At the upper end of the price band of Rs 306, Shyam Metalics is available at of 9.1 times FY21 EV/Ebitda on an annualised basis.
Analysts said the issue looks fully priced, but believe a rise in metal prices globally and hopes of a recovery in domestic demand could work in favour of the company. They largely have ‘subscribe’ ratings on the issue.
Ventura Securities has initiated the coverage on the unlisted stock with a price target of Rs 436.40, based on FY23 EV/Ebitda of six times on a post issue equity basis. “Our price target represents an upside potential of 42.6 per cent on the IPO price over next 18-24 months,” it said.
In the unlisted market, the stock is enjoying a premium of Rs 150-160, signalling more than 50 per cent upside on the issue price.
Not all analysts are that optimistic.
Choice Broking said a trailing 12-month EV/Ebitda multiple of 8.6 times for Shyam Metalics is at a premium to the peer average of 6.4 times. Despite factoring in an exponential rise in Ebitda in March quarter, valuation still appears overvalued, it said, while suggesting a ‘subscribe with caution’ rating to the issue.
Shyam Metalics is one of the leading integrated steel and ferroalloys producers in the eastern region of India in terms of long steel products. It has three manufacturing units with an operating capacity of 5.70 million tonnes per annum, with 227 mw of captive power capacity.
Its integrated units are located at Sambalpur, Odisha and Jamuria, West Bengal, respectively. The backward and forward integration of its manufacturing plants has resulted in the control over all aspects of their operations, with the exception of sourcing of primary raw materials, analysts said.
Revenues of Shyam Metalics rose 6.5 per cent compounded annually to Rs 4,362.89 crore in FY20 over Rs 3,842.57 the crore in FY18 (It fell in FY20). Revenues for the first nine months of FY21 rose 19.80 per cent to Rs 3,933.08 crore.
Ebitda for FY20 came in at Rs 634 crore and for first nine months of FY21 at Rs 717.32 crore. Profit almost halved to Rs 340 crore in FY20 from Rs 637 crore in FY19, though it has improved strongly to Rs 456 crore in the first nine months of FY21 from Rs 260 crore in the comparable period last year.
The company has a relatively better financial strength compared with peers operating in the long and intermediary steel sector, said Axis Securities, adding that the company has reported healthy operational as well as financial growth despite downturns in the industry, especially during FY09 and FY15.
“Domestic steel demand impacted by Covid-19 will pick up in FY22 and continue its strong growth at 6 per cent through FY25. Restrictions on Chinese exports due to higher domestic demand and surging international steel prices will benefit Indian steel makers like Shyam Metalics, Geojit said, as it gave a ‘subscribe’ rating to the issue from a short-to medium-term perspective.
Reliance Securities said the issue is valued at 2.4 times of 9MFY21 basis and 12.8 times of FY21 annualised earnings, which looks reasonable. “Considering improved visibility of demand recovery in domestic as well as international markets led by a strong focus on infrastructure development and steady pricing scenario, the financial performance of Shyam Metalics is expected to improve significantly in the coming quarters,” the brokerage said.
This brokerage believes the domestic steel industry is witnessing a structural change with increasing commitment towards reduction in carbon emission by large producing countries like China, which bodes well for the domestic steelmakers.
“Strong balance sheet along with best-in class leveraging positioning offers an edge to SMEL. Additionally, OCF yield at 8.4 per cent as on 9MFY21 looks to be impressive and expected to improve further with higher cash flow generation in the ensuing quarters,” Reliance Securities said and recommended a ‘subscribe’ rating on the issue.
On Friday, the company raised Rs 269.94 crore by allocating 88,21,764 shares to 21 anchor investors at Rs 306 apiece.
The company has proposed to use the net proceeds from the fresh issue towards repayment or prepayment of up to Rs 470 crore of its debt and that of its subsidiary, Shyam SEL and Power, and for other general corporate purposes.
