Shyam Metalics and Energy Limited — Q2 FY25 earnings call

Call held 8 Nov 2024

Management summary

Shyam Metalics delivered strong volume-led revenue growth of 23.6% despite a challenging global steel environment. The company is aggressively pursuing a ₹10,000 crore capex plan, focusing on backward integration (coke oven, blast furnace) and value-added products like color-coated sheets and aluminum foil. While margins faced pressure from steel price corrections, management expects a 100 bps improvement in Q3 FY25 driven by cost savings from new facilities.

Highlights

  • Revenue from operations reached ₹3,635 crores, representing a 23.6% YoY growth.

  • Operating EBITDA stood at ₹407 crores, with a total EBITDA of ₹481 crores including treasury income.

  • EBITDA margin for the quarter was 11.2%, impacted by steel price corrections and seasonal factors.

  • Profit After Tax (PAT) reported at ₹216 crores, a 55% YoY decrease due to a high tax-adjustment base in the previous year.

  • Maintained a strong net cash position of ₹1,099 crores with liquid investments of ₹2,165 crores.

  • Captive power sourcing reached 82% at a cost of ₹2.47 per unit, significantly lower than the grid cost of ₹3.04.

  • Announced the commissioning of a 0.77 MTPA blast furnace and 1.1 MTPA sinter plant in Jamuria.

  • Stainless steel revenue per ton increased by 31% and aluminum by 6% on a QoQ basis.

Concerns

  • Steel Price Volatility

Key financials

  1. Revenue ₹3,635 Cr +23.6%YoY
  2. EBITDA Margin 11.2%
  3. PAT ₹216 Cr -55%YoY
  4. Net Cash Balance ₹1,099 Cr -17.8%QoQ
  5. Captive Power Cost ₹2.47

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
    43% Revenue Contribution
  • Exports
    11% Revenue Contribution
  • Stainless Steel
    31% Revenue per Ton Growth
  • Aluminum
    6% Revenue per Ton Growth

Guidance & targets

Capacity

  • Stainless Steel Capacity Capacity · next 5 years · High confidence 6 lakh tons

    From 1.5 lakh tons today

    In the stainless steel we shall grow four folds over next five years, from our existing capacity of 1.5 lakh ton to close to 6 lakh ton capacity.

    — Brij Bhushan Agarwal, VC & MD

  • Carbon Steel Capacity Capacity · next 2-3 years · High confidence 3.6 million tons

    From 2.32 million tons today

    We will further like to grow, and we will like to add the capacity close to 1.5 to 1.8 fold in next two to three years, from 2.32 million to close to 3.6 million tons.

    — Brij Bhushan Agarwal, VC & MD

Margin

  • EBITDA Margin Improvement Margin · Q3 FY25 · Medium confidence 100 bps
    So, in the 2nd Quarter whatever the margin was around 11%, in the third quarter we should be able to at least better that by 100 basis points.

    — Pankaj Harlalka, Head IR

Capex

  • Annual Capex Spend Capex · Annually · High confidence ₹1,700-1,900 crores
    On an average we are targeting that we are spending close to 1700 to 1900 crores every year, seeing the cash, seeing the strong allocation, capital allocation policy.

    — Brij Bhushan Agarwal, VC & MD

Profitability

  • Blast Furnace EBITDA Contribution Profitability · from Q4 FY25 · Medium confidence ₹3,500-4,000 per ton
    So once we are able to resume the plant completely, we expect that, we should be able to increase around 3.5 to Rs.4000 per ton EBITDA on the complete supply chain of this new project.

    — Brij Bhushan Agarwal, VC & MD

Revenue

  • Stainless Steel Revenue Revenue · FY25 · Medium confidence ₹1,100 crores

    Previously ₹1,500 crores → ₹1,100 crores

    If you see the numbers on the price... maybe close to around 1100 crores or so maybe we should be able to close it.

    — Brij Bhushan Agarwal, VC & MD

Risks & concerns

  • Steel Price Volatility

    high

    Corrections in steel prices impacted Q2 profitability and led to a revision in stainless steel revenue targets.

    Both acknowledged

  • Global Export Dynamics

    medium

    Aggressive export strategies from China and global economic crises are disturbing steel export dynamics.

    Management acknowledged

  • Working Capital Increase

    low

    Short-term borrowings increased due to inventory buildup (₹200 cr) and raw material advances, but management expects to remain net cash positive.

    Analyst downplayed

Areas of evasion (1)

  • Specific utilization targets for Mittal Corporation were labeled as 'micromanagement' and not answered in detail.

Q&A highlights

2 direct
Aluminum Division Margins and Costs Direct
The margins have increased because there is a shortage, the Europe market has opened, the demand is good... the business and the margin in the aluminum business is on the better trend side.

Clarifies that specialized aluminum products are insulated from general commodity price pressures and benefit from export demand.

Asked by Amit Dikshit

EBITDA Impact of New Blast Furnace Direct
We expect that, we should be able to increase around 3.5 to Rs.4000 per ton EBITDA on the complete supply chain of this new project.

Provides a specific quantitative benefit for the company's major backward integration project, which is critical for margin recovery.

Asked by Shaleen Kumar

Stainless Steel Revenue Guidance Revision Partial
We should be close to between 80% to 90%, because the market, the prices correction has taken place... maybe close to around 1100 crores or so.

Management admitted a downward revision in revenue guidance for the SS segment due to market price corrections, highlighting sector-wide headwinds.

Asked by Rakesh Roy

2 min read 5 chapters

Detailed narrative

Aggressive Backward Integration to Drive Margins

Shyam Metalics is focusing heavily on backward integration to insulate itself from raw material price volatility. The commissioning of the 0.77 MTPA blast furnace and 1.1 MTPA sinter plant in Jamuria is expected to provide an EBITDA boost of ₹3,500 to ₹4,000 per ton by replacing market-purchased pig iron with captive production. Additionally, the new coke oven plant will further reduce costs and increase control over the supply chain, with full stabilization expected by Q4 FY25.

Strategic Pivot to Value-Added Products

The company is transitioning towards a higher mix of value-added products (VAP). Revenue from VAP has grown at a CAGR of 43.2% over the last five years. Key upcoming projects include a greenfield cold rolling mill for color-coated sheets, which is expected to contribute 70,000-80,000 tons in the current year with an EBITDA of ₹5,500-6,500 per ton. The aluminum foil segment is also slated for a 2x to 2.5x capacity expansion over the next five years.

Cost Leadership through Energy Self-Sufficiency

A core competitive advantage remains the company's captive power generation. Currently, 82% of power is sourced captively at a cost of ₹2.47 per unit, compared to the grid cost of ₹3.04. Management plans to expand captive power capacity from 386 MW to 706 MW, a 1.8-fold increase, which will continue to support low-cost production across its multi-metal portfolio.

Prudent Capital Allocation and Strong Liquidity

Despite a heavy capex cycle of ₹1,700-1,900 crores annually, Shyam Metalics maintains a robust balance sheet with a net cash balance of ₹1,099 crores. The company follows a strict 70/20/10 capital allocation policy: 70% reinvested, 20% retained as liquidity surplus, and 10% distributed as dividends. This discipline has earned them a credit rating upgrade from CRISIL to AA (Positive).

Stainless Steel and Specialty Alloys Outlook

The stainless steel segment saw a 31% QoQ increase in revenue per ton, although full-year revenue guidance was tempered to ₹1,100 crores from an earlier ₹1,500 crores due to market price corrections. In specialty alloys, profitability jumped to ₹20,000 per ton from ₹14,000 per ton, a level management believes is sustainable due to captive power advantages and strong export demand from Europe.

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