Shyam Metalics IPO review – Business, IPO date, Financials

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Objectives of the Shyam Metalics IPO

Shyam Metalics IPO – The first, and the major one are to repay debt. So the company plans to repay its debt from the proceeds of this IPO. And secondly, to manage general corporate purposes.

About Shyam Metalics business

Shyam Metalics and Energy Ltd was incorporated in 2002 and is a leading integrated metal producer. The company manufactures products of long steel such as iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferroalloys, sells too. In terms of ferroalloys, the company is the largest in India and is 4th in terms of sponge iron. The company has 3 major plants in Sambalpur in Odisha, and Jambhuria, and mangalpur in West Bengal.

The company has an installed capacity of 5.71 MTPA which they are looking to expand to 11.6 MTPA. And are planning all types of expansions between FY22, and FY25. The company also has Captive power plants with a total capacity of 227 MW. And they are planning to raise this to more than 330 MW. The good thing is that 805 of their total power requirement is met by their captive power plants. And they sell TMT bars and structural products as SEL brand in the market.

About the Industry

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The steel demand is expected to grow by 5-6% in the coming years. Because the government is coming up with new initiatives in infrastructure, and affordable housing. The steel consumption per capita in India is very low, at 74 kgs, and is 229 kgs at a global level.

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On a global level, India’s per capita is very low as compared to China at 633 kgs. So here we can see good growth as compared to the numbers of the world.

Financial numbers of the company

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Here we will try to compare the revenues, and profits from 31st March 2018 to 31st Dec 2020. The revenue in 2018 was 3920 Crores with a profit of 528 Crores. The revenue rises to 4684 Crores, and profit to 636 Crores in 2019. And the revenue dipped a bit to 4395 Crores, and profit to 340 Crores in 2020. If we see the past 3 quarters of the past year, the company recorded 3995 Crores revenue and 456 Crores profit. So this number considers good, and the market cap the company wants to list is around 7000 Crores.

The company’s ROE has been around 16% which consider very good. The company’s PE ratio is around 13 as compared to around 17 of the industry. Its price to book value is 2.18, and its debt-equity ratio is 0.25. And the debt-equity ratio is important, as this industry carries huge debts. It is a heavy debt industry, but this is one company that has the lowest D/E ratio, can be considered close to debt-free.

Pros of investing in Shyam Metalics IPO

  • The first is the expected growth in the steel industry of about 5-6% compounded growth. Factors like growth in the economy, and rising urbanization can lead to rapid growth in this industry. The company is strategically located, its costing, logistics perform efficiently.
  • The next pro comes from its financials like its EBITDA increased from 13.61% to 18.18% last year. The company has increased its revenue, and operational efficiency.
  • The company is utilizing 70% of its total installed capacity. Meaning we can see growth in its existing plan too.

Cons of investing in Shyam Metalics IPO

  • The first being the company’s dependency on minerals, and raw materials. So if that space sees volatility in prices, the company’s margins will reduce. So how does the company mitigate these risks, is for you to look out as an investor?
  • The company sees stiff competition from the players like Tata Steel, JSW Steel, etc. And hence will be interesting to see how the company competes and acquires market share.

Important dates about the Shyam Metalics IPO

  • The IPO will be open between 14th June, and 16th June.
  • The price band has been kept between Rs.303 to Rs.306 per share.
  • The total issue size is 909 Crores out of which 657 Crores are a fresh issue and an OFS of 252 Crores. So the major portion is of fresh issue from which the company will repay its debt.

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