Shyam Metalics - Slingshot for the Next Commodity Supercycle

February 7, 2025

Why Shyam Metalics is a Compelling Buy Right Now

CMP: 770 Targets: 901 - 1,001 - 1,146 (+48% upside)

1. Strong Capacity Expansion – The Slingshot Effect for the Next Commodity Upcycle

  • Capacity ramp-up to 22.6 MTPA from 15.13 MTPA supported by 706 MW from 377 MW of power generation in place, with strategic focus on value-added products.
  • Full-scale capacity utilization is expected to coincide with a commodity price rebound.
  • When commodity prices rebound, SMEL will be among the biggest beneficiaries.
  • Absolute volume growth ensures strong earnings, even in a weak price cycle.


2. Expanding into High-Margin Products – Reducing Cyclicality Risk

  • SMEL is transitioning from commoditized steel to value-added, high-margin segments, offering greater stability and pricing power.
  • EBITDA per tonne is on a structural uptrend, driven by a shift to value-added products
  • We expect Revenue CAGR (FY25-27E): 33% | EBITDA CAGR (FY25-27E): 38%.

 

3. The "Ore to Metal" Model – Controlling Costs & Margins with Precision

  • Backward integration: Sponge iron, ferro alloys, coke oven, and blast furnaces ensure input cost control.
  • Forward integration: Expansion into DI pipes, stainless steel, and specialty aluminium boosts margins.
  • Strategic flexibility allows SMEL to pivot production based on market conditions, a major advantage over competitors, protecting its EBITDA margins.


4. Power Integration – A Competitive Cost Advantage

  • 80% of power sourced in-house, slashing costs while protecting margins.
  • SMEL pays ₹2.47/kWh for captive power vs. ₹5-6/kWh for grid power, securing a permanent cost edge.
  • 109MW renewable power expansion underway to drive long-term cost savings.

   

Why This Matters: Steel production is power-intensive, and cost savings flow straight to EBITDA.


5. Financial Prudence – Expansion Without Overleveraging

  • ₹100bn capex plan is being funded primarily through internal accruals, a rare move in the capital-heavy steel sector.
  • SMEL remains net cash positive, making it an outlier in the industry.
  • Competitors rely on debt-heavy expansion, exposing them to risks in downturns.


Why This Matters: SMEL’s approach protects against macro risks, credit cycles, and high interest rates.

 


Final Call – Why This is a Strong Buy

Compelling Valuations →

Our estimate of FY27 EBITDA is at 4,000+ crores, valuing the company today at 5.3x EV/EBITDA. We assign a target multiple of 8x EV/EBITDA(FY27e) to arrive at the Target Price of 1,146 Rs.

In the long run, we believe that Shyam Metalics can command a higher multiple after the execution of the growth plan by FY27 – we assign a longer-term target of 1,801 Rs. (+136%)

📌 Shyam Metalics isn’t just growing—it’s perfectly positioned for a slingshot effect when the cycle turns

Disclosure Statement: This research report is issued by Front Wave Research LLP, a SEBI-registered Research Analyst entity (Registration No: INH000018407). The disclosures mentioned below are in compliance with SEBI (Research Analysts) Regulations, 2014, to ensure transparency and integrity.

Investors must perform their own due diligence before acting on any recommendations.

There are no outstanding litigations or disciplinary actions against Front Wave Research LLP as of the date of this report. Neither Front Wave Research LLP nor its associates or relatives hold any financial interest in the subject companies discussed in this report unless explicitly mentioned. Front Wave Research LLP or its associates do not own 1% or more of the securities of the subject companies as of the end of the month immediately preceding the publication of this report. Front Wave Research LLP, its associates, or relatives do not have any material conflicts of interest with the subject companies at the time of publication unless explicitly disclosed. Neither Front Wave Research LLP nor its associates have received compensation from the subject companies in the past 12 months for Investment banking, merchant banking, or brokerage services. Front Wave Research LLP has not managed or co-managed public offerings of securities for any subject company in the past 12 months.

Front Wave Research LLP has not received any compensation or other benefits from any third party in connection with this research report unless specifically disclosed.

The research analyst(s) involved in the preparation of this report have not served as an officer, director, or employee of the subject companies.

Front Wave Research LLP has not been engaged in any market-making activities for the subject companies. Investments in the securities market are subject to market risks. This research report is not an offer to sell or a solicitation to buy any securities. Past performance is not indicative of future results. Investors are encouraged to seek independent financial advice and read all relevant offer documents before making investment decisions.