Shyam Metalics is a buy for target price of ₹1080 says JMFICS

[Pee Vee]

Shyam Metalics (SMEL) reported EBITDA of INR5.8bn, higher than JMfe of INR5.4bn driven by higher realizations (+11% QoQ). Consequently, consol EBITDA/t came in at INR8.7k/t – up ~INR1.2k/t QoQ. Volumes in 1Q stood at 0.66mn tons, down 4% QoQ given seasonally weak quarter. Key takeaways from the call are a) Company expects some pricing pressure in the near-term given the monsoon season but expects cost reduction efforts to offset the impact b) SS wires segment is expected to stabilize this year with sales volume to be ~10k tons in FY26 and ~20k tons in FY27 post ramp-up c) SMEL announced strategic entry into wagon manufacturing with a greenfield facility in Kharagpur at a total capex of INR3bn – Phase-I to commence in Mar’26 d) most carbon steel capex is expected to be operational by FY26 while stainless steel and aluminium projects remain on track for FY27. As of 1QFY26, company has incurred a capex of ~INR70bn, representing ~70% of its planned capex of ~INR100bn. Shyam Metalics offers a unique play in the Indian metals space, with a combination of a) increasing contribution from finished steel and valued added segments and b) diversified business across the steel value chain. Capital allocation towards niche business segments augur well for the company. We forecast an earnings CAGR of ~31% over FY25- 28E. Given the recent strong performance, we change our target multiple from 6x to 7x EV/EBITDA, implying a TP of INR1,080/sh. Maintain BUY.

 Margins improve given higher realisations: Consol. revenue came in at INR44bn, up 7% QoQ given higher realizations (+11% QoQ). SMEL reported consol. EBITDA of INR5.8bn vs INR5.2bn in 4Q primarily on account of higher sales realisation. The volumes declined marginally to 0.66mn tons in 4Q vs 0.69mn tons in 4Q. Consequently, consol EBITDA/t came in at INR8.7k/t – up ~INR1.2k/t QoQ. Consol. Adj. PAT came in at INR2.9bn during the quarter, up 32% QoQ. Company expects some pricing pressure in the near-term given the monsoon season but expects cost reduction efforts to offset the impact.

 Foray into wagon manufacturing; value-added products to drive margins: SMEL announced strategic entry into rolling stock segment – wagon manufacturing with a greenfield facility in Kharagpur at a total capex of INR3bn. Company plans to do this in two phases with each phase leading to a capacity of 2,400 wagons. This will be developed under company’s step-down subsidiary, Ramsarup Industries Ltd. with Phase-I operations expected to commence in Mar’26. SMEL continues to focus on value-added products and cost efficiencies through backward integration – to drive earnings.

 SMEL progressing well on capex plans: Company expects Stainless Steel wires segment to stabilize this year with sales volume to be ~10k tons in FY26 and ~20k tons in FY27 post ramp-up. In 1QFY26, capacity utilisation levels for pig iron plant and color-coated stood at 104% and 70% respectively – indicating a healthy ramp-up and positive momentum. As of 1QFY26, company has incurred a capex of ~INR70bn, representing ~70% of its planned capex of ~INR100bn.