Synopsis:- The Company posted a 23 percent jump in Q1 revenue and approved a Rs. 4,500 crore fundraise, and both UBS and Goldman Sachs have stayed bullish on the stock as the company pushes into aluminium and stainless steel under its Vision 2031 roadmap.
Steel companies in India have spent much of the past two years navigating volatile raw material costs and patchy global demand, and most investors have learned to treat quarterly numbers from the sector with a degree of caution.
The Mid-Cap’s June quarter results, paired with a fresh capital raise and a fairly detailed roadmap for what the company wants to look like by 2031, gave the Street enough to work with, and two large global brokerages responded by reiterating their bullish stance.
With a market capitalisation of roughly Rs. 28,,764.54 crore, the shares of Shyam Metalics and Energy closed on Wednesday at Rs. 1,030.50 per share, down 3.03 percent from its previous closing price of Rs. 1,062.65 apiece, very close to its 52-week high of Rs. 1,090.
What’s the News?
Shyam Metalics reported consolidated revenue of Rs. 5,455 crore for the quarter ended June 30, up 23.3 percent from Rs. 4,423 crore in the same period last year. Net profit came in at Rs. 351 crore, up 20.6 percent year-on-year from Rs. 291 crore, while EBITDA rose 28.3 percent to Rs. 812 crore. On a narrower operating basis, EBITDA increased 32 percent year-on-year to Rs. 765 crore, with margins expanding to 14.9 percent from 14.3 percent a year earlier.
Alongside the results, the board approved a plan to raise up to Rs. 4,500 crore through a qualified institutional placement or other equity and equity-linked routes, including convertible or non-convertible preference shares and debentures, to be executed in one or more tranches. The company also declared its first interim dividend for FY27, at Rs. 1.80 per equity share, with July 24 set as the record date.
Financial Impact Analysis
The margin expansion is the more interesting number in this set of results, since steel companies rarely get to expand margins and grow revenue at the same time when raw material costs are as volatile as they have been over the past two years. Shyam Metalics managed both, helped by better realisations across its long steel and pellet businesses and ongoing cost optimisation efforts across the group.
Profit after tax grew a shade slower than EBITDA, up 20.6 percent against the 28.3 percent EBITDA growth, which suggests some of the operating gains were absorbed by higher depreciation or interest costs tied to the company’s ongoing capex cycle. Even so, cash accruals for the quarter reached Rs. 616 crore, which gives the company meaningful room to fund new projects internally without leaning too heavily on debt, a detail that matters given the size of the Rs. 4,500 crore fundraise sitting alongside these results.
Brokerage outlook
UBS has kept its Buy rating on the stock with a target price of Rs. 1,250, describing Shyam Metalics as one of its preferred midcap ideas and pointing to the margin expansion and cost discipline as reasons to stay constructive. Goldman Sachs also maintained a Buy rating, with a target of Rs. 1,050, and flagged the earnings beat along with the company’s upcoming capacity additions as the next leg of the growth story.
The capacity expansion both brokerages are watching for is tied to what the company calls its Vision 2031 roadmap, under which Shyam Metalics wants to move away from being a primarily commodity steel producer and toward a more diversified metals business spanning stainless steel, aluminium, and special bar quality, or SBQ, steel. The company has already commissioned commercial production at its aluminium foil facility in Odisha, and its aluminium flat rolled products plant is on track to be commissioned in the September quarter.
The logic behind the diversification push is straightforward, value-added products such as aluminium foil, flat rolled products, and specialty stainless steel typically carry better margins and less cyclicality than plain commodity steel, so a successful shift could improve both earnings quality and capital efficiency over time. That said, it is still early days for these new facilities, and the extent to which they move the needle on group-level profitability will depend heavily on how quickly they ramp up utilisation once commissioned.
Both brokerage targets, Rs. 1,250 from UBS and Rs. 1,050 from Goldman Sachs, sit close to or modestly above the stock’s current trading level, which suggests the market has already priced in a fair amount of the good news from this quarter. The gap between the two targets is relatively narrow compared to some of the wider analyst dispersions seen elsewhere in the market, indicating a reasonable degree of agreement on the near-term earnings trajectory even if the two brokerages differ slightly on how much further upside remains.
What Should Investors Look Out For
The Rs. 4,500 crore fundraise is worth watching closely alongside the diversification plan, since the scale of that capital raise relative to the company’s current market capitalisation of around Rs. 29,615 crore is not trivial. How the proceeds get deployed, and whether they go primarily toward the new value-added capacities under Vision 2031 or toward deleveraging and working capital, will shape how the market reads this quarter’s results over the next few quarters.
Investors should track the ramp-up pace of the aluminium flat rolled products facility once it is commissioned in the September quarter, since early utilisation rates will offer the first real signal on whether the Vision 2031 diversification is translating into the margin uplift management is targeting.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
