Buy Shyam Metalics and Energy; target of Rs 825: ICICI Securities

Buy

ICICI Securitie's research report on Shyam Metalics and Energy

SMEL’s Q1FY25 EBITDA of INR 4.88bn (up 18% YoY) was its highest since Q1FY23, riding largely led by capacity ramp-up. Key points: 1) Realisation of all its products, except pellets was up 6–7% QoQ. 2) Carbon steel sales volume was up 6% YoY, at 383.7kt. 3) EBITDA/te of all its products rose QoQ, especially for Al and SS, benefitting from capacity ramp-up. 4) Consol. EBITDA margin rose to 13.5% (Q4FY24: 12.2%) due to better realisation and stable coal cost. 5) Solid balance sheet position with net cash of INR 13.9bn, despite it being peak capex phase. 6) Incurred capex of INR 3.08bn in Q1FY25. We see EBITDA growth likely at 45% CAGR through to FY26E driven by capacity ramp-up, despite our estimates of falling realisations.

Outlook

Shyam Metalics and Energy’s (SMEL) Q1FY25 EBITDA was 11% ahead of our estimates. Key points: 1) Performance was aided by better prices QoQ. 2) Ramp-up of stainless steel (SS) and Aluminum (Al) capacities aided earnings. 3) Net cash at end-Q1FY25 stood at INR 13.9bn. 4) CRM and blast furnace capacities likely to come on board in next six months. 5) Plans to focus on SS, Al and power capacities in the near term. Going ahead, we believe that SMEL’s EBITDA is likely to grow 45% YoY through to FY26E, based solely on capacity ramp-up, while it maintains a healthy net cash position. We maintain BUY on SMEL with an unchanged TP of INR 825 based on 6.5x FY26E EBITDA.

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