Shyam Metalics and Energy Limited - Rating outlook revised to ‘Positive’; Ratings Reaffirmed

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CRISIL Ratings has revised its outlook on the long-term bank facilities of Shyam Metalics and Energy Limited (SMEL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL AA-'; the rating on the short-term bank facilities and commercial paper programme of the entity has been reaffirmed at ‘CRISIL A1+’.

The outlook revision reflects the improving business risk profile of SMEL and its key subsidiary, Shyam Shyam Sel and Power Limited (SSPL; ‘CRISIL AA-/Positive/CRISIL A1+'); collectively called as the Shyam Metalics group.

Buoyant demand, increased contribution from recently enhanced capacities, increasing product diversity, favorable sales realizations owing to current upcycle in the steel industry and also driven by higher share of value-added products boosted business performance in fiscal 2021; this is likely to continue over the medium term as well. Revenue and operating profit grew by ~40% and ~110%, respectively, in fiscal 2021 and are likely to further rise in fiscal 2022, as evident from the firstquarter revenue growth of 5% (over the fourth quarter revenue - in fiscal 2021). Capacity addition in value-added products such as thermomechanical treatment (TMT) bars, structural products, ferro alloys and diversification into new business of conversion of aluminum foil will further support healthy double digit revenue growth over the medium term. Operating profitability may remain stable at 18-20% in fiscal 2022, with better integration, increased access to cheaper captive power, close proximity to raw materials, captive railway sidings and focus on higher value-added products, ensuring strong cash generation.

Additionally, the financial risk profile has been strengthened with reduction in overall debt followed by the initial public offering (IPO) completed in June 2021. Improved profitability and low debt levels (Rs 314 crore as on June 30, 2021) led to robust debt protection metrics. The company has utilised the IPO proceeds to reduce working capital debt by Rs 470 crore in June 2021. Thus, ratio of debt to earnings before interest, tax, depreciation and amortisation (EBITDA) improved to 0.46 time in the first quarter of fiscal 2022 from 0.57 time in fiscal 2021, while the interest coverage ratio rose to above 18 times. The group should sustain its healthy financial risk profile, despite pursuing sizeable capital expenditure (capex) plans of ~Rs 2,000 crore over the next 3-4 years, supported by strong cash-generating ability of about Rs 1000 crore per annum and also liquid surplus treasury of over Rs 1,000 crore, which will ensure limited debt. Any material additional, debt-funded capex or acquisition, impacting debt protection metrics, will remain a key monitorable.

In the past five fiscals, the group has seen strong scaling up of operations, aided by capacity additions (overall capacities increased to 5.7 million tonne per annum [MTPA] in fiscal 2021 from 2.1 MTPA in fiscal 2016) with revenue registering a compound annual growth rate (CAGR) of 30%. The group is expected to witness strong revenue growth in fiscal 2022 owing to increased realisation, improving product mix and healthy demand outlook for its products. Over the next 3-4 years, growth will be supported by further addition of capacities of 5.9 MTPA, at a cost of ~Rs 2,000 crore, taking the overall capacity to 11.6 MTPA by fiscal 2025.

The ratings continue to consider the Shyam Metalics group’s established market position in the steel sector, well-diversified product profile and customer base. The ratings also factor in healthy operating efficiency, supported by integrated nature of operations and strategic locations of its manufacturing units, and the longstanding experience of promoters in the steel sector. The ratings further factors in the group’s comfortable financial risk profile backed by healthy debt protection metrics. These strengths are partially offset by vulnerability to fluctuations in prices of raw material and finished goods, exposure to inherent cyclicality as well as competitive and capital-intensive nature of the steel industry

Shares of Shyam Metalics and Energy Limited was last trading in BSE at Rs. 412 as compared to the previous close of Rs. 416.95. The total number of shares traded during the day was 39524 in over 1795 trades.

The stock hit an intraday high of Rs. 421.8 and intraday low of 412. The net turnover during the day was Rs. 16474689.

ETMarkets Morning Podcast: Why are promoters selling stakes?

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Transcript

Hi there, Good Morning. Welcome to ETMarkets Morning, the show about money, business and markets. I am Nikhil Agarwal. Let’s start with the headlines first.

Now lemme give you a quick glance on the state of the markets.

Dalal Street is set for a positive start this morning. Nifty futures on the Singapore Exchange traded some 30 points higher at 8 hours (IST). Asian peers were mixed on Thursday as China’s regulatory push sapped sentiment.

Elsewhere, the US 10-year Treasury yield held at 1.34%. The dollar hovered near a four-month peak against major peers while Bitcoin traded below $46,000. Oil prices were steady on Thursday. Brent crude futures edged higher by 5 cents to $71.49 a barrel.

That said, here’s what is making news.

The uber-rich — and the not-so-rich — aren’t the only folks making serious money this IPO season on D-Street. The otherwise conservative treasury units at high-street lenders are reportedly raking it in as well through the IPO frenzy, with the average Indian saver finally taking a bite into the likes of Zomato. Banks are said to have substantially subscribed to recent issues such as Tatva Chintan Pharma, GR Infraprojects, Clean Science & Technology, Shyam Metalics, and Laxmi Organics.

The record-breaking stock market rally has prompted promoters of nearly 130 companies to sell a portion of the holdings in their companies in the last three months. According to stock exchange disclosures, promoters of HDFC Life, Coforge, TVS Motor, CG Consumer, Max Financial Services, Quess Corp, Bharat Forge and GMR Infra, among others, have sold shares worth Rs 21,000 crore in the open market. Globally, investors keenly track what promoters are doing with their shares as it offers clues about what they think about the company’s future. Promoter buying may indicate that the stock is undervalued. If they sell, the stock is considered fairly valued, according to experts.

The BSE on Wednesday rolled back some of the stringent measures announced on Monday, aimed at curtailing excessive price moves in smaller stocks, after a sharp sell-off in the broader market triggered protests by traders and investors. The clarification issued midway through the trading session alleviated worries about the impact of strict curbs on small and midcap stocks, which recouped a chunk of their losses on Wednesday, but still ended in the red.

LASTLY,

More caution is warranted in the mid- and small-cap space in the coming days even though the broad market indices saw a sharp turnaround from their lows in Wednesday’s session after the BSE eased its earlier plan to impose strict price movement restrictions. Analysts said those who have made gains in mid- and smallcaps over the last one year should book partial profits and buy more of heavyweight stocks such as Larsen & Toubro, Pidilite Industries, Reliance Industries, HDFC Bank, Siemens, Tata Steel and Bharti Airtel for a 5-8% upside.

NOW Before I go, here is a look at some of the stocks buzzing this morning…

Tata Power and Saudi Arabia’s AlJomaih Energy & Water Company have emerged the lowest bidders for three solar projects adding up to 500 MW at the Neemuch Solar Park in Madhya Pradesh.

Credit Suisse sees a 62% upside to Bharti Airtel shares as the telecom sector at a crossroads amid Vodafone Idea’s financial woes. The brokerage said Vodafone Idea’s situation is likely to remain

difficult even if relief measures are announced to help the company.

ITC chairman Sanjiv Puri on Wednesday reiterated that it is not ruling out the possibility of restructuring of different businesses, including demerger of hotels and even listing of ITC Infotech, a subsidiary of the FMCG-to-hotel-to-tobacco conglomerate, on the bourses.

India Cements on Wednesday reported that its net profit on a standalone basis more than doubled to Rs 37.4 crore in the first quarter of FY22 from the same period a year ago.

Do also check out over two dozen stock recommendations for today’s trade from top analysts on ETMarkets.com.

That’s it for now. Stay with us for all the market news through the day. Happy investing!

Day trading guide for Monday: 6 stocks to buy or sell today — 23rd August

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Day trading guide for Monday: The NSE Nifty last week snapped a two week winning streak and ended lower by 0.48 per cent at 16,450 levels. In the process it was able to suggest indecision at higher levels. Over the week, FMCG and IT were the main gainers while metals, media, PSU bank and realty lost the most. According to stock market experts, global worries like Fed withdrawing stimulus, Delta variant spread, slowing global growth and China’s regulatory tightening are impacting Indian markets.

Trade view on Nifty

On his day trading guide for Monday; Nagaraj Shetti, Technical Research Analyst at HDFC Securities said, “The short term upside trend of Nifty seems to have reversed and one may expect some more weakness in the coming sessions. The next lower area of 16,250 to 16,300 levels could offer support for the market in the early next week and the market could bounce back from the lows by next week. On the higher side, intraday resistance is placed at 16,500 to 16,550 levels.”

Day trading stock to buy or sell today

Speaking on the day trading strategies, stock market experts — Sumeet Bagadia, Executive Director at Choice Broking; Sandeep Matta, Founder at TRADEIT Investment Advisors and Mudit Goel, Senior Research Analyst at SMC Global Securities — recommended 6 shares to buy or sell today.

Sumeet Bagadia’s day trading stocks

1] Dabur: Buy at ₹605, target ₹620 to ₹630, stop loss ₹590

2] Biocon: Sell at 360, target ₹350 to ₹342, stop loss ₹370

Sandeep Matta’s shares to buy today

3] Tata Motors: Buy at ₹281, target ₹292 ₹304, stop loss ₹262

4] Shyam Metalics: Buy at ₹392, target ₹410 to ₹428, stop loss ₹355

5] Prakash Industries: Buy at ₹67, target ₹74 to ₹78, stop loss ₹62

Mudit Goel’s stock of the day

6] Tata Consumer Products: Momentum buy at CMP, target ₹870, stop loss ₹839.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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