Shyam Metalics: Up 56% from its IPO price, ICICI Securities sees another sharp rise in the metal stock; here’s why

Domestic brokerage firm ICICI Securities, in its latest report, has retained its 'buy' recommendation on Shyam Metalics and Energy (SMEL), a leading integrated metal producer with an unchanged target price of ₹690 apiece, indicating an upside of 45%.

Despite the company's Q2FY24 EBITDA falling short of its estimates, the brokerage expects a ramp-up of DRI-IF route capacity, the recent uptick in prices, and the commencement of stainless-steel capacity at Mittal Corp to aid the company's EBITDA in H2FY24. The brokerage highlighted that the company has a net debt/EBITDA of 0.74x, the best among peers.

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With the commissioning of the 198 ktpa sponge iron unit at Sambalpur, the entire DRI-IF capex announced on March 22 has been commissioned. Of the balance capex, the brokerage said that the company has incurred more than 50% and 40% for blast furnace and coke oven. Almost 25% of capex for 400ktpa colour coated capacities has been incurred. The company's H1FY24 capex stands at ₹8.9 billion.

The brokerage believes that in the near term, earnings growth is largely expected to be volume-led, coming from the ramp-up of DRI-IF capacity. Over FY25, it expects an additional revenue stream from the stainless steel capacity at Mittal Corp.

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The brokerage also pointed out that by FY25, Shyam Metalics and Energy will be the only metal company in the world to have revenue streams from carbon steel, stainless steel, and downstream aluminium business.

For the September quarter, the company recorded consolidated revenue of ₹2,941 crore, down from ₹3,085.20 crore recorded in Q2FY23. The operating profit during the quarter improved by 26% YoY, while the operating profit margin expanded 200 basis points to 10%.

On the bottom level, the consolidated profit after tax jumped 330% YoY to ₹481.97 crore. 

The company, in its earnings report, said that it successfully received the order from Hon’ble NCLT, Mumbai Bench, for the acquisition of Mittal Corp Limited, along with the order of approval for the merger of Mittal Corp Limited with Shyam Sel and Power Limited, a wholly-owned subsidiary of the company.

"There has been sustained growth in the aluminium foil business, and the foray into stainless steel will add to our metal product basket and the growth of our company," Shyam Metalics said in its earnings report.

Shyam Metalics is a leading integrated metal-producing company based in India, primarily in the steel industry in West Bengal and Odisha, with a focus on long steel products and ferro alloys.

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The shares hit the secondary market on June 24, 2021, listing at ₹375.9 apiece as against the issue price of ₹306. Taking the stock's current value of ₹477.60 into account, it is trading 56% higher than its IPO price.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.