Shyam Metalics is set to raise up to Rs 909 crore via IPO which opens on 14th June, Monday. Here are the details:
About Shyam Metalics
- Incorporated in Dec-02, Shyam Metalics is a leading integrated metal producing company based in India with a focus on long steel products and ferro alloys.
- Shyam Metalics is among the largest producers of ferro alloys in terms of installed capacity in India. As of FY20, they were one of the leading players in terms of pellet capacity and the 4th largest player in the sponge iron industry in terms of sponge iron capacity in India.
- Since the commencement of their operations, they have delivered a positive EBITDA in each of the financial years so far
- Shyam Metalics has 3 manufacturing units with aggregate operating capacity of 5.70 MTPA with 227 MW of Captive Power Plant.
- TMT, Structural products, wire rods and pipes contributed to nearly 40% of total revenues of Shyam Metalics in Apr- Dec 20 period.
- Notably, Shyam Metalics is the leading player in Ferro Alloys Category in India with a capacity of 0.21 MT in Dec-20. Ferro Alloys Contributed to 16% of total revenues for the company.
- Shyam is the 4th biggest player in the Sponge Iron Industry, after prominent names such as JSPL, JSW and AM/NS (joint venture of ArcelorMittal and Nippon Steel). The Sponge Iron Category Contributed to 12% of total revenues in the Apr- Dec 20 period. Shyam Metalics earned revenues of Rs 440 crore from this product.
- Shyam Metalics competes with highly established listed peers such as Tata Steel, JSW Steel and SAIL. It has also shown Jindal Steel & Power and Tata Steel Long Products as its listed peers.
- Shyam Metalics has reported better EPS and Return Margins as compared to its listed peers
- They have a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. Shyam Metalics has an external credit rating of Crisil AA- (for their long-term bank facilities) as compared to S&P B+ for Tata Steel and CRISIL BBB for Jindal Steel & Power. SAIL and JSW Steel have been rated at AA- by CRISIL.
- Revenue from operations increased at a CAGR of 6.56% from Rs 3,843 cr in FY18 to Rs 4,363 cr in FY20.
- Shyam Metalics’ EBITDA amounted to Rs 634 cr and Rs 717.32 cr in FY20 and the nine months ended December 31, 2020 period respectively.
- Since the commencement of operations in Fiscal 2005, the company has delivered a positive EBITDA in each of the Fiscals, as per its DHRP. The EBITDA margin has been in the range of 14 -19%.
- As of March 31, 2020, Shyam Metalics gearing ratio was one of the lowest amongst competitors (Source: CRISIL Report). In FY20, interest coverage ratio was one of the highest amongst competitors (Source: CRISIL Report).
- The company’s Gross Debt/ Equity ratio has seen a reduction to 27% in Apr-Dec 20 period from 47% in the previous fiscal. The company is the least leveraged as compared to its peers
- Shyam Metalics has not paid any dividend between FY 2018 to FY2020. It has paid an interim dividend of 18.5% for FY21. Post listing, the company will adopt a prudent dividend policy based on the company's financial performance and future prospects.
About the issue
Issue open: 14th June- 16th June 2021
Price band: Rs 303 -306 per share
Issue Size: Rs 909 crore
Issue Size: (Fresh Issue of Equity Shares aggregating up to Rs 657 Crore and Offer for sale aggregating up to Rs 252 Crore)
Reservation: QIB 50%, Retail - 35%, NII 15%.
Employee Reservation: 3 lakh shares
Bid lot: 45 shares, and in multiples of 45 shares
Shyam Metalics has been able to consistently outperform its peers in terms of operating margins and return ratios. The company also has a stronger balance sheet due to lower debt. In fact, it is the least leveraged as compared to its peers.
Metal stocks have been buzzing of-late on the back of an increase in commodity prices globally amid expectations of a ‘Commodity Super Cycle.’ Given its prominent position in the industry, the current upcycle provides a very good opportunity for Shyam Metalics to improve its business profile further.
At the higher end of the price band, Shyam Metalics IPO is priced at a P/E of around 12.83 FY21 earnings (post-issue). This seems to be reasonable, considering the company’s track record and the outlook going forward.
Given factors such as healthy margins, good return ratios, lower debt (than peers), potential growth runway and reasonable valuations, we remain positive on this issue. However, given the cyclical nature of the business, investors with a lower risk-profile should exercise caution while subscribing to the issue.