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This Metal Stock Surges 9% In 5 Days, ICICI Securities Sees More Upside
Shyam Metalics and Energy Ltd is a major integrated metal manufacturing firm established in India, with a specialisation in long steel products and ferro alloys, mostly in West Bengal and Odisha. The stock has risen 9.67 percent in five days on the NSE and has risen 7.10 percent in the previous month. On a year-to-date (YTD) basis the stock is up by 2.14% but is down by -7.91% in past 1 year. The brokerage firm ICICI Securities sees more upside on the stock and has placed a buy call for a target price of Rs. 400. The stock is currently trading at a market price of Rs 346.40 on the NSE.
Investment rationale
As per the brokerage "Shyam Metalics and Energy Ltd (SMEL) has announced additional capex of ~Rs9.9bn over and above the existing committed capex of ~Rs30bn to be incurred over 3-4 years. The additional capex would be incurred to i) increase its pellet plant capacity by ~2.4mtpa (~1.2mtpa each at Jamuria and Sambalpur plant), ii) set up a coke oven plant with a capacity of ~0.45mtpa and iii) double captive railway siding capacities."
ICICI Securities has said "The breakup of the capex is i) Rs3.6bn for pellet plant, ii) Rs4.5bn into coke oven plant and iii) Rs1.8bn for railway sidings. The capex will be funded through internal accruals. Further, the aluminium foil plant of ~40,000tpa capacity has also been commissioned in Mar'22. The pellet plant and coke oven plant are expected to be operational by Sep'23, while the rail sidings are expected to commission by Mar'23."
Buy for a target price of Rs. 400
The brokerage claims "Management expects to maintain margins on the back of the significant increase in steel prices observed, which will likely more than offset the rise in raw material prices. Steel demand in the country has offered some resistance to sharp increases in long and flat products. Management is looking at creating adequate inventory (of thermal coal and iron ore) at all price points to navigate this period of inflation. Sharp increase in scrap prices and constrained availability are further expected to help long product prices in India."
"We maintain our BUY rating and target price of Rs400/share. We value it at 1.17x FY24E P/B, with an implied EV/EBIDTA (FY24E) of ~2x. Our 1.17x P/B is adequately discounting the RoE scenario of 18% that we forecast for FY23/24E," said ICICI Securities.
Disclaimer
The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
