IPO Analysis: Shyam Metalics & Energy

IPO rating- Invest for listing gains 

About the issue 

The metal producer company, Shyam Metalics & Energy Limited (SMEL) is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 each. The public issue comprises a fresh issue of equity shares worth Rs 657 crore and offer-for-sale (OFS) of up to Rs 252 crore. The price band of the issue has been fixed at Rs 303 to Rs 306 per equity share. The IPO open date is June 14, 2021, while the close date is June 16, 2021. The issue will be listed on June 24, 2021. The IPO market lot size is 45 shares. A retail-individual investor can apply for up to 14 lots (630 shares or Rs 1,92,780). The quota for retail investors in Shyam Metalics & Energy IPO has been fixed at 35 per cent of the net offer. The QIB quota is fixed at 50 per cent while the NII quota at 15 per cent. The objective of the offer is to make repayment of the company and its subsidiary debt-fully or partially to meet general corporate purposes. 

About the company 

Incorporated in the year 2002, Shyam Metalics & Energy Limited (SMEL) is the country’s leading integrated metal producer company. The company is engaged in the production of long steel products such as sponge iron, structural products, iron pellets, steel billets, wire rods, and ferroalloys. The company is the fourth-largest players in the sponge iron industry. As of February 2021, it is among India's largest producers of ferroalloys in terms of installed capacity. Its domestic clients are Jindal Stainless Limited and Rimjhim Ispat Limited. Meanwhile, its international clients include Norecom DMCC, Norecom Limited, POSCO International Corporation, World Metals & Alloys, Traxys North America LLC, JM Global Resources and Vijayshri Steel Pvt Ltd. The company has partnered with 42 distributors to offer its products across 13 states and one union territory. The company has three manufacturing plants located in Sambalpur (Odisha) as well as Jamuria & Mangalpur in West Bengal. It has an installed metal capacity of 5.71 million tonnes per annum. The company plans to expand its capacity from 5.71 MTPA to 11.60 MTPA by 2025. 

Competitive strengths 

Leading integrated metal producer in India. 

Proximity to raw material sources & key demand clusters 

Strategically located manufacturing plants with a robust infrastructure. 

Advance technology adept to market practices 

Diversified product portfolio. 

Strong financial performance and distribution network.  

Financials 

They have a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. As of March 31, 2018, 2019 & 2020, and as of December 31, 2020, the gross debt-to-equity ratio was 0.30, 0.29, 0.47, and 0.27, respectively. Also, RoCE for the fiscals 2018, 2019, and 2020 and for the nine-month ended December 31, 2020, was 19.58 per cent, 24.69 per cent, 9.49 per cent, and 13.30 per cent, respectively. 

Valuation & recommendation  

The IPO timing couldn’t have been more perfect. The commodity cycle is on an upswing with tailwinds working in the steel makers’ favour along with extreme bullishness for the sector. The expansion plans, which are huge, will be a key thing to watch as this should further strengthen the financials of the company, going ahead. The only concern is that the metal industry is cyclical in nature and the stock prices are very sensitive to the cycle. The factors which drive the growth of the company are rising demand growth from long steel & ferroalloys, a planned expansion in new high growth potential sectors, the introduction of new products by leveraging the forward integration capabilities, maintaining low leverage with healthy capitalisation metrics as well as continued focus to improve profitability. They are also currently in the process of further diversifying their product portfolio by entering into the segments, such as pig iron, ductile iron pipes, and aluminium foil. Looking at the above positives, we believe that the company will keep growing its business at a healthy rate and hence, you can invest for a listing gain.