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shyam metalics and energy limited ipo review

Shyam Metalics and Energy Limited IPO Review: Apply for Listing Gains and short term growth

Shyam Metalics and Energy Limited IPO Details:

IPO Date: June 14th to June 16th, 2021

Total Shares for subscription: ~3 Cr

IPO Size: ~Rs. 909 Cr

Lot Size: 45 shares

Price Band: Rs. 303-306/ share

Market Capitalization: ~7,800 Cr

Recommendation: Subscribe for Listing/short term gains

Purpose of Shyam Metalics and Energy Limited IPO

  • Repayment / pre-payment of company and its subsidiary’s debt fully or partially
  • Promoters selling their stake

About the Shyam Metalics and Energy Limited

Incorporated in 2002, Shyam Metalics and Energy Limited (SMEL) is an integrated metal producer company with a focus on long steel products and ferroalloys. The company is primarily engaged in the production of long steel products such as iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferroalloys.

The company serves institutional customers and end-users. Jindal Stainless Limited, Rimjhim Ispat Limited are some of its domestic clients whereas Norecom DMCC, Norecom Limited, POSCO International Corporation, World Metals & Alloys, Traxys North America LLC, JM Global Resources, Vijayshri Steel Pvt Ltd, etc. are the international clients.

Products & Manufacturing Facilities:

SMEL currently operates 3 manufacturing plants are located at Sambalpur in Odisha and Jamuria and Mangalpur in West Bengal. As of Dec’20, the aggregate installed metal capacity was 5.71 million tonnes (comprising of intermediate and final products). Manufacturing plants also include captive power plants with an aggregate installed capacity of 227 MW, as of Dec’20.

The company is in the process of increasing the capacities of their existing manufacturing plants and captive power plants, which is expected to increase their aggregate installed metal capacity from 5.71 mn tonne to 11.60 mn tonne and captive power plants aggregate installed capacity from 227 MW to 357 MW. These proposed expansions are expected to become operational between FY22 and FY25.

In addition, the company is in the process of commissioning an aluminum foil rolling mill at Pakuria in West Bengal with a proposed installed capacity of 0.04 MTPA, which is expected to become operational in FY22.

Like most steel companies, SMEL’s manufacturing plants are located in close proximity to the mineral belt in eastern India, including, iron ore, iron ore fines, manganese ore, chrome ore, and coal mines, primary raw material sources, and ports, as it lowers their transportation costs and provides cost benefits.

SMEL’s manufacturing plants are well connected by roads, railways, and ports. Sambalpur and Jamuria manufacturing plants have captive railways sidings to transport the raw materials and products in a cost and time-efficient manner. SMEL is one of the few integrated metal-producing companies in India with captive railway sidings.

Revenue Mix (as of 9MFY21)

The forward and backward integration of manufacturing plants has resulted in multiple points of sale across the steel value chain and provided the company with the flexibility to sell intermediate products as well as use them for captive consumption, depending on the demand. This has resulted in a diversified product mix, which reduced dependency on a particular product and de-risked revenue streams.

Management of Shyam Metalics and Energy Limited:

SMEL is led by individual Promoters, Mahabir Prasad Agarwal, Brij Bhushan Agarwal, and Sanjay Kumar Agarwal, who have several decades, respectively, of experience in the steel and ferroalloys industry. Chairman, Mahabir Prasad Agarwal, is responsible for strategic planning and the overall administration of the company. Vice-Chairman and Managing Director, Brij Bhushan Agarwal, is responsible for implementing future growth strategies.

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Financials of Shyam Metalics and Energy Limited:

As compared to peers SMEL financial performance is relatively stable and strong operational performance. It has a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. Revenue from operations increased at a CAGR of 6.56% from FY18 to FY20. Since the commencement of operations in FY05, the company has delivered a positive operating profit in every financial year. Parameters like operating profit margin and interest coverage are above average.

financials of shyam metalics and energy

As of December 31st, 2020, the company’s gross debt to Equity ratio is 0.27x. SMEL’s RoCE for FY18, FY19, FY20, and 9MFY21 was 19.58%, 24.69%, 9.49%, and 13.30%, respectively indicating a modest business model.

Strengths:

  • Integrated operations across the steel value chain
  • Strategically located manufacturing plants supported by robust infrastructure resulting in cost and time efficiencies
  • Diversified product mix with a strong focus on value-added products

Risks:

  • Operates in Cyclical industry as Metal business exhibits heavy cyclicality
  • During down-cycle, the operating leverage further dampens the earnings/ amplify losses

MoneyWorks4me Opinion on Shyam Metalics and Energy Limited IPO

How is the company quality?

Average. SMEL is into the production of commodities and operates in a cyclical industry with no pricing power. This leads to a high degree of profit variability. Although over a long period, it can create wealth it is very difficult to time the cycles or staying invested for 10-15 years.

SMEL’s capacities have increased from 2.3 MTPA in fiscal 2015 to 4.8 MTPA presently. It is expected to incur an annual Capex of Rs 300-400 crores and no acquisitions are expected. Hence, the group’s financial profile will sustain at healthy levels. Also as per the management, the group’s net debt to EBIDTA is likely to remain within 1-1.5 times even in the event of sizeable CAPEX.

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Valuation

How is the valuation for Shyam Metalics and Energy Limited?

Fair. SMEL valuation depends on which part of the cycle the company is. Current profitability is high due to price appreciation of ferrous products. This may or may not last over years. This variability makes it difficult to value the company and invest in this sector. Usually, we would recommend investing when the stock is trading close to its replacement costs. Even metal company promoters tend to acquire assets in downcycling at or near replacement cost either from the bankruptcy court or weak competitors.

Since current commodity prices are firm and rising due to economic recovery worldwide, we can expect good price-driven sales growth over the next few quarters. Since the sector is also in favor, we recommend BUY in IPO for listing gains or short-term gains. After listing we are not so keen to add a commodity/deep cyclical company.

Recommendation: Buy for Listing /Short term gains. Not for a long-term portfolio.

Note: We do not recommend buy just because the IPO market is hot. We do not earn any commission or fee for promoting IPOs so expect an honest review from us on the business model and valuation.

IPO Activity Date
IPO Open Date Jun 14, 2021
IPO Close Date Jun 16, 2021
Basis of Allotment Finalisation Date Jun 21, 2021
Refunds Initiation Jun 22, 2021
A credit of Shares to Demat Account Jun 23, 2021
IPO Listing Date Jun 24, 2021

Application Lots Shares Amount
Minimum 1 45 ₹ 13,770
Maximum 14 630 ₹ 192,780

Date QIB NII Retail Employee Total
Jun 14, 2021, 17:00 0.00x 0.70x 2.19x 0.27x 1.23x
Jun 15, 2021, 17:00 0.81x 2.60x 5.80x 0.78x 3.65x
Jun 16, 2021, 17:00 155.71x 339.98x 11.64x 1.55x 121.43x

When will the Shyam Metalics and Energy Limited IPO open?

Shyam Metalics and Energy Limited IPO will open for subscription on Monday, June 14, and will close on Wednesday, May 16.

What is the price band of Shyam Metalics and Energy Limited IPO?

The price band for Shyam Metalics and Energy Limited IPO is Rs. 303-306.

What is the lot size for Shyam Metalics and Energy Limited IPO?

Retail investors can subscribe to the IPO minimum lot size is 45 shares, up to a maximum of 14 lots i.e. Rs. 1, 92,780.

What is the issue size of Shyam Metalics and Energy Limited IPO?

The total issue size is ~ Rs. 909 Cr.

What is the quota reserved for retail investors in Shyam Metalics and Energy Limited IPO?

The quota for retail investors in Shyam Metalics and Energy Limited IPO is fixed at 35% of the net offer.

When will the basis of allotment be out?

Allotment will be finalized on June 21 and refunds will be credited by June 22. Shares allotment will be credited in Demat accounts by June 23.

What is the listing date of Shyam Metalics and Energy Limited IPO?

The tentative listing of Shyam Metalics and Energy Limited IPO is June 24.

Where could we check the Shyam Metalics and Energy Limited IPO allotment?

One can check the subscription status on KFintech Private Limited.

Who are the leading book managers to the issue?

Book running lead managers to the IPO are Axis Capital Limited, ICICI Securities Limited, IIFL Holdings Limited, JM Financial Consultants Private Limited, and SBI Capital Markets Limited.

What does Shyam Metalics and Energy Limited do?

Shyam Metalics and Energy Limited is primarily engaged in the production of long steel products such as iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferroalloys. It is among India’s largest producers of ferroalloys in terms of installed capacity and the fourth-largest player in the sponge iron industry.

Who are the peers of Shyam Metalics and Energy Limited?

The peer group of Shyam Metalics and Energy Limited involves JSW Steel, Tata Steel, SAIL, Kalyani Steel, Prakash Industries Ltd, and Vedanta Electrosteel Ltd.

What if I do not get the allotment?

If you do not get an allotment of this IPO we recommend you to check out our MoneyWorks4me PRO solution which provides you with exhaustive research-backed recommendations on strong companies, mutual funds, and index funds. You get all this for a price which can be as low as Rs. 1,999 (14% of IPO lot size). The MoneyWorks4me PRO provides a guide to building a strong portfolio for beginners to become PRO.

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Rushikesh Bhise

Rushikesh Bhise, a CFA level 3 Candidate with 1.5 years of experience in Equity Research. A Post Graduate in Commerce from Pune & a CA-Inter, he is a finance enthusiast and has worked in the Investment Banking domain. He has a keen interest in analyzing the business of the companies and enjoys reading finance literature. His hobbies include reading books, playing Piano and practicing Martial Art.

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