Shyam Metalics & Energy LtdQ3 FY22Industrial Products

Shyam Metalics & Energy Ltd

Q3 FY22 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Order

N/A

Capex

Yes

1 of 4 growth signals are positive — mixed outlook.

Revenue guidance

Category 2

→Shyam Metalics expects healthy demand in H2 FY2023 in the steel industry.
→Increased contributions from recently added capacity and product diversity will drive operating and financial performance.
→The company is targeting ramp-up of new manufacturing facilities to 85%-90% capacity utilization from this quarter onwards.
→Long product growth is happening quarter after quarter, with more penetration in the B2C space.
→Sales volumes in long products and value-added segments have grown significantly (long product volume growth over last 7-8 years).
→Aluminum foil business is stabilizing with 70%-75% exports, and volumes expected to grow, contributing handsomely to top-line and bottom-line.
→Brownfield expansions and new capacities (steel, aluminum foil, power plants) are ongoing and expected to boost volumes.
→Shyam Metalics plans to use internal accruals for CAPEX and maintain moderate debt, supporting sustainable growth.

Category 3

→Management is optimistic about a healthy demand in H2 FY2023 for the steel industry and expects increased contributions from recently added capacity.
→Focus on product diversity and a higher share of value-added products is likely to drive improved operating and financial performance.
→The aluminum foil business is ramping up, with over 70-75% of production exported to premium markets in the USA and Europe; expected to contribute significantly to top-line and bottom-line.
→CAPEX expansions (brownfield and Ramsarup acquisition) are ongoing and expected to enhance capacities across pallet, sponge iron, billet, and long product steel segments.
→EBITDA margins have been pressured but are expected to improve once geopolitical issues stabilize and government export duties possibly withdraw.
→Company maintains disciplined capital allocation, negative net debt, and expects cash accruals to fund expansions and debt repayments.
→Overall, management expects to emerge stronger post current temporary challenges, with steady volume growth and margin improvements ahead.

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→There is no indication of any new fundraising through debt or equity planned currently.
→The company emphasizes a disciplined capital allocation policy, funding CAPEX entirely through internal accruals.
→Existing capital expenditure plans of about Rs.1,731 crores over the next three years will be met mainly via internal cash generation and liquid surpluses.
→The company may take limited debt only in case of any fund flow mismatch.
→Gross debt to equity remains moderate at 0.12x, and the company is net cash positive with Rs.1,648 crores cash against Rs.841 crores debt.
→Bank limit utilization is expected to remain moderate going forward.
→Therefore, no major external fundraising through debt or equity is currently planned or required.

→The aluminum foil business, recently commissioned and stabilized, is expanding its international market presence.
→The company exports over 70%-75% of its aluminum foil production, targeting premium markets in the USA and Europe.
→Customers include world-leading packaging companies in America and Europe involved in food products, FMCG sector, healthcare, and specialty industrial applications like battery insulation.
→The company is actively working to increase market share and tap new customers in the foil segment.
→By the end of the current financial year (FY23), the business aims to have streamlined operations and enhanced orderbook visibility.
→For steel products, the company is focusing on ramping up production capacity to 85%-90% utilization on new manufacturing facilities, which indirectly supports order fulfillment.
→No specific numeric figures for the current or expected orderbook are disclosed, but growth and market penetration efforts indicate a positive order pipeline.

Yes

→Ongoing brownfield expansion includes:
→ - Increasing pallet capacity from 3.6 million tons to 6 million tons
→ - Sponge iron capacity increase from 2.1 million tons to 2.9 million tons
→ - Steel billet capacity enhancement from 0.9 million tons to 1.47 million tons, targeting 2 million tons in the current financial year
→ - TMT structures and long product capacity increase from 0.8 million tons to 1.47 million tons, aiming for 2 million tons this financial year
→Setup of a state-of-the-art aluminum foil plant with a capacity of 4,414 MT
→Future commissioning of over 90 MW CPP (Captive Power Plant), additional DRI (Direct Reduced Iron) and billet facility, long product steel production facility planned in H2 FY23
→Ramsarup acquisition completed and detailed study ongoing to optimize plant utilization
→Total planned CAPEX of Rs.3,950 crores with Rs.2,219 crores spent until September 2022; Rs.690 crores spent in H1 FY23 for brownfield expansion
→CAPEX funded mainly through internal accruals, with limited debt use expected

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