EV/Ebitda) and retain BUY.

Focused on volume expansion and quick ramp-up:

Continuing with its track record of steady expansion, SMEL is well set to commission its first BF of 0.6mt by Aug-24 along with 0.45mt coke oven and expects to ramp up production over 6-8 months. 250kt of the planned 400kt CRM capacity will be commissioned in Jul-24 and would add flat carbon steel products to the existing portfolio of long products. In stainless steel, longs capacity at Indore will expand to 220kt by FY26 while Sambalpur would see a new 500kt flats capacity (incl 200kt CR) by FY27. Al foil output should more than double to over 50kt including a new 25kt battery foil capacity by FY26.

Growing share of VAP and backward integration to aid profitability:

Share of downstream products for SMEL has steadily increased from 15% to 48% over past 6 years. Analysts of IIFL Capital Services see further gains over FY25-27 from the 400kt CRM plant, 400kt DI pipe capacity, 500kt stainless flat capacity and 25kt Al battery foil capacity. At the same time, backward integration is improving through – (i) upcoming blast furnace/pig iron facility and (ii) planned 60kt Al FRP facility (at Sambalpur) will produce feedstock for Al foil facility. Over 5-6 years, commissioning of the recently won Surajgad 1 block in Maharashtra can provide a hedge for iron ore requirements as well.

Internal OCF sufficient to meet entire capex needs:

Steady up-tick in volumes and profitability would enable sufficient OCF to meet entire capex needs of Rs49bn over FY25-27 and ensure that SMEL continues to be a net cash company. This provides significant comfort given the inherent cyclicality in the business.