Steel maker Shyam Metalics and Energy is a small-cap stock with a market capitalization of ₹ 8,109 crores. In terms of installed capacity, it is one of India’s top producers of ferroalloys and long steel products. The company recently reported its result for the quarter and the year ended on March 31, 2023.
Shyam Metalics’s total revenue stood at ₹ 3,380.1 crore during the January to March quarter (Q4FY23), up 18.3 percent against ₹ 2,856.8 crore in the corresponding period of the preceding financial year (Q4FY22). However, it posted a net profit of ₹ 261.2 crore in Q4FY23, down 39.4 percent year-on-year. It had reported a net profit of ₹ 430.9 crore in Q4FY22.
For the entire year (FY23), the company reported a revenue of ₹ 12,610.18 crores, up 21.32% as compared to ₹ 10,393.96 crores in the previous financial year (FY22). However, its profit declined to ₹ 857.60 crores in FY23, down 50.27% against ₹ 1,724.51 crores in FY22.
ICICI Securities, in a recent research report, has maintained a buy rating on the company’s shares with a target price of ₹ 570.00 per share. This translates to an upside of 80.87 percent as compared to its share price of ₹ 315.15 apiece at 11:57 AM on Friday.
In its investment rationale, the brokerage said that it remains largely upbeat on the steelmaker’s prospects, due to new capacities getting commissioned by end-Jun ’23. It said that the company’s performance slightly missed estimates but its EBITDA rebounded 86% quarter-on-quarter (QoQ) to ₹ 410 crore.
Moreover, revenue contribution from finished steel products surged to an all-time high level of 53.5%. Pellet and sponge iron volume rose QoQ as capacities commissioned in December 2022 ramped up.
Even if commodity prices decline, the company’s EBITDA will increase by more than two times by FY25E compared to FY23E, according to the brokerage. It sees such a huge upside on the back of its foray into stainless steel and colour-coated steel, which will likely yield an additional EBITDA of ₹ 6 billion by FY25E, earnings contribution from Ramsarup industries and the company’s niche capacities in aluminum foil and low-carbon ferrochrome, which are likely to be earnings-accretive.
Moreover, Shyam Metalics has a consistent dividend. Due to the advantages of ferrochrome’s integration with stainless steel and metallics’ integration with completed steel, ICICI Securities believes that the company’s margins will continue to increase in the future. Shyam Metaliks may be able to advance up the value chain and cut costs in the future by utilizing its capacity to produce ferroalloys, sponge iron, and pig iron, the brokerage added.
Shyam Metalics has a low return on equity of 13.20 percent and an ideal debt-to-equity ratio of 0.16. Its shares were trading at a price-to-earnings ratio of 9.56, which is lower than the
industry P/E of 11.89, indicating that the stock might be undervalued as compared to its peers.
Written by Simran Bafna
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