Target: ₹1,200
CMP: ₹804.70
Shyam Metalics and Energy (SMEL) management’s pragmatic approach to move up the value chain, diversifying products/metals and backward integration to capture efficiencies make it stand out. The successful foray into new businesses (aluminium and stainless steel products) showcases its execution capabilities, multiple new projects commencing operations in FY25/26 provide strong earnings visibility, while it mitigates profitability risk through diversification.
SMEL is transforming from a producer of commoditised to value-added products; example, from sponge iron to battery-grade aluminium foil. Shifts like these should lead to better margins, lower susceptibility to commodity price movement, and a better return ratio. SMEL has outlined a ₹10,000 crore capex plan for FY22-27, to be funded through internal accruals and existing cash.
This capex is for multiple projects, products and efficiency improvement and therefore low risk to earnings in case of any project delays.
We believe the market is not fully appreciating its integrated operations such as internal sourcing (75 per cent of raw materials), captive power (80 per cent of requirement), and the ability to venture into new businesses.
We initiate coverage at Buy with a price target ₹1,200
