IPO Note on Shyam Metalics and Energy Limited - HDFC Securities

Background & Operations:

Shyam Metalics and Energy Limited (SMEL) is a leading integrated metal producing company based in India (Source: CRISIL Report) with a focus on long steel products and ferro alloys. It is amongst the largest producers of ferro alloys in terms of installed capacity in India, as of February 2021 (Source: CRISIL Report). The company has the ability to sell intermediate and final products across the steel value chain and currently operates three manufacturing plants that are located at Sambalpur in Odisha, and Jamuria and Mangalpur in West Bengal. Its manufacturing plants also include captive power plants with an aggregate installed capacity of 227 MW, as of December 31, 2020. It is also in the process of increasing the capacities of its existing manufacturing plants and captive power plants, which is expected to increase its aggregate installed metal capacity (comprising of intermediate and final products) from 5.71 MTPA, as of December 31, 2020, to 11.60 MTPA and captive power plants aggregate installed capacity from 227 MW, as of December 31, 2020, to 357 MW. These proposed expansions are expected to become operational between Fiscal 2022 and Fiscal 2025. In addition, it is in the process of commissioning an aluminium foil rolling mill at Pakuria in West Bengal with a proposed installed capacity of 0.04 MTPA, which is expected to become operational in Fiscal 2022.

SMEL's Sambalpur and Jamuria plants operate as 'ore to metal' integrated steel manufacturing plants and comprise captive railway sidings, captive power plants, iron pellet, sponge iron, billet, thermo mechanically treated ("TMT"), wire rod and structural mills, and ferro alloy plants. Further, its Mangalpur plant comprises sponge iron and ferro alloy plants, and a captive power plant. It has eight captive power plants that utilise non-fossil fuels, such as, waste, rejects, heat and gas, generated from its operations to produceelectricity and thereby enable to operate at lower power costs. The proposed expansion plans of its captive power plants will help to meet its increased requirement of power and enable to become more self-sufficient.

SMEL's primarily produce intermediate and long steel products, such as, iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferro alloys products with a specific focus on high margin products, such as, customised billets and specialised ferroalloys for special steel applications. It also undertake conversion of hot rolled coils to pipes, chrome ore to ferro chrome and manganese ore to silico manganese for an Indian steel conglomerate. It is also currently in the process of further diversifying its product portfolio by entering into the segments, such as, pig iron, ductile iron pipes and aluminium foil. The Compnay's product offerings cater to a mix of customers that consist of institutional customers and end-use consumers through its distribution network. Its domestic customers include Jindal Stainless Limited, Jindal Stainless (Hisar) Limited, and Rimjhim Ispat Limited. Its international customers include Norecom DMCC, Norecom Limited, POSCO International Corporation, World Metals & Alloys (FZC), Traxys North America LLC, JM Global Resources Limited, Goenka Steels Private Limited and Vijayshri Steel Private Limited. As of December 31, 2020, it had partnerships with 42 distributors, who stock and sell its finished products across 13 states and one union territory. It also sell its intermediate products through brokers.

SMEL have a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. It had reported healthy operational as well as financial growth despite downturns in the industry. The Company is also the least leveraged group among its peers. Its revenue from operations increased at a CAGR of 6.56% from Rs. 38,425.66 million in Fiscal 2018 to Rs. 43,628.86 million in Fiscal 2020 and was Rs. 39,330.84 million in the nine months ended December 31, 2020.As of March 31, 2018, 2019 and 2020 and as of December 31, 2020, its Gross Debt to Equity ratio was 0.30, 0.29, 0.47 and 0.27, respectively. RoCE for Fiscals 2018, 2019 and 2020 and for the nine months ended December 31, 2020 was 19.58%, 24.69%, 9.49% and 13.30%, respectively.

Source : Equity Bulls

Keywords