Shyam Metalics and Energy Limited - Rating outlook revised to 'Positive'; Ratings Reaffirmed
- Hanish Agarwal
- Aug 13, 2021
- 3 min read
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.
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