Shyam Metalics and Energy IPO To Open On June 14: Should You Subscribe?

1. Issue details:

Issue size- Rs. 909 crore

Offer period: June 14- June 16

Price band- Rs. 303-306

Bid lot- 45 shares and in multiples thereof. Retail investors can apply for a maximum of 14 lots

The public offer shall comprise fresh issuance of equity shares, aggregating up to Rs. 657 crore, and an OFS of equity shares totalling to Rs. 252 crore by the company's shareholders.

Earlier the company planned to come up with a Rs. 1107 crore IPO but later reduced its size as one of the potential investor expressed his apprehension in respect of the OFS size of Rs. 450 crore (that the company was considering earlier).

For the retail investors- 35% of the net offer is reserved, Qualified Insitutional Buyer quota is reserved at 50%, while the NII portion is fixed at 15%.

Book running lead manager: Axis Capital, ICICI Securities, IIFL Securities, JM Financial, SBI Capital Markets

Registrar: KFin Technologies Pvt. Ltd.

2. About the company:

The Kolkata based Shyam Metallics and Energy is a top manufacturer of ferro alloys in India. Also, the company is into production of intermediate and long steel products, including iron pellets, steel billets, TMT, structural products, wire rods and iron pellets.

The company's clientele includes Jindal Staniless Steel, BHEL, SAIL and JSW Steel among others.

Some of the company's listed peers include Tata Steel Long Products and Tata Metaliks.

3. Issue objective:

Net proceeds from the fresh issue shall benet proceeds from the fresh issue mainly towards repayment or prepayment of its debt and that of its subsidiary, Shyam SEL and Power, and for other general corporate purposes.

4. Valuations:

The price to earnings P/E ratio based on diluted EPS for financial year 2020 for the company at the upper end of the price band is 21. The weighted average return on net worth for FY 2020, 2019 and 2018 is 17.93 percent.

"The company's valuation is in line and the stock would get oversubscribed given the current demand from investors," Rajesh Singla, Founder & CEO of pre-IPO consultancy firm Planify India told to a leading business publication.

5. Grey Market Premium:

In the grey market, the shares of Shyam Metalics gained up to 43% to Rs. 436 per share. As on Thursday just one day before the bidding by anchor investors, the shares of Shyam Metalics traded at a premium of Rs.140-145 apiece in the grey market (GMP) as against its issue price of Rs. 306 per share

6. Conclusion:

"The steel sector remains exposed to steel prices globally, which declined significantly in fiscal 2016 impacting realizations and operating profitability. The group's operating margin declined to 9.4%, currently, its OPM is at 18.2% (9MFY21. 14.3% in FY20,20.5% in FY19 and 18.1% in FY18, which is highly cyclical) given the upcycle," Aditya Kondawar, Founder, COO, JST Investments told a leading business daily.

At the same time he added that the company may do well until the time commodity or steel cycle is witnessing a boom, but the IPO can be given a miss or is an 'Avoid' from his standpoint. This is because the steel business is extremely cyclical in nature and the price of steel currently is way higher than the average of last 20 years.

Another brokerage firm Kotak Securities in its report dated June 9, 2021 did not assigned any rating to the IPO issue of Shyam Metalics. The report further mentioned that "the company intends to continuously invest in new infrastructure at manufacturing plants and are exploring opportunities to obtain synergies in their existing manufacturing plants. For instance, they intend to introduce a new 600,000 TPA blast furnace
at Jamuria manufacturing plant which will enable them to forward integrate by manufacturing pig iron".

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