ShyamMetalics and Energy is a leading integrated metal producing company based in India with a focus on long steel products and ferro alloys. It is amongst the largest producers of ferro alloys in terms of installed capacity in India, as of February 2021. The company sells intermediate and final products across the steel value chain. As of March 31, 2020, it is one of the leading players in terms of pellet capacity and the fourth largest player in the sponge iron industry in terms of sponge iron capacity in India. It is also one of the leading integrated steel and ferro alloys producers in the eastern region of India in terms of long steel products, as of March 31, 2020.
ShyamMetalics and Energy was incorporated as Shyam DRI Power Limited on December 10, 2002, at Kolkata, West Bengal. Mahabir Prasad Agarwal, Brij Bhushan Agarwal, Sanjay Kumar Agarwal, Subham Capital, SubhamBuildwell, NarantakDealcomm, KalpataruHousefin, DoriteTracon and ToplightMercantiles are the promoters of the company. SubhamBuildwell holds 31.08% of pre offer paid up capital while NarantakDealcomm holds 23.14%, Subham Capital 17.98%, Brij Bhushan Agarwal 9.97%, KalpataruHousefin 9.51%, DoriteTracon 6.51% and ToplightMercantiles 0.3% . Sanjay Kumar Agarwal holds 31580 equity shares and Mahabir Prasad Agarwal holds 2525 equity shares
The company currently operates three 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 manufacturing plants was 5.71 million tonnes per annum (mtpa) (comprising of intermediate and final products). Manufacturing plants also include captive power plants with an aggregate installed capacity of 227 MW, as of December 31, 2020.
The company's Sambalpur and Jamuria plants operate as 'ore to metal' integrated steel manufacturing plants and comprise captive railway sidings, captive power plants, iron pellet, sponge iron, billet, thermo mechanically treated wire rod and structural mills, and ferro alloy plants. Its integrated manufacturing plants are fungible by design, which provides it with the ability to quickly adapt to continuously evolving market conditions, change production and product offerings and optimise operating margins thereby insulating it from price volatility. Further, its Mangalpur plant comprises sponge iron and ferro alloy plants, and a captive power plant.
The backward integration activities include, setting up of iron pellet plants and installation of rotary kilns to produce sponge iron. The company utilises the sponge iron produced to further manufacture billets, which are not required to be reheated and are directly utilised by rolling mills to produce TMT bars and wire rods, thereby resulting in cost efficiencies. Whereas, the forward integration activities, include, diversification of product mix by utilising the billets to produce value added products, such as, TMT bars, structural products and wire rods, which enable to de-risk revenue streams and expand product offerings.
The company has eight captive power plants that utilise non-fossil fuels, such as, waste, rejects, heat and gas, generated from its operations to produce electricity, and thereby enables to operate at lower power costs. In FYs 2018, 2019 and 2020, and the nine months ended December 31, 2020, power units produced from captive power plants accounted for 90.06%, 87.32%, 85.19% and 79.58%, respectively, of total power units consumed. . The average power cost from captive power plants was Rs 2.24 per kwh, Rs 2.16 per kwh, Rs 2.09 per kwh and Rs 2.49 per kwh in fiscals 2018, 2019 and 2020, and the nine months ended December 31, 2020, respectively, which is relatively lesser than the power procured by from external sources.
The company primarily produces intermediate and long steel products, such as, iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferro alloys products with a specific focus on high margin products, such as, customised billets and specialised ferro alloys for special steel applications. Its TMT and structural products are sold under the brand 'SEL' and logo.
The company also undertakes conversion of hot rolled coils to pipes, chrome ore to ferro chrome and manganese ore to silico manganese for an Indian steel conglomerate. It is also currently in the process of further diversifying product portfolio by entering into the segments, such as, pig iron, ductile iron pipes and aluminium foil.
The company's Sambalpur manufacturing plant caters to customers in the southern and western regions of India whereas Jamuria and Mangalpur manufacturing plants caters to customers in northern and eastern regions of India. Its product offerings cater to a mix of customers that consist of institutional customers and end-use consumers through its distribution network. Domestic customers include Jindal Stainless, Jindal Stainless (Hisar), and RimjhimIspat, while international customers include Norecom DMCC, Norecom, POSCO International Corporation, World Metals & Alloys (FZC), Traxys North America LLC, JM Global Resources, Goenka Steels and Vijayshri Steel. As of December 31, 2020, it had partnerships with 42 distributors, who stock and sell finished products across 13 states and one union territory. It also sells intermediate products through brokers.
The company's manufacturing plants are strategically located in proximity to the mineral belt in eastern India, including, iron ore, iron ore fines, manganese ore, chrome ore and coal mines, its primary raw material sources, and ports, which lower transportation costs and provide significant logistics management and cost benefits. The manufacturing plants are well connected by roads, railways, and ports. Sambalpur and Jamuria manufacturing plants have captive railways sidings which enable it to transport the raw materials and products in a cost and time effective manner. The company is one of the few integrated metal producing companies in India with captive railway sidings, as of March 31, 2020. It follows stringent quality standards and places a strong emphasis on quality for products. The Sambalpur and Jamuria manufacturing plants have obtained quality certifications such as ISO 9001:2015, ISO 14001: 2015, ISO 45001: 2018 and ISO OHSAS 18001:2007. It has also achieved cost efficiencies by utilising waste materials or by-products as raw material inputs for other products and processes. The company has also achieved cost efficiencies by utilising waste materials or by-products as raw material inputs for other products and processes.
The company is in the process of increasing the capacities of existing manufacturing plants and captive power plants, which is expected to increase aggregate installed metal capacity comprising of intermediate and final products) from 5.71 mtpa, as of December 31, 2020, to 11.60 mtpa and captive power plants aggregate installed capacity from 227 MW, as of December 31, 2020, to 357 MW through internal accruals. These proposed expansions are expected to become operational between Fiscal 2022 and Fiscal 2025. In addition, it is in the process of commissioning an aluminium foil rolling mill at Pakuria in West Bengal with a proposed installed capacity of 0.04 mtpa, which is expected to become operational in Fiscal 2022
The company currently export products to Nepal, China, Bangladesh, Bhutan, United Kingdom, South Korea, Thailand, Indonesia, Taiwan and Japan, and is currently exploring newer geographies in North America, South America, Europe and Africa in order to increase exports.
The Offer and the Objects
The offer comprises a fresh issue of 21470588 equity shares at upper price band of Rs 306 and 21683168 equity shares at lower price band of Rs 303 aggregating up to Rs 657 crore by the company and an offer for sale by selling shareholders (collectively, Subham Capital, SubhamBuildwell, NarantakDealcomm, KalpataruHousefin and DoriteTracon) of up to 8235294 equity shares at the upper price band of Rs 306 and 8316832 equity shares at the lower price band of Rs 303 and aggregating to Rs 252 crore.
Shubham Capital pre-issue shareholding was 17.98%, which shall decrease to 15.99% at the upper price band of Rs 306, while Shubham Buildwell shareholding will decrease from 31.08% to 27.65%, NarantakDealcomm from 23.14% to 19.95%, KalpataruHousefin from 9.51% to 8.39% and DoriteTracon from 6.51% to 5.57%.
Total selling shareholders pre issue shareholding was 88.22%, which shall decrease to 77.56% at the upper price band of Rs 306.
The company proposes to utilize the net proceeds of the fresh issue towards repayment and/or pre-payment, in full or part, of debt of the company and SSPL (Shyam SEL and Power), one of the subsidiaries amounting Rs 470 crore and balance towards general corporate purposes. Gross debt was Rs 886.292 crore at the end of December 31, 2020.
Strengths
India steel demand increased at a CAGR of approximately 5.4% during FY 2015 to FY 2020. Going forward, steel demand is expected to recover and continue its strong growth rate at 5.0% to 6.0% through FY 2025, supported by government led initiatives, especially affordable housing and infrastructure projects in metro, road, and urban infra space (which are more steel intensive). Further, the government's impetus on infrastructure is expected to drive double-digit steel demand growth in FY 2022.
The integrated nature of operations enables the company to maintain greater control over operating margins enabling it to focus more on quality and create multiple points of sale across the steel value chain. Further, it provides the flexibility to alter product mix to cater to the continuously evolving market conditions, insulating from price volatility
The company has also achieved cost efficiencies by utilizing waste materials or by-products as raw material inputs for other products and processes. For instance, waste from coal washery is utilised by plants to produce power. It also utilises pollution dust, char/ flu gases, waste heat and solid wastes (dolochar) from sponge iron plants and washery rejects as raw materials for captive power plants
The manufacturing facilities are strategically located in proximity to raw material sources, which lowers transportation costs and provides significant logistics management and cost benefits thereby improving operating margins.
The diversified product mix of the company has reduced its dependency on a particular product and de-risked revenue streams
The revenue stream of the company continues to be diversified with top 10 customers represented 26.10%, 24.52%, 22.36% and 15.57% of total revenues from operations, with the largest customer represented 4.00%, 4.56%, 3.73% and 2.31%, respectively, in FYs 2018, 2019 and 2020, and in the nine months ended December 31, 2020, respectively.
The capacity utilization of all the products continued to remain satisfactory over the last 3 FYs (FY2018-FY2020), with pellets plant operating beyond 100% capacity resulting in improvement in scale of operations.
Weaknesses
The company's performance remains vulnerable to cyclicality in the steel sector given the close linkage between the demand for steel products and the domestic and global economy. The end-user segments such as real estate, civil construction and engineering also display cyclicality. Business is substantially affected by prevailing economic, political, and other prevailing conditions in India and globally.
The company operates and sells its products in highly competitive markets. Primary competitors include Jindal Steel and Power Limited, Tata Steel Limited, Steel Authority of India Limited, JSW Steel Limited, Kalyani Steel Limited and Prakash Industries. Also, steel imports from other countries, mainly China, add to the competition.
Operating margin is vulnerable to fluctuations in the prices of inputs (such as iron ore and coal) as well as realisation from finished goods. The prices and supply of the main raw material, iron ore, directly impacts the realizations of finished goods. Further the steel sector remains exposed to steel prices globally.
The domestic steel sector is capital intensive. To maintain/improve market share, the industry participants have been observed to routinely carry out the capacity expansion and debottlenecking activities.
Two of group companies, SFAL and SPSPL, are engaged primarily in manufacturing of ferro alloy products and the metal manufacturing segment, respectively, lines of business,which is like that ofthe company. Any conflict of interest which may occur between the business of such group companies and ShyamMetalics could adversely affect business, prospects, results of operations and financial condition of the company.
Valuation
For FY 2020, consolidated sales were down by 5% to Rs 4362.89 crore. OPM fell 570 bps to 14.8% which led to 32% decrease in operating profit to Rs 645.56 crore. Other income decreased 59% to 32.42 crore while interest cost rose 33% to Rs 85.88 crore and depreciation increased 52% to Rs 296.65 crore. PBT decreased 61% to Rs 295.44 crore. Tax expenses were credit of Rs 44.87 crore compared to tax expense of Rs 127.11 crore in FY19. Net profit fell 44% to Rs 340.34 crore.
In 9M of FY2021 consolidated revenues rose 20% to Rs 3933.08 crore. Ferro alloys formed 15.47% of total net sales in 9MFY21, while TMT structural products, wire rods and pipes formed 37.39%, steel billets 13.97%, sponge iron 11.35% and Iron pellets 21.81%. OPM bounced back 450 bps to 18.3%, resulting in OP growth of 59% to Rs 719.38 crore. PBT rose 128% to Rs 506.11 crore, while net profit was up 75% to Rs 456.32 crore
At the higher price band of Rs 306, the offer is made at around 14.6 times its TTM EPS of Rs 21 and TTM EV/Ebitda of 8.8 times for the period ended December 30, 2020, on a post-issue equity share capital of Rs 255.08 crore of face value of Rs 10 each. Listed industry peers of the company are Tata Steel Long Products, Prakash Industries, KIOCL. EV is calculated on post issue equity, while adjusting Rs 470 crore to be utilized for debt reduction from net proceeds of IPO offer.
Tata Steel long products trades at 7.3 times its TTM EPS of Rs 126.8 and TTM EV/Ebitda of 6.1 times for the period ended December 30, 2020, at the current market price of Rs 931. Prakash Industries trade at 14.7 times its TTM EPS of Rs 5.3 and TTM EV/Ebitda of 8.9 times at the current market price of Rs 78. KIOCL trade at 58.1 times its TTM EPS of Rs 5.0 and TTM EV/Ebitda of 44.3 times at the current market price of Rs 288.
| Shyam Metalics and Energy: Issue Highlights |
| Fresh issue (in Rs crore) | 657 |
| Offer for sale (in Rs crore) | 252 |
| Offer for sale (in number of shares) | |
| - in Upper price band | 8235294 |
| - in Lower price band | 8316832 |
| |
| Price Band (Rs) | 303-306 |
| For Fresh Issue Offer size (in no of shares ) | |
| - in Upper price band | 21470588 |
| - in Lower price band | 21683168 |
| Pre issued capital (Rs crore) | 233.61 |
| Post issue capital (Rs crore) | |
| - in Upper price band | 255.08 |
| - in Lower price band | 255.29 |
| Pre issue promoter and Promoter Group shareholding (%) | 100.00 |
| Post issue Promoter and Promoter Group shareholding | |
| -On higher price band (%) | 88.35 |
| -On lower price band (%) | 88.25 |
| Bid Size (in No. of shares) | 45 |
| Issue open date | 14/06/2021 |
| Issue closed date | 16/06/2021 |
| Listing | BSE, NSE |
| Rating | 46/100 |
| Shyam Metalics and Energy: Consolidated Financials |
| Particulars | 1803 (12) | 1903 (12) | 2003 (12) | 1912 (09) | 2012 (09) |
| Total Income | 3747.16 | 4606.40 | 4362.89 | 3283.09 | 3933.08 |
| OPM | 18.7 | 20.5 | 14.8 | 13.8 | 18.3 |
| Operating Profits | 701.01 | 944.71 | 645.56 | 452.61 | 719.38 |
| Other Income | 77.83 | 78.17 | 32.42 | 33.35 | 62.55 |
| PBIDT | 778.84 | 1022.88 | 677.97 | 485.96 | 781.92 |
| Interest | 48.86 | 64.43 | 85.88 | 60.87 | 55.84 |
| PBDT | 729.99 | 958.44 | 592.09 | 425.10 | 726.08 |
| Depreciation | 215.05 | 194.58 | 296.65 | 203.53 | 219.97 |
| PBT | 514.94 | 763.87 | 295.44 | 221.56 | 506.11 |
| Share of Profit/loss of JV | 2.45 | 0.03 | 0.02 | 0.53 | 0.15 |
| PBT Before EO | 517.39 | 763.90 | 295.46 | 222.10 | 506.26 |
| EO | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| PBT after EO | 517.39 | 763.90 | 295.46 | 222.10 | 506.26 |
| Provision for Tax | -10.65 | 127.11 | -44.87 | -38.26 | 49.94 |
| Profit after Tax | 528.04 | 636.78 | 340.33 | 260.36 | 456.32 |
| MI | 103.67 | 32.66 | -0.01 | -0.21 | 0.00 |
| Net profit after PPA | 424.37 | 604.13 | 340.34 | 260.57 | 456.32 |
| EPS (Rs)* | 16.6 | 23.7 | 13.3 | 13.6 | 23.9 |
*EPS annualized on post issue equity capital of Rs 255.08 crore of face value of Rs 10 each
Figures in Rs crore
Source: Capitaline Corporate Database |
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