Shyam Metalics came out with its IPO about ten weeks ago. Value Research's analysis of the IPO can be found here. In this follow-up article, we focus on the IPO's performance, post-IPO events and changes in its valuation since then.
Our analysis of the IPO
While giving this metal-producing company a score of 16 out of 28, we focused on various strengths and weaknesses. Shyam Metalics is one of the largest producers of ferro alloys and the fourth largest name in the sponge-iron industry. The company has a very diversified product mix and two of its manufacturing plants work as 'ore to metal'- it means that it operates across the value chain of steel manufacturing. This enables the company to sustain margins and remove the effect of price volatility in commodities. However, fierce competition with big players in the industry was our key concern.
Our rating of the company was based on the following factors:
- Out of 11 business metrics, the company did well on five
- Out of six management-quality-related metrics, it did well on five
- Out of eight financial metrics, the company did well on five
- Out of three valuation-related metrics, it did clear just one metric
Stock performance since listing
The company's IPO was very well received by investors and oversubscribed by more than 120 times. The qualified institutional buyer (QIB) portion was oversubscribed by 155 times, while non-institutional investors flocked in a large number, oversubscribing their portion by around 340 times.
However, despite such high oversubscription, the listing gain was rather tepid. The stock debuted on the stock exchanges with a premium of 20 per cent at Rs 367 as against its issue price of Rs 306. Thereafter, within a month, the company's stock touched an all-time high of Rs 461, which was more than 50 per cent premium to its issue price. However, the current correct correction in small and mid caps has hammered the stock price, which currently trades at Rs 390.
The company released blockbuster results for the first quarter of FY22. Net profit was up by 470 per cent to Rs 458 crore, while its top-line grew by 170 per cent Y-o-Y to Rs 2,465 crore. This was mainly on account of higher volumes and better realisation across the industry and a lower base of the June quarter of 2020, which was highly impacted due to pandemic-led restrictions across the country. Metal stocks have now been in the midst of a strong growth cycle in the domestic and global markets, which lead to high volume.
What to do?
The company has a strong balance sheet as compared to other steelmakers. Its debt-equity ratio is one of the lowest in the industry. In addition to this, good margins and better return on equity make the company a compelling buy. Historically, metals stocks do not trade at richly high valuations, owing to the cyclical nature of the industry but as compared to the industry, the company's stock is trading at a very cheap valuation, with a P/E of just 11.9 times.
Those investors who are confident about the sustainability of the global and domestic demand for steel and believe that the current supercycle in commodities is here to stay can consider investing in the company.
Disclaimer: This analysis is not meant to serve as a recommendation. Do your own research before investing in the company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com