Target: ₹780
CMP: ₹682.90
Shyam Metalics and Energy’s (SMEL) Dec’23 volume stayed robust on finished steel front with revenue rate picking up.
Key points: Rebar shipments at 130kt rose to their highest-ever level for any month; pellet sales declined y-o-y and m-o-m, possibly due to lower spreads; Mittal Corp stainless steel plants continue to ramp up; and implied revenue rate is in excess of ₹1,220 crore per month now.
Going ahead, we believe revenue may be boosted by higher rebar sales (likely to stabilise at 1.8-2mtpa rate), ramp-up of stainless steel operations at Mittal Corp and (recently commissioned) sponge iron capacity.
That said, we trim our FY24E/FY25E EBITDA by 20/18 per cent, taking cognisance of adverse price- cost spread. Rolling over to FY26 earnings, we raise our target price to ₹780 (earlier ₹690).
We introduce FY26 estimates at this juncture when we expect contribution from additional revenue streams such as colour coated steel, pig iron and downstream steel products to lift EBITDA to ₹3,350 crore. Besides, the QIP proceeds worth ₹1,380 crore may sustain the net cash position of the company.
Key risks include: Higher-than-expected thermal coal prices, adverse pellet-iron ore price spread and delay in commissioning of capacities.