SHYAMMETL — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

MR. NACHIKET KALE – ORIENT CAPITAL Shyam Metalics and Energy Limited July 28, 2023

Ladies and gentlemen good day and welcome to Shyam Metalics and Energy Limited Q1 FY24

Thank you.

The next question is from the line of Darshin Shah, Individual Investor.

Please go ahead.

Darshin Shah

First of all, let me just start by appreciating the scale of CAPEX plans been very well laid out in the presentation.

So as an analyst it helps us a lot to analyze the company.

So kudos to you and the team for that.

So, my question is more relating to the renewable energy part, I see this significantly moving towards that.

So, if you could just paint some picture what is the rationale behind it?

Shyam Metalics and Energy Limited July 28, 2023

Moderator · Conference Operator

The next question is from the line of Dinesh Kumar Padmanabhan, Individual Investor.

Please go ahead.

Dinesh Padmanabhan

Thank you for the opportunity.

Quick question, can you throw some light in what do you think is the target in terms of revenue or EBITDA whatever the new CAPEX I know that when we Shyam Metalics and Energy Limited July 28, 2023 were planning the first phase, we want it to be 25,000 crore revenue company by 2025.

Now with this investment of the second CAPEX, could you tell us what will be your targets please in terms of the top lines and the EBITDA and whatever you can throw light on?

Moderator · Conference Operator

Thank you.

The next question is from the line of Miraj from Arihant Capital.

Please go ahead.

Miraj

I have one question, I wanted to understand with the new CAPEX so that we've announced through fundraise, just to understand over here the promoter entity would be putting in through the fundraise to bring down the promoter, they have to bring it down to 75%.

So am I right in that understanding, they won't be putting or they will be also putting in money.

That's my first question.

Moderator · Conference Operator

Thank you.

The next question is from the line of Rakesh Roy from Omkara Capital.

Please go ahead.

Rakesh Roy

Sir my first question regarding, you have mentioned that you are doing the from 400 to 500 crore for Mittal and for FY24, so FY25 you are targeting nearby 1700 crore from Mittal.

You are still intact on this number sir?

Moderator · Conference Operator

Thank you.

The next question is from the line of Nirvana Laha from Nirvana Capital.

Please go ahead.

Nirvana Laha

In slide number #15 in your presentation, you have said that around 508 crores of CAPEX is pending for the CRM, the cold rolling mill.

So this is an addition to the 717 crore which is pending for the other capacity?

Moderator · Conference Operator

Thank you.

The next question is from the line of Jeme Alison, an Individual Investor.

Please go ahead.

Jeme Alison

Thanks for the opportunity again.

Could you just guide us on the additional, the CAPEX that is yet to be implemented from what was announced earlier, we have about 1.45 million all in all between ductile pipes, sponge iron and blast furnace, etc..

So, if you can just give some rough timeline on these, when these will be coming online?

Moderator · Conference Operator

Thank you.

As there are no further questions.

I would now hand the conference over to Mr. Nachiket from Orient Capital foreclosing.

Nachiket Kale

Thanks to all for sparing their time and answering all their queries.

Orient Capital is the investor relations advisor to Shyam Metalics.

For any queries please feel free to get in touch with us.

Thank you everyone.

Moderator · Conference Operator

On behalf of Shyam Metalics and Energy Limited, that concludes this conference.

Thank you for joining us and you may now disconnect your lines.

Questions and answers

“Shyam Metalics and Energy Limited Q1 FY-24

Brij Bhushan Agarwal: · Research Analyst

Thank you and good afternoon everyone.

And thank you for joining us on the Result Call today.

We reported a very resilient performance in Q1 despite the seasonal softness compounded by the slowdown in the prices.

This was possible due to the continuous enrichment of our product mix and unwavering focus on cost.

The roll product shipment rose from 36% year-on-year basis, while the volume of metallic and intermediate also improved.

Quarter-on-quarter as the new capacity got commissioned revenue contribution from the roll product was 48% in the last quarter up from the Q1 of last vision, that was 41%.

EBITDA remains stable on the subsequent basis, despite 4% decline in realization.

Q1 FY24 EBITDA was 405 crores, with a stable margin of 12.2%.

As we come towards the end of the implementation of the growth plan, announced during the IPO two years back, the Board has approved new CAPEX plan of 3915 crores to kick start the next phase of growth for the company.

This will energize our process, progress towards more enriched product mix and higher volume and consequently, a much stronger company in the

coming years. · Research Analyst

We are also very happy to announce the change in our Board composition and statutory auditors, Mr. Malay Kumar De and Shashi Kumar have joined our Board as additional Director for the term of five years subject to the approval of the shareholder.

Mr. Malay Kumar De is a retired Shyam Metalics and Energy Limited July 28, 2023 IAS officer.

He was the Chairman and Managing Director of WBSETCL, WBSEPCL and he also served as the Chief Secretary for the government of West Bengal.

Mr. Shashi Kumar also has a great experience of more than 50 years and he was the Ex-Chairman of Coal India Limited and earlier he was Director Marketing from Coal India, and he has been also working in the advisory of NTPC IFCO in Chhattisgarh Power.

Based on the recommendation of the audit committee, the Board has recommended appointing MSKA & associates Chartered Accountants as a statutory auditor of the company.

MSKA & Associate is the member firm of BDO International, which is the fifth largest international accounting tax advisory firm and is largest M/S network in the world.

The group projects and recent acquisitions are propelling our strategy of efficient and low cost growth.

With continued robust cash generation and one of the lowest gearing ratios in the steel sector.

We remain confident of financing the upcoming CAPEX requirements largely through the internal accruals and retaining the strong credit rating.

The company is developing in the area that will allow us to constantly reinvest our profit and growth, while maintaining the balance sheet strength the strategy is to be present in the multiple end products related to our expertise and presence on the metal purification value chain.

The company looks very different today in the terms of profit mix vis-à-vis, what it was five years ago and we look very different five years from now.

With that I would hand over the floor to Mr. Deepak Agarwal – Director Finance and CFO to update you on the financial performance.

Thank you so much.

Deepak Agarwal

Thank you, sir.

A very good afternoon to all the participants and I thank all of you for taking time out on this call to discuss the results for the First Quarter of the current Financial Year.

I will be glad to share a quick review of the reported consolidated financials for the first quarter under review for the current financial year 2024.

Shyam Metalics Group has been reaffirmed by external rating CRISIL AA stable for the long-term borrowing and CRISIL A1+ for the short term borrowing.

This reading reflect the established market position of Shyam Metalics Group industrial sector.

The rating validates the factors like the group comfortable financial risk profile backed by healthy debt protections metrics reinforce our trust in our strong business model, which continue to generate healthy cash flow.

Company Secretary · Research Analyst

In Quarter One of the current financial year on a consolidated basis the company reported operated its operating revenue of 3307 crore a growth of 3% over Quarter One of the last financial year.

The sales mix constitute a high percentage of volume from finished steel which account for 48% of the total value.

Although there has been some motivation in the existing module, with the challenging macro environment, which has adversely impacted the commodity prices coupled with the domestic regulatory changes.

The company has been able to book an EBITDA of Rs.405 crore declined by 33% over the Quarter One of the last financial year, and Shyam Metalics and Energy Limited July 28, 2023 EBITDA margins of Quarter One of the current financial year was 12.25%.

In order to maintain the trade in the EBITDA numbers, we have been judicious and cautiously on all our cost component.

Our profit after tax for the quarter stands at 235 crore, which has seen a decline of 43% year-on-year, PAT margins for the quarter is 7.11%, which is quite sound considering the current market trend and PR comparison.

In the Shyam Metalics Group, the working capital management is very prudent.

The group focus mainly on selling items on advances or letter of credit basis learning to lower debtors and inventory period of 15 to 30 days and 70 to 80 days.

With regard to the update of acquisition of Mittal Corp Limited, at present all the pending litigation for the Mittal Corp has already been resolved and settled and application for approval for resolution plan has been filed with the NCLT Mumbai bench, the matter has been heard and reserved for order.

At Shyam Metalics, we have always followed prudent capital allocation policy.

We reinvest 70% of our total cash generation back into the business, return 20% as a liquidity surplus and return 10% to our esteemed shareholder as a dividend.

Our adequate CAPEX plan have been lead out in the investors presentation, our total CAPEX in aggregate 3915 crore which includes the 625 crore towards Ramsarup Industry Limited.

Out of 625 crore 250 crore is attributed towards joint venture partner.

In effect, our total CAPEX spend attributed to our Shyam Metalics, even aggregate of 3655 crore.

Our CPP portfolio of 357 megawatt with an addition of 20 megawatt pending completion at Ramsarup will be 377 megawatts.

Currently, we will enhance our power capacity by 220 megawatt, this 220 megawatt currently 90 megawatt will be commissioned at Sambalpur plant and another 20 megawatt will be at Jamuria plant, and additional 40 megawatt will be at Ramsarup industrial Kharagpur.

The post all announced CAPEX implementation of our CPP will be 597 megawatt.

Additionally, we are putting up to start with the 100 mega solar CAPEX implantation to enhance our renewal portfolio to 109.1 megawatt for sustainability and our first major step towards reducing our carbon footprint.

The CAPEX emphasized is 1230 crore.

In the CAPEX program as per the plans of the company to move forward value added products.

We are enhancing our downstream facility by additionally 1.6 million tonne including our CRM stainless steel DI pipe, hot flat products, parallel flange beam, and steel wire drawing at an aggregate CAPEX cost of 1395 crores which is lower than the standard CAPEX cost.

To facilitate the sales, we will have to add intimidated capacity of delay in various form by adding 1.03 million tonne of capacity.

We shall further enhance our DRI capacity by further 1.0 million tonne.

And we are also adding a verification plan to increase to improve our margins at our plant.

The total CAPEX of our intermediate capacity which comes to around 1190 crore in our newly installed aluminium foil plant, we shall spend another 100 crore for aluminum mills with castor as a backward integration and battery foil plant enhance the product offering.

We feel that the CAPEX spend and the margin, may improve our margin for our company for near future and further increase our product basket.

The capacity has been stated based on present capacity, plus all capacity coming up based on the project announced earlier.

We have made a few changes into the present investor presentation if you see in the last quarter this project well Shyam Metalics and Energy Limited July 28, 2023 we did not reduced the non-current investment portfolio of 798 crore which are parked in a fixed asset government bonds and mutual fund after reducing that to the total net debt of 448 crore.

We had arrived at the net cash of 562 crore in the previous quarter.

And as of in this quarter we are a net cash in this quarter is 499 crore.

Now, I conclude my personal speech and throw the floor open for the question answer session.

Thank you.

Moderator · Conference Operator

Thank you so much.

We will now begin the question-and-answer session.

First question is from the line of Amit Dixit from ICICI Securities.

Please go ahead.

Amit Dixit

I have a couple of questions.

The first one is essentially on the new CAPEX plan, if you could also let us know the timelines of broad categories, let us say hot flat products, parallel flange beam, when can we see these coming, similarly aluminium plants that battery coil plant along with that and if you could clarify on ferro alloys this 0.2 whether it is your I am sure it is like low carbon ferro chrome only.

So, if you can just clarify that, that is the first question.

Brij Bhushan Agarwal: · Research Analyst

Amit, I would also like to suggest, if you see our the new expansion module what we have suggested on the flat product side this is a specialty steel because we are already in the stainless Shyam Metalics and Energy Limited July 28, 2023 steel now, and this flat product is going to be on the side of the specialty steel and stainless steel side.

So, we are proposing a half a million tonne of flat product where the best strategy for the organization right now is since we are in the business of making specialty alloy, low carbon, ferro chrome, manganese, iron, we have a captive power plant, and we don't have to rush on the scrap side for procuring the stainless steel scrap.

So, it makes a lot of value for us to go forward.

So, if you see the expansion, the new expansion what we have declared it is completely a downstream, adding upstream values as well as the value chain, as we know the stainless steel demand is going to become robust in the country and there is a lot of, with the acquisition of the Mittal Corp now with our good team, which we have right now, we are doing a lot of changes in the strategy of the stainless steel and we see that we have to be in the complete supply chain management of the stainless steel business.

By doing this flat product of stainless steel, all these stainless steel pipes manufacturers, the component manufacturers, the household manufacturers, the white good manufacturers, lot of consumer will come within the foothold of the within the product mix.

So, I really see a great value where the new expansion is coming up.

Also, if you see all of our major expansions, when we are talking of we are going to add a billion tonne of DRI, we are going to add a power plant, these are all either it is driving towards the cost side by adding a power plant we are reducing the cost of the power because our new expansions are also going to require a lot of power and also with the new capacity addition of the pelettization plant.

And we see that we have almost 2 million tonnes, one and a half to two million tonne of additional pallets which we have in our system we need to consume that.

So, overall it is a complete value drive from the iron ore pallet to the steel.

So, this is going to create a great value for the organization and it is almost, all the projects are majorly the brownfield projects and it is in the same stream where we are working right now.

I don't see there is any challenge in understanding the business and the business where we are, we are going to increase our more market share and also create into a better market and add more value to the company.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nirvana Laha from Nirvana Capital.

Please go ahead.

Nirvana Laha

So, my first question is on long steel volume this quarter.

So, if we look Q-o-Q, there is almost a 10% decline in long steel while our more capacities have come online during this quarter.

So, what has caused this, are we seeing some demand softness and how do you see this panning out in the next few quarters?

Brij Bhushan Agarwal: · Research Analyst

I actually don't see any kind of reduction or any kind of correction in the process of the sales volume side, but since this is a second quarter and we all know that we are in the monsoon quarter and during these time there is a slowdown in the construction activity there might be some pressure on the price side, but that also with the today's market, I see everything is bottomed out.

So, I don't see any challenges on the front of the field side.

Yes, the margins where we are right now, it has already bottomed out and the market internationally is also reviving and we will be able to maintain a decent numbers this quarter as well as hence forth.

Shyam Metalics and Energy Limited July 28, 2023

Nirvana Laha

Okay.

But the 28,000 kind of reduction in long steel volume that you think is nothing structural and it should be up in after monsoon?

Brij Bhushan Agarwal: · Research Analyst

Yes.

And during this time we take plant maintenance because of the slowdown in the demand there is annual maintenance shutdown also, activities happen in the power plant area and once you take the activity of the power plant then downstream facilities also so these quarters generally we also do a preventive maintenance in the plant.

So, some effect also come from the plant side also as a annual shutdown and all.

But nevertheless, I can visualize that the position where we are right now and the kind of market where we are with our cost advantage.

The we are growing year-after-year, I don't see that there is going to be any correction in the sales side of the volume of the long products and all.

Nirvana Laha

Okay, thanks.

And I heard your answer on margin.

But if you could give some more color on that, so we were all expecting that margin should expand a little Q-o-Q because coal and coking coal, everything has gone down.

So if you can talk a little bit about that, how do you think margin might progress in the quarters coming ahead?

Brij Bhushan Agarwal: · Research Analyst

You are right, the coal prices are going down and this quarter we can see the iron ore prices will also come down.

But, if you're talking on the average margin side you have to also see that we are in the monsoon time and like we said, there might be some kind of pressure on the seasonal side of the monsoon.

And I don't see that the margin where we are operating right now that it would decline further, these are chances of going upward.

But yes, we will definitely get the advantage on the input of the raw metal pricing and the correction what we are seeing in the energy prices, coal, iron ore and all.

Nirvana Laha

Okay.

And one question on the new CAPEX.

So, your older CAPEX, post IPO CAPEX the downstream product have still not come online.

So, one would have thought that you would like that to come online or products to go to the market and then announce the second phase of expansion for downstream products.

So, just want to understand what is the thought behind going with such a large CAPEX before the first phase has also come online.

Brij Bhushan Agarwal: · Research Analyst

If you see, first of all, I would not say that it is a very large CAPEX.

If you see, on the time of the IPO, the initial CAPEX, what we declared was around 3100 crores.

Later on, we added and it went to around 3900 crores, I'm talking of one year from now and on that 3900 crores we have already invested 3200 crores, all the downstream activity of the long product side has been commissioned, six months to nine months back.

Now, the new commissioning, what is going to happen is for the pig iron plants which is in full stream, the power plant which we just now commissioned.

So, these are all going to add the value and increase the numbers, EBITDA numbers on the bottom line side, because today we are buying the pig iron and we are consuming, if we are able to produce this backward integration pig iron with our own captive coke oven plant, we generate a lot of power and we get a lot of advantage on the reduction of the power cost as well as the raw material ingredient what we are buying for making steel.

So, I see we are very much within track and downstream all the cold rolling mill complex what we Shyam Metalics and Energy Limited July 28, 2023 declared six months back it has to come in the scheme from the coming year onwards.

So, I don't see that it is a large CAPEX and today the CAPEX what we are declaring right now, it has to be completed in next two to three years, we are talking of three years, we will be almost over with the old CAPEX by March coming year.

So we will have enough time and enough cash in the system that we will be able to invest and increase the better performance in the company.

Nirvana Laha

Sir, if I may just my question actually was that we haven’t still seen our products go commercial from the cold rolling mill, etc. that you've announced already.

And we are even now going ahead with more products and downstream.

So I'm just asking from a market acceptability of products point of view there are no concerns, that is not something that?

Brij Bhushan Agarwal: · Research Analyst

Not at all.

Nirvana Laha

Okay.

And for the new power CAPEX that you're doing on power.

So right now, 75% of your power is through captive.

So after FY26, with this new power CAPEX that you're doing with the other CAPEX, how much of the power is expected to be captive?

Brij Bhushan Agarwal: · Research Analyst

It will be in the same range of around 75% to 80% because the new capacity what we are adding will also be requiring more power.

So, it is almost going to be in the same level of around 75% to 80%.

Moderator · Conference Operator

Thank you.

The next question is from the line of Gaurav Gandhi from Glorytail Capital Management.

Please go ahead.

Gaurav Gandhi

Sir, in earlier calls you have mentioned aspiration to be a B2C company to overcome the cyclical nature of the business.

Can you update on that, where do we see ourselves presently and future progress towards that goal?

Brij Bhushan Agarwal: · Research Analyst

Very correct.

If you see from last two years, the volume what we have penetrated in the long term, the tonnage what we were doing, three years before and every year how much we are already penetrating towards the B2C market.

We are doing structural steel, we are doing long product, construction steel and all of our products what we had planned two years before was focusing on the B2C that is the major integration and the ideology of the company which we are focusing on.

And in the new CAPEX plan also if you see, majorly it is on the downstream side, it is not on the upstream side like whatever iron we are doing, whatever specialty alloy we are doing, we are trying to convert into a value added steel so that we can add more value on the B2C space as well and as well as B2B.

Gaurav Gandhi

Okay.

And the second question is, you mentioned about forming an advisory committee on various business opportunities and strategies.

Does it include existing members associated with the company or any external experts in that committee?

Brij Bhushan Agarwal: · Research Analyst

Your question is not clearly dear, can you just repeat once again?

Shyam Metalics and Energy Limited July 28, 2023

Gaurav Gandhi

In the press release by the company there is mention of forming an advisory committee on various business opportunities and strategies.

Does it include existing members associated with the company or any external experts, can you share more details?

Brij Bhushan Agarwal: · Research Analyst

These are all external experts like, we are talking of the people who are the legendary in the metal business, they are going to be with the big name, with a great experience and all.

So, majorly they will be all from the outside who has been serving the big conglomerates and the big giant in the industry.

Moderator · Conference Operator

Thank you.

The next question is from the line of Jem Allice, Individual Investor.

Please go ahead.

Jeme Alison

Thank you.

My name is Jeme Alison, my first question was, what was the cash flow from operations figure like this quarter?

Brij Bhushan Agarwal: · Research Analyst

I'm not clear with your question, can you just repeat once more please.

Darshin Shah

Sir we are moving significantly towards the renewable energy part.

So, wanting to understand the rationale behind it?

Brij Bhushan Agarwal: · Research Analyst

See, first of all we have, our expansions are going on.

And we have already, we are working on our ESG plans within the ESG plans, we have a plan that we should be as a good entrepreneur as a good institution we have to also focus on the green energy.

We have also drawn the carbon footprint for the organization where we have to work on this, so all these renewable energy what we are evaluating right now we don't have to look for a market to sell the energy because and all the CAPEX, IRR what we are planning is first of all, it has a good IRR of more than 20% because if we are doing the renewal within the company, you get the advantage of tax and other advantages.

And number two, we don't have to look for a market to sell the power.

So, all these makes a very good combo and very holistically if you see one side we are generating power, we are reducing the footprint we are getting into a renewable space green power and also we are utilizing that power in our existing system.

This is the major issue.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nirvana Laha from Nirvana Capital.

Please go ahead.

Nirvana Laha

Can you please let me know the net fixed asset and capital work in progress position as on this quarter?