Shyam Metalics and Energy Ltd, a leading integrated metal producing company and also amongst the largest producers of ferro alloys in India, is hitting the capital market with its maiden public issue. The IPO application period closes June 16. The asking price for the IPO shares is Rs 303-306 apiece. Given the fancy for metal stocks and the strong commodity price cycle, should you invest in this IPO? Let us find out more details.
Offer details
Shyam Metalics and Energy (SMEL) is planning to raise Rs 909 crore through the IPO, which is a combination of fresh issue of shares (for about Rs 657 crore) and offer for sale (Rs 252 crore).
Post-IPO, the promoter holding of Shyam Metalics and Energy will drop to about 88.35 per cent from 100 per cent now. The market capitalisation of the company post-IPO would be around Rs 7,800 crore. Significant portion of the public offer proceeding will be utilised for repayment or pre-payment of the debt.
Total no. of shares offered – 2.97 crore
Face value – Rs 10 per share
IPO bid lot – 45 shares
Application amount for retail investors – At the upper end of IPO price Rs 13,770 (1 lot) and Rs 1,92,780 (14 lots)
About the company
SMEL is an integrated metal producing company focussing on long steel products and ferro alloys with the ability to sell intermediate and final products across the steel value chain. Incorporated in 2002, they are amongst the largest producers of ferro alloys in terms of installed capacity in India, as of February 2021.
The company currently operates 3 manufacturing plants that are located at Sambalpur in Odisha, and Jamuria and Mangalpur in West Bengal. As of December 31, 2020, the aggregate installed metal capacity of the manufacturing plants was 5.71 million tonne per annum (MTPA).
The company sells products to institutional customers and end consumers through the distribution network. Their domestic customers include Jindal Stainless Limited, Jindal Stainless (Hisar) Limited, and Rimjhim Ispat Limited. The international customers include Norecom DMCC, Norecom Limited, POSCO International Corporation, World Metals & Alloys (FZC), Traxys North America LLC, JM Global Resources Limited, Goenka Steels Private Limited and Vijayshri Steel Private Limited.
Brij Bhushan Agarwal is Vice Chairman & Managing Director of Shyam Metalics & Energy Ltd. Sanjay Kumar Agarwal is Joint Managing Director of Shyam Metalics & Energy Ltd.
IPO factbox
| Company | Shyam Metalics and Energy |
| Open date | Jun. 14 |
| Close date | Jun. 16 |
| Allotment date | Jun. 21 |
| Listing date | Jun. 24 |
| IPO band | ₹303 to ₹306 per share |
| Bid lot | 45 shares |
Financials, advantages
Shyam Metalics and Energy has a diversified product mix such as, iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferro alloys.
For FY18-20, the company revenue grew at a CAGR of 8 per cent while PAT de-grew by 19.7 per cent CAGR due to expansions underway and COVID related disruptions.
SMEL is expected to double its current aggregate installed metal capacity from 5.71 MTPA, as of December 31, 2020, to 11.60 MTPA by FY25.
Analysts say that domestic steel demand impacted by COVID-19, will pick up in FY22 and continue its strong growth at 6 per cent through FY25. Restrictions on Chinese exports due to higher domestic demand and surging international steel prices will benefit Indian Steel makers like SMEL.
Anchor book subscription
Marquee investors who participated in the anchor portion of Shyam Metalics IPO include Edelweiss Alternative Investment Opportunities Trust, Abakkus Growth Fund, Aditya Birla Sun Life, Kotak MF, Integrated Core Strategies, SBI General Insurance, Aurigin Master Fund, IIFL Asset Management, Kuber India Fund, Elara India Opportunities Fund, Nippon Life, Dovetail India Fund, L&T MF, Saint Capital Fund, and GAM Multistock.
IPO valuation
At the upper end of the price, the Shyam Metalics and Energy stock is valued at 11.8 times its annualised FY21 earnings (Rs 19.53 per share for 9 months FY21). If we annualise FY21 earnings and attribute it to fully diluted post issue equity, then the valuation is a P/E of around 12.8.
As per the IPO document data, SMEL counts Tata Steel, JSW Steel, SAIL, Jindal Steel & Power and Tata Steel Long Products as its listed peers. These stocks are currently trading at a P/E of 11.6, 20, 14.4, 5.7 and 7.3 times. Truthfully, SMEL has no immediate comparable peers due to its diversified output. Do note that SMEL is the least leveraged among its peers with the D/E (debt to equity) at 0.3 times in 9MFY21.
Brokers like Geojit have assigned a ‘Subscribe’ rating to the Shyam Metalics and Energy IPO with a short to medium term perspective due to optimistic international prices and rise in domestic demand.
Do note that as per latest information, the GMP of Shyam Metalics and Energy IPO stock is over Rs 100, indicating 35 per cent premium. However, do not base your IPO investment decision based on Shyam Metalics and Energy GMP etc., as these are not very reliable.
Key risks
* Steel prices fall as strong commodity price cycle ends
* Steel demand does not recover as per expectations
* The company is unable to manage the scale as it nearly doubles capacity over the next few years
