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Shyam Metalics and Energy IPO Financial Analysis (Subscribe for Long Term)

Shyam Metalics and Energy IPO  Fundamental Analysis

Shyam Metalics and Energy Limited IPO opens on 14th June 2021 amounting to Rs 909 crore. The offer comprises fresh issue of Rs 657 crore and an offer for sale of Rs 252 crore.

Key Highlights of Shyam Metalics

  • Diversified product mix with a strong focus on value-added products. The product portfolio of the Issuer comprises 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.
  • Well-known national (Jindal Stainless Limited, Jindal Stainless (Hisar) Limited, and Rimjhim Ispat Limited) and international customers which include Norecom DMCC, Norecom Limited, POSCO International Corporation, World Metals & Alloys (FZC) among others.
  • Expansion plans to increase the installed capacities for growth in the future. The issuer has plans of increasing the capacities of their existing manufacturing plants and captive power plants. The aggregate installed metal capacity is expected to increase from 5.71 MTPA (Dec 2020) to 11.60 MTPA and captive power plants aggregate installed capacity from 227 MW (Dec 2020) to 357 MW.

Shyam Metalics Financial Review

Shyam Metalics posted total revenue of Rs 3995.63 crore for nine months ending 31st Dec 2020. The Issuer earned PAT of Rs 456.32 crore for the same corresponding period. The total revenues reduced by 6.17% to Rs 4395.30 in FY20 as against Rs 4684.56 crore for FY19. PAT reduced by 44% to Rs 340.34 crore for FY20 from Rs 604.13 crore for FY19. The decrease in PAT was mainly due to an increase in interest cost in FY20 and the purchase of stock in trade.

The financial performance in fiscal 20 has fallen slightly due to lower turnover and higher provisions for interest and depreciation owing to the expansion of installed capacities in FY20, according to the management.

Debt to equity is 0.51 in FY 20 which increased from 0.32 in the last two years. The Issuer’s borrowings increased to Rs 1330.5 crore in FY 20 from Rs 722.11 crore in FY19. Return on net worth is 12.04% for FY 20.

Table 1 - Financials and Ratios (Amount in INR Crore)
Title 9 months FY 20-21 FY20 FY19 FY18
Total Revenue 3995.63 4395.3 4684.56 3920.4
PAT 456.32 340.34 604.13 424.37
EBITDA 782.07 677.99 1022.91 781.3
Total Assets 10515 5,203.79 4,052.43 3,470.63
EBITDA Margin 19.57% 15.43% 21.84% 19.93%
Net Margin 11.42% 7.74% 12.90% 10.82%
Debt to equity 0.29 0.51 0.32 0.32
Return on Net Worth 13.89% 12.04% 24.27% 22.89%

Peer Comparison and Valuation

At NAV of 140.63 as on 30th Dec 2020, P/BV is 2.18 at upper price band of Rs 306 per share. With EPS of 19.53 for 9 months ending 31st Dec 20, equivalent P/E is 11.75 as compared to peer average P/E of 14, hence the issue appears to be fully priced.

Tata Steel, JSW Steel, SAIL, Jindal steel are shown as the peers of the Issuer in the RHP though they are not directly comparable in terms of volumes of business. Peer details are shown in the table.

Table 1 - Comparative Analysis of Shyam Metalics with Competitors
Particulars Tata Steel JSW Steel SAIL Jindal Steel Tata Steel Long Products Shyam Metalics
Face Value per share 10 1 10 1 10 10
Total Income for FY20 141660.1 141660.1 62570.0 36943.7 3571.3 3571.3
Basic EPS 11.86 16.78 5.13 -1.08 -142.81 14.57
NAV per share 640.52 150.41 100.58 310.62 452.16 120.97
Return on net worth 1.54% 10.87% 5.11% -1.28% -25.59% 12.04%
P/E 16.56 21.32 15.46 11.16 7.26 -

Conclusion

    Shyam Metalics is a leading integrated metal producing company based in India with a focus on long steel products and ferroalloys. The Issuer has a decent financial performance over the three years and 9 months ending Dec 20. The Issuer also intends to expand its manufacturing capacities and has growth plans for the future. Steel has good demand from sectors like infrastructure, oil and gas, and auto which is also a positive. Hence, investors might consider investing in the long term.

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 12th Apr 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.


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