Shyam Metalics and Energy ltd - IPO Note

Steel & Iron Products

Shyam Metalics and Energy ltd - IPO Note

Steel & Iron Products

Price range
Rs. 303-306
Issue Period:
Jun 14, 2021
Jun 16, 2021
June 14, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 909 cr.
Public Issue
2.97 cr. shares
Market cap post IPO
7735-7805 cr.
Equity Pre - IPO
23.36 cr.
Equity Post - IPO
25.50 cr.
Issue type
Fresh Issue & Offer for Sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research


Capacity expansion to provide impetus to growth
The company is in the process of enhancing the capacities of its existing manufacturing plants and captive power plants. This expansion is expected to increase its aggregate installed metal capacity from 5.7 MTPA to 11.6 MTPA. Further, the aggregate installed capacity of captive power plants will increase from 227 MW to 357 MW. Both these expansions are expected to become operational between FY22 and FY25. The expansion of its capacities will result in further integration of its Sambalpur and Jamuria manufacturing plants, augmentation of its revenues, better cost controls and consequent increase in profitability and presence across the steel value chain. In addition, its expansion plans and strategy will allow to meet the anticipated increase in steel demand in the future and enable to supply growing markets more efficiently and drive profitability.

Wide variety of products with strong focus on value added products
The company has wide variety of products constituting (i) long steel products, which range from intermediate products, such as, iron pellets, sponge iron and billets and final products, such as, TMT, customized billets, structural products and wire rods; and (ii) ferro alloys with a specific focus on high margin products, such as, specialized ferro alloys for special steel applications. Their TMT and structural products are sold under the brand ‘SEL’ and the company logo. They also undertake conversion of hot rolled coils to pipes, chrome ore to ferro chrome and manganese ore to silico manganese. Further the company also sell their products to institutional customers and end consumers through their distribution network and also customize and sell their products as per the customer’s specifications.

Integrated operations across the steel value chain
The company is a leading integrated metal producing company based in India and 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. Currently it operates two ‘ore to metal’ integrated steel manufacturing plants one each in Sambalpur, Odisha and Jamuria, West Bengal. The integrated nature (backward and forward integration) of its manufacturing plants has resulted in the control over all aspects of its operations (with the exception of sourcing of primary raw materials) as well as operating margins, thereby enabling the company to focus more on quality and create multiple points of sale across the steel value chain. The backward integration activities include, setting up of iron pellet plants and installation of rotary kilns to produce sponge iron. Whereas, the forward integration activities, include, diversification of its product mix by utilizing the billets to produce value added products, such as, TMT bars, structural products and wire rods, which enable it to de-risk its revenue streams and expand product offerings.

Proximity to raw material sources & key demand clusters
The company manufacturing plants are strategically located in close proximity to its raw material sources, which lowers its transportation costs and provides significant logistics management and cost benefits thereby improving operating margins. Its manufacturing plants are located within 250 kilometers of the mineral belt in eastern India, including, iron ore, iron ore fines, manganese ore, chrome ore and coal mines, its primary raw materials. The strategic location of its manufacturing plants has aided in creating synergies as well as achieving economies of scale and operational efficiencies. Further, it is well connected by roads, railways and ports and are located close to its raw material sources and are supported by strong logistics infrastructure, such as private railway siding, which enables to reduce the logistical costs associated with the transportation of raw materials and products. The company is able to export its products to its international customers in a cost efficient manner and also achieved cost efficiencies by utilizing waste materials or by-products as raw material inputs for other products and processes due to its strategic location.

Better financial strength in long steel space
The company’s focus on continuous efficiency improvements, improved productivity and cost rationalization has enabled to deliver consistent and strong financial and operational performance. The company has a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. Further it is the least leveraged group among its peers and its gearing ratio was one of the lowest amongst its competitors as of March 31, 2020. Further the company intends to use the net proceeds from the offer to prepay its and its Subsidiary, Shyam SEL and Power Limited’s debt. We believe this prepayment of debt will lead in savings on finance cost, freeing up of working capital, reduce debt to equity ratio for future leverage as well as increase its profits.


Peer comparison
Jindal Steel trades at PE of 10 times FY21 whereas P/BV of 1.5 times FY21, with Debt to equity of 0.6x which has come down recently with large debt reduction, EV/sales of 1.5 times, EV/EBITDA of 5 times FY21 and ROE of 15--16%. Tata Steel trades at PE Multiple of 18 times FY21 along with P/BV of 1.8 times and EV/sales of 1.5 times.  EV/EBITDA of 8 times, Debt to equity of 1 time, and ROE of 12--13%. JSW steel trades at 25 times FY21 PE Multiple, with Debt to equity of 1 times, P/B of 4.5 times, EV/sales of 2.8 times and EV/EBITDA of 12--13 times FY21 and ROE of 20%.


  • The demand and pricing in the steel industry is volatile and are sensitive to the cyclical nature of the industries it serves. A decrease in steel prices may have a material adverse effect on the business, results of operations, prospects and financial condition.
  • Manufacturing plants and sources of raw materials are primarily concentrated in Eastern India and any adverse developments affecting this region could have an adverse effect on the business, results of operations and financial condition.
  • If SMEL is unable to successfully implement its proposed expansion plans, including its proposal to enter ductile pipe and aluminum foil business, its results of operations and financial condition could be adversely affected.

Company Description

Company Profile
Shyam Metalics and Energy Limited (SMEL) 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 has the ability to sell 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, customized billets and specialized ferro alloys for special steel applications. The company operates three manufacturing plants that are located at Sambalpur in Odisha, Jamuria and Mangalpur in West Bengal with aggregate operating capacity of 5.7 MTPA. Its manufacturing plants also include captive power plants with an aggregate installed capacity of 227 MW, as of December 31, 2020.


Outlook & Valuation
We believe the company shall capitalize on growth opportunities led by i) rising demand growth from long steel and ferro alloys ii) planned capacity expansion in new high growth segments iii) strong focus on value added products and exports and iv) continuous focus on cost efficiency and increase profitability. The stock is trading at P/E of 11.6x TTM EPS and 2.18x its P/BV on upper price band, hence we recommend to “Subscribe” this issue.

Key Information

Use of Proceeds:
Objects of this Issue: The proposed Rs 909 crore IPO comprises of a fresh issue worth Rs 657 crore and an offer-for-sale of up to Rs 252 crore. The company proposes to utilize the funds which are being raised through the fresh Issue, after deducting the offer related expenses to the extent payable by the company with respect to the fresh issue (the “Net Proceeds”), towards funding the following objects:  Repayment and/or pre-payment, in full or part, of debt of company and SSPL, one of SMEL’s subsidiaries worth Rs.470 crores; and general corporate purposes.

Book running lead managers: Axis Capital, ICICI Securities, IIFL Securities, JM Financial, SBI Capital Markets

Management: Mahabir Prasad Agarwal is the Promoter, Non-Executive Chairman of the company. He is also the founder of, and has been a director of, their Subsidiary, Shyam SEL and Power Ltd. (“SSPL”), since its inception. He has over 3 decades of experience in the steel and ferro alloys industry. Brij Bhushan Agarwal is the Promoter, Vice Chairman and Managing Director of the company. He is also the Vice Chairman and Managing Director of SSPL. He has over 3 decades of experience in the steel and ferro alloys industry. He is primarily responsible for strategic planning, future expansion, business development, marketing, human resources and corporate affairs of the company. Sanjay Kumar Agarwal is the Promoter, Joint Managing Director of the company. He has over 17 years of experience in the steel and ferro alloys industry. He is primarily responsible for the operations of their manufacturing plants at Sambalpur, Jamuria and Mangalpur, with focus on cost control, production efficiency and competitive procurement of raw material.

Financial Statement

Profit & Loss Statement:- (Consolidated)

Yr End March (Rs Cr) FY18 FY19 FY20 9MFY21
Net Sales 3843.00 4606.00 4363.00 3933.00
Material Cost 2466.00 2786.00 2678.00 2455.00
Employee Cost 106.00 145.00 168.00 125.00
Other Expenses 569.00 730.00 871.00 634.00
EBITDA 701.00 945.00 646.00 720.00
EBITDA Margin 18.00% 21.00% 15.00% 18.00%
Depreciation & Amortization 215.00 195.00 296.00 220.00
EBIT 486.00 750.00 350.00 500.00
Other Income 78.00 78.00 32.00 63.00
Interest & Finance Charges 49.00 64.00 86.00 56.00
Profit Before Tax - Before Exceptional 515.00 764.00 296.00 506.00
Tax Expense 11.00 127.00 -45.00 50.00
Effective Tax rate 2.00% 17.00% -15.00% 10.00%
Net Profit 504.00 637.00 341.00 456.00
Net Profit Margin 13.00% 14.00% 8.00% 12.00%