Shyam Metalics and Energy Ltd - Long-term rating upgraded to 'CRISIL AA/Stable', short-term rating reaffirmed, rated amount enhanced

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Shyam Metalics and Energy Limited (SMEL; part of the Shyam Metalics group) to 'CRISIL AA/Stable' from 'CRISIL AA-/Positive'; and reaffirmed the rating on the short-term facilities and commercial paper programme at 'CRISIL A1+'.

The rating upgrade reflects the stronger-than-expected operating performance in fiscal 2022, as reflected in about 65% onyear growth in revenue to Rs 10,311 crore because of a 40% volume growth following robust demand. This, along with healthy operating margin of around 25%, resulted in net cash accruals of around Rs 1813 crores in fiscal 2022 that supported the ongoing capital expenditure (capex) and debt reduction in the previous fiscal. Furthermore, with modular capex, healthy capacity utilisation and integrated operations, business risk profile is expected to remain strong over the medium term.

Buoyant demand, increased contribution from the recently enhanced capacities, better product diversity, favourable sales realisations driven by higher share of value-added products and high steel prices boosted operating performance in fiscal 2022. While steel prices are likely to moderate in fiscal 2023, they will remain healthy. Also, expected moderation in raw material prices (especially iron ore) and diversified product profile will provide cushion against reduced steel prices and support operating profitability.

Additionally, the financial risk profile has been strengthened with reduction in overall debt over the fiscal 2021. Improved profitability and low debt level (Rs 575 crore as of March 2022) led to robust debt protection metrics, with debt to earnings before interest, tax, depreciation, and amortisation (Ebitda) ratio improving to 0.22 time in fiscal 2022 from 0.58 time in fiscal 2021. The group is expected to sustain its healthy financial risk profile despite sizeable capex plans of ~Rs 2,500 - 3,000 crore over the next 2-3 fiscals. The capex is mainly to be supported by internal accruals, supported by expected cash accruals of around Rs 1300 - Rs 1500 crore per annum, and strong liquidity of over Rs 1000 crore in the form of cash & cash equivalents as on June 30, 2022. Any material debt-funded capex or acquisition impacting debt protection metrics, will remain a key monitorable.

The ratings reflect the established market position of the Shyam Metalics group in the steel sector, diversified product and customer profiles, healthy operating efficiency supported by integrated operations and strategic locations of manufacturing units, and the longstanding experience of promoters in the steel sector. The ratings further factors in the group's comfortable financial risk profile backed by healthy debt protection metrics. These strengths are partially offset by vulnerability to fluctuations in prices of raw material and finished goods, exposure to inherent cyclicality as well as competitive and capitalintensive nature of the steel industry.

Shares of Shyam Metalics and Energy Limited was last trading in BSE at Rs. 284.15 as compared to the previous close of Rs. 284.75. The total number of shares traded during the day was 2377 in over 318 trades.

The stock hit an intraday high of Rs. 288.60 and intraday low of 282.90. The net turnover during the day was Rs. 678222.00.

Source : Equity Bulls

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ShyamMetalicsandEnergy RatingUpdate LongTermRatingUpgrade ShortTermRatingReaffirmed