In its recent report, domestic brokerage firm ICICI Securities maintains a ‘buy’ recommendation for Shyam Metalics and Energy (SMEL), a leading integrated metal producer, with an unchanged target price of ₹690 per share, indicating a potential upside of 45%.
Despite Q2FY24 EBITDA falling short of estimates, the brokerage anticipates positive factors such as the ramp-up of DRI-IF route capacity, recent price increases, and the launch of stainless-steel capacity at Mittal Corp to bolster the company’s EBITDA in the second half of FY24. With a net debt/EBITDA of 0.74x, the brokerage considers SMEL’s financial position the best among peers.
The commissioning of the 198 ktpa sponge iron unit at Sambalpur marks the completion of the entire DRI-IF capex announced on March 22. The report notes that significant progress has been made in the blast furnace and coke oven capex, with around 25% of the capex for 400ktpa color-coated capacities already incurred. As of H1FY24, SMEL’s total capex stands at ₹8.9 billion.
The report highlights that near-term earnings growth is expected to be volume-driven, primarily from the ramp-up of DRI-IF capacity. Additionally, it anticipates an additional revenue stream from the stainless-steel capacity at Mittal Corp in FY25.
ICICI Securities underscores that by FY25, SMEL will stand as the only metal company globally with revenue streams from carbon steel, stainless steel, and downstream aluminum business.
In Q2FY24, SMEL reported consolidated revenue of ₹2,941 crore, a slight dip from ₹3,085.20 crore in Q2FY23. Operating profit improved by 26% YoY, and the operating profit margin expanded by 200 basis points to 10%. The consolidated profit after tax surged 330% YoY to ₹481.97 crore.
The company’s foray into stainless steel and sustained growth in the aluminum foil business were highlighted in its earnings report.
Since its secondary market debut on June 24, 2021, at ₹375.9 per share, SMEL has witnessed a 56% increase, currently trading at ₹477.60.
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