FORWARDED AS RECEIVED, JUST FOR STUDY PURPOSE ONLY!
*👉SHYAM METALLIC* – COMPELLING VALUATION WITHIN THE METAL SPACE, STOCK IGNORED IN RECENT METAL RALLY.
CMP - INR 340-350 /Share
Mcap – INR 8885 aprox crore
Net Cash- INR 1,000 crore
TTM EBITDA- INR 2,560 crore
TTM PAT- INR 1,680 crore
TTM EV/EBITDA- 2.5x
*Shyam Metalics and Energy Limited (SMEL) offers a unique play in the Indian metals space, with a combination of a) doubling of capacity in medium term and b) a strong near-zero debt balance sheet*- Shyam metallic has a 0.9 MT of long steel capacity which is expanding to nearly 2 MT by December 2022.
Current net cash on BS is INR 1,000 crore which will increase despite the ongoing capex due to healthy internal accruals.
Presence in longs value chain - SMEL’s presence in the longs value chain allows it the flexibility in revenue mix depending on prevailing market condition to optimize profits by selling a) intermediates like Iron pellets, sponge iron, billets; b) finished products such as TMT, structural products, wire rods, pipes and c) ferro alloy - *Shyam metallic has an integrated capacity with pellets of 3.6 MT, Sponge Iron of 2 MT, Billet of 0.9 MT & Long steel of 0.9 MT*
Billet & Long steel will expand from 0.9 MT to 2 MT by December 2022
*Presence in longs value chain, proximity to raw-mat; captive power enables healthy margins:* While Shyam metallic does not have its own iron ore, *it has one of the lowest freight cost to source iron ore due to logistical advantage*. *Additionally it has the lowest Power cost of INR 2.2/Unit (Market rate of INR 5.5/Unit)* *It has a Captive 225 MW Power plant (the power plant itself enables it to save INR 400-500 crore annually)*.
*Insulated from rising coking coal prices* Given Shyam’s presence in long steel, it has minimal requirement of coking coal. *Shyam’s annual requirement of coal is around 2 MT, and 45% of this it has a long term FSA tie up with coal India. Rest is sources via imports and E-auction route* Given the rise in coal prices *Shyam’s 45% FSA will help insulate impact on its margins*
*Lowest Cost Ferro- Alloy player*- The company is one of the largest producers of ferro alloys in terms of installed capacity in India at 2 lac ton, and given its proximity to RMs and low power costs, it is the lowest cost producer.
*KEY MOATS*
1. Convertor business model with presence across integrated manufacturing
2. Diversified revenue profile- 25% Ferro Alloys, 50% Long steel, 25% Pellet & Sponge Iron
3. The Company’s track record of executing cost efficient expansion augurs well for return ratios - RoE / RoCE (23% / 20%)
4. Net Cash BS with INR 1,000 crore+ Cash
*KEY TRIGGERS*
1. 20% business from exports- Very healthy demand outlook
2. *Recent increase in product prices- Pellet up INR 2,000/Ton, Sponge Iron up INR 5,000/Ton & Long steel up INR 10,000/Ton*
3. Completion of Long steel expansion by December 2022 to help in growth in FY24E.
*FINANCIALS*
1. Shyam externally sells nearly 1.7-2 MT Pellet- *Pellet has a EBITDA margin of INR 1,500-2,000/Ton- which gives Shyam an EBITDA of INR 350-400 crore (Spot margins could be much higher)*
2. Shyam externally sells nearly 0.7-0.8 MT Sponge Iron- *Sponge Iron has EBITDA margin of nearly INR 5,00/Ton- which gives Shyam AN EBITDA of INR 350-400 crore (Spot margins could be much higher)*
3. Shyam externally sells about 0.9 MT of long steel- *Long steel current EBITDA margins are about INR 12,000/Ton- this gives Shyam an EBITDA INR 1,100 crore*
4. Shyam externally sell about INR 0.15 MT of Ferro Alloys- *Ferro Alloys spot EBITDA margins are about INR 35,000/Ton- this gives Shyam an EBTITDA of INR 500 crore*
5. *Total EBITDA potential is about INR 2,500 crore*
*While current margins definitely would be unsustainable- Shyam’s diversified business model, dependence on Outside RMs and Completion of 1.1 MT of Long steel capacity (Long steel capacity expansion could result in INR 1,100 crore EBITDA at spot rates) will limit the downside in FY24E*
*Net Cash balance currently is about INR 1,000 crore which should increase to INR 1,500 crore despite about INR 1,200 crore of capex in 2022*
(Study only
Not any buy or sale recommendation)