Shyam Metalics and Energy Limited — Q1 FY25 earnings call

Call held 31 Jul 2024

Management summary

Shyam Metalics delivered a robust Q1 FY25 performance characterized by strong double-digit growth in EBITDA and PAT despite a challenging seasonal environment. The company is aggressively pivoting toward value-added products like aluminium foil and stainless steel while maintaining cost leadership through high captive power integration. Management's focus remains on disciplined capital allocation and scaling new business segments to achieve a ₹25,000 crore revenue milestone by FY27.

Highlights

  • Operating revenue reached ₹3,612 crores, representing an 8.4% YoY growth.

  • EBITDA grew by 18% YoY to ₹488 crores, with an EBITDA margin of 13.5%.

  • Profit After Tax (PAT) stood at ₹276 crores, a significant 37% increase YoY.

  • Company maintains a strong net cash position of ₹1,338 crores.

  • Captive power sourcing accounts for 82% of requirements at a low cost of ₹2.37 per kilowatt.

  • Management set an ambitious top-line target of ₹25,000 crores by FY 2026-2027.

  • Value-added products currently contribute >50% of revenue, with a target to reach 80% in 5 years.

  • Stainless steel EBITDA per ton reported at approximately ₹8,000 for the quarter.

Key financials

  1. Revenue ₹3,612 Cr +8.4%YoY
  2. EBITDA ₹488 Cr +18%YoY
  3. EBITDA Margin 13.5%
  4. PAT ₹276 Cr +37%YoY
  5. Net Cash ₹1,338 Cr -11.6%QoQ

What they filed

Q1 FY27: revenue up 23.4%, net profit up 20.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,634 3,756 4,139 4,419 4,467 +23%4,421 +18%5,240 +27%5,455 +23%
EBITDA409 456 515 580 539 +32%487 +7%727 +41%765 +32%
Net profit216 197 220 291 260 +20%198 +1%312 +42%351 +21%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Finished Steel
    45% Revenue Contribution
  • Stainless Steel
    ₹8,000 EBITDA per ton65% Capacity Utilization
  • Aluminium Foil
    80% Capacity Utilization55% Export Mix

Guidance & targets

Revenue

  • Consolidated Top Line Revenue · by 2026-2027 · High confidence ₹25,000 crores
    And we expect that, you know, in next by 2026, 2027, we should be able to do a top line of around INR25,000 crores.

    — Brij Bhushan Agarwal, VC & MD

Capex

  • Annual Capex Outgo Capex · FY25 and FY26 · High confidence ₹2,000 crores
    We are targeting INR2,000 crores, which will be incurred in the current financial year and INR2,000 in the next financial year.

    — Deepak Agarwal, ED Finance & CFO

Capacity

  • Stainless Steel Production Capacity · next 3-4 years · Medium confidence 0.7 to 0.8 million tons
    So, in related to the stainless steel, I can tell you like, we have a plan, like in next three to four years, which should be close to 0.7 to 0.8 million tons of stainless steel.

    — Brij Bhushan Agarwal, VC & MD

  • Captive Power Generation Capacity · Medium Term · High confidence 700MW
    Our power portfolio is also going to increase up to 700MW ensuring the contribution of the capital requirement, captive power requirement.

    — Brij Bhushan Agarwal, VC & MD

Market Share

  • Value-Added Product Revenue Mix Market Share · next 5 years · High confidence 80%

    From 50% today

    The contribution from the value-added product in our revenue is likely to move up to 80% of our revenue in next five years from the present contribution of more than 50% to the revenue presently.

    — Brij Bhushan Agarwal, VC & MD

Risks & concerns

  • Monsoon Seasonality

    medium

    Q2 is typically tighter due to monsoon impacting construction activity and pricing.

    Management acknowledged

  • Raw Material Price Volatility

    medium

    Management notes that while raw material corrections take time, they generally move in line with finished product prices.

    Both acknowledged

  • Execution of Large Capex Plan

    low

    Company is managing a ₹10,000+ crore capex cycle; management emphasizes funding through internal accruals.

    Analyst downplayed

Areas of evasion (1)

  • Specific unit economics for new segments beyond broad EBITDA/ton for stainless steel.

Q&A highlights

2 direct
Capex sharing in Ram Sarup JV Partial
So, whatever – till now, whatever we have spent for the Ram sarup, it's been contributed as 60% from the Shyam group and 40% from the joint venture group.

Analysts were concerned about disproportionate upfront capex by Shyam Metalics; management clarified the 60:40 funding structure.

Asked by Amit Dikshit

Risk of overcapacity in DI Pipe segment Direct
For us, it is hardly a few hundred crores, so we don't see any kind of a risk... we have a pretty decent ROC and IRR on the business.

Management downplayed the risk of industry-wide overcapacity by highlighting their low capital entry cost and synergy with existing blast furnaces.

Asked by Pradeep Rawat

Threat from GFRP rebar to steel demand Direct
Very under mature... if you make your house, would you like to make a polymer house or a steel house? You know, these are myths across the world.

Management strongly dismissed alternative material threats, reaffirming their conviction in the long-term dominance of steel in construction.

Asked by Rakesh Roy

2 min read 5 chapters

Detailed narrative

Strategic Pivot to Value-Added Products

Shyam Metalics is aggressively shifting its revenue mix toward high-margin value-added products, targeting an 80% contribution within five years, up from the current 50%. The company has successfully stabilized its aluminium foil plant, becoming the country's highest exporter in the segment. Management plans to double aluminium foil capacity and integrate backward into foil stock production to capture higher margins.

Aggressive Revenue Scaling and Capex

The company has set a bold target to reach ₹25,000 crores in revenue by FY27, supported by a massive ₹10,025 crore capex program. Of this, ₹4,948 crores has already been incurred, with ₹2,000 crores planned for each of the next two fiscal years. This expansion is primarily funded through internal accruals, maintaining a disciplined capital allocation strategy with a target IRR of 18% for new ventures.

Cost Leadership via Captive Power

A key competitive advantage highlighted was the company's 82% captive power sourcing, achieved at a remarkably low cost of ₹2.37 per kilowatt. This integration significantly buffers the company against grid price volatility and brings a 'huge delta' to EBITDA. Plans are underway to increase captive power capacity to 700MW to maintain this 80-90% self-sufficiency as production scales.

Stainless Steel and DI Pipe Expansion

The stainless steel segment is poised for growth with a target of 0.7 to 0.8 million tons in the next 3-4 years, focusing on the high-demand flat products market. In the DI pipe segment, the company has shifted its plant location to the newly acquired Ram Sarup site to leverage better cost synergies and blast furnace integration. Management expects the DI pipe plant to be commissioned in FY26 with an initial capacity of 300,000 tons.

Operational Efficiency and Logistics

To optimize freight costs and material handling, the company has invested in 17 railway rakes with two more on order. At the Odisha plant, four railway lines have been implemented, enabling the handling of more than 120 rakes per month. This logistics infrastructure provides a 'perennial assurance' for supply chain stability from raw material sourcing to finished goods dispatch.

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