Shyam Metalics IPO

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Shyam Metalics IPO

7.2

Company Background

7.0/10

Price Band

7.0/10

Financial Health

8.0/10

Industry Situation

7.5/10

IPO Proceeds Usage

6.5/10

Pros

  • Integrated Supply Chain
  • Strategic Locations of Manufacturing Units
  • Consistent Financials

Cons

  • Seasonal Business Nature
  • Strong Global Competition

Shyam Metalics IPO Basic Details

Before we discuss Shyam Metalics IPO at length, let’s have a quick overview of this IPO and business at large:

 

Shyam Metalics and Energy Background

Shyam Metalics and Energy Limited began its operations in the year 2009 and is an integrated metal producing company. Its main focus is on manufacturing ferroalloys and long steel products like iron pellets, sponge iron, etc. The company is one of the largest manufacturers of ferroalloys in India and the fourth largest in the sponge iron industry.

The company has three manufacturing facilities, 1 in Orissa and 2 in West Bengal. The customers of the products of Shyam Metalics and energy vary from institutional customers to end consumers which are catered through their wide distribution network.

The manufacturing units in Sambalpur and Jamuria have been ISO 9001:2015, ISO 14001: 2015 and ISO OHSAS 18001:2007 certified.

This almost-a-decade old company is now coming up with an Initial Public Offering (IPO) in the next few days. With the funding raised, they are looking to take care of certain business objectives in place (discussed later).

Shyam Metalics IPO Data Points

Shyam Metalics IPO will open on (disclosed) and close for subscription on (disclosed).

The IPO size will be (disclosed) lakh Equity shares and the face value of each share will be ₹10. The price band has been set at ₹(disclosed) per share.

The offer price includes a premium of ₹(disclosed) and is (disclosed) times the face value of the equity shares. The IPO size is expected to be up to Rs (disclosed) lakhs.

Out of the (disclosed) lakh equity shares, (disclosed) lakh equity shares, aggregating up to ₹9 crores will be reserved for eligible employees and the rest (disclosed) lakh equity shares, aggregating up to ₹(disclosed) lakhs will be issued to the public.

Out of these (disclosed) lakh shares, (disclosed) lakh equity shares, aggregating up to ₹(disclosed) lakhs will be allocated to retail investors for up to ₹(disclosed) lakh.

The market lot size is (disclosed) equity shares and the shares will be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Pursuant to a resolution passed on May 15, 2018, the issue has been authorised by the Board of Directors and pursuant to a special resolution of the shareholders at the Extraordinary General Meeting held on Jun 11, 2018, the offer has been approved by them.

Shyam Metalics and Energy Financial Performance

Investing in an IPO without looking at the financial performance of the business is like driving a car without knowing whether its brakes are in order or not.

Madness, right?

It is strongly recommended that you look at how the business has been performing in the recent few years so that you have a clear cut and an objective idea of the business growth. At the high level, you should be looking at the top-line (revenue), bottom-line (net income), asset growth along with specific metrics such as EPS, PE ratio, NAV and so on.

Let’s see how Shyam Metalics and Energy has performed in the last 3 financial years:

 

As mentioned in the table above, the total income, total assets and profits after tax have been increasing consistently for the last three years.

Although the sudden increase in profits after taxes in the financial year ended March 31, 2018, of ₹529.55 crores as compared to ₹81.34 crores in the financial year ended March 31, 2017, raises concerns. It is yet to be seen if the company is able to maintain such a high growth rate.

As per restated consolidated financial statements, the return on net worth of the company for the years ended March 31, 2018, March 31, 2017, and March 31, 2016, is 22.95%, 5.17% and (5.41)% respectively and the net asset value (NAC) per equity share as of March 31, 2018, is ₹79.43.

Shyam Metalics IPO Objectives

The main objectives of the Shyam Metalics IPO are as follows:

  • For repayment or prepayment of some loans from banks and financial institutions taken by the company and one of their subsidiaries, SSPL
  • For meeting expenses related to the general corporate operations.

Other than the above-mentioned objectives, the company will also benefit in terms of enhanced corporate image, brand name and increased visibility through Shyam Metalics IPO.

Shyam Metalics IPO Events

If in case you are looking to invest in this IPO, you need to know the specific dates when different events related to this IPO will take place.

Here are the details for you:

Filing of Draft Red Herring Prospectus (DRHP)August 6, 2018
Anchor ListTBA
IPO Open Date TBA
IPO Close DateTBA
Finalization of Basis of AllotmentTBA
Credit to Demat AccountsTBA
Listing at BSE and NSETBA

 

Shyam Metalics IPO Recommendation

Before deciding whether to invest in Shyam Metalics IPO or not let us first discuss some of the competitive strengths and risks related to the business of the company.

One of the biggest strengths of the company is its integrated operations across the entire steel value chain.

Two manufacturing units of the company are backward and forward integrated which ensures greater control over their operating margins.

Also, the manufacturing units are strategically located in terms of proximity to different ores which serve as their raw materials. They achieve greater cost efficiencies through utilisation of waste materials or by-products as raw materials for other processes.

The company has a huge distribution network and shares good relationships with its customers. It offers a diversified mix of products.

From the financial point of view, the company has been showing good performance. The total income increased at a CAGR of 48.14% from ₹1746.49 crores in the financial year ended March 31, 2016, to ₹3832.70 crores in the financial year ended March 31, 2018, and EBITDA increased at a CAGR of 124.47% from ₹141.76 crores to ₹714.26 crores during the same period.

Now, let us discuss some of the risks related to the business of Shyam Metalics and Energy Limited.

Loss of any suppliers of raw materials like different metal ores etc. may hamper the smooth functioning of the company.

Payment of liquidated damages to some suppliers may affect the financial health of the company.

Some of the company’s promoters, Directors, etc. are involved in certain criminal proceedings and any adverse ruling in them may pose a risk to the overall profitability of the company.

Another major risk factor for the company is the volatility in demand and pricing of steel industry mainly due to the cyclical nature of the industry. The business is seasonal in nature because of which the results of any quarter are not comparable with other quarters of the same year.

Also, adverse changes in the pricing of raw materials and energy can affect the overall financial health of the company.

The sudden increase in profit after tax from the financial year ended March 31, 2017, to the financial year ended March 31, 2018, was due to macroeconomic and operation-specific factors and hence cannot be compared for future results.

Some of the premises being used for conducting operations of the company have been taken on lease and any failure in renewing such leases may affect the stability of the operations of the company.

Due to the concentration of manufacturing units and raw materials in North East India, any adverse changes in those regions may adversely affect the profitability of the company.

Any disruption in the distribution network of the company may adversely affect the overall health of the company because of large dependence on it for selling some of the products like TMT bars, pipes, etc. is another risk factor.

The company also faces a risk from global steelmakers as well as new entrants in the market from India and China. Also, if the company is not able to respond to evolving trends and standards in the technology of the industry, the future profitability of the company may be adversely affected.

The company requires a certain environment related approvals, permits, licenses, etc. in order to operate smoothly. Any delay or failure in obtaining them may have a negative impact on the functioning of the company.

They also face the risk of reduction in import duties due to which the competition from international players would be fiercer.

After analysing various aspects of the company, it can be said that short-term investors may not find this IPO that lucrative and investors should remain cautious and choose to subscribe to Shyam Metalics IPO for a long term. 

If you are looking to invest in Shyam Metalics IPO, let us assist you in taking the next steps forward.

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Shyam Metalics and Energy Management Information

Currently, there are 12 Directors on the Board of Shyam Metalics and Energy Limited.

Mahabir Prasad Agarwal is the non – executive Chairman of the company. He possesses an experience of more than 35 years in the field of steel and ferroalloys. He is engaged in the Corporate Social Responsibility activities of Shyam Metalics and Energy Limited and the subsidiary company, SSPL.

Shyam Metalics IPO Advisors Information

ICICI Securities Limited, Edelweiss Financial Services Limited, IIFL Holdings Limited and JM Financial Limited are acting as Book Running Lead Manager to the issue. Karvy Computershare Private Limited is acting as the Registrar for the Shyam Metalics IPO.

Cyril Amarchand Mangaldas is acting as Indian legal counsel to Shyam Metalics and Energy Limited. J. Sagar Associates is acting as Indian legal counsel to the Book Running Lead Manager. KRATA CORP ADVISERS are also acting as advisors to Shyam Metalics and Energy Limited.

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