Shares of Shyam Metalics and Energy have gone down close to 4% since the company posted its June quarter earnings last week. However, analysts at ICICI Securities expect the company’s focus on balancing the value chain, cost reduction and foray into downstream products to improve the margins further.

The Shyam Metalics and Energy Analyst: The Amit Dixit-led analyst team at ICICI Securities maintained a “buy” rating on the stock with a price target of ₹570, indicating a rally of around 44.8% from the stock’s last closing price of ₹393.75.

The Shyam Metalics and Energy Thesis: The brokerage firm noted that the company posted robust performance in the June quarter. The firm highlighted that despite a 4-7% quarter-on-quarter decline in underlying commodity prices, the company’s EBITDA margin remained stable at 12.2% during the same period. As per the firm, several factors contributed to this performance:

1. The sales volume of metallics and intermediaries increased by an average of 13% quarter-on-quarter, which helped offset the impact of lower finished product volume.
2. Rolled products volume experienced a significant 36% year-on-year growth due to the successful ramp-up of newly commissioned capacity.
3. Despite the decline in commodity prices, the EBITDA per tonne was only down by 2% quarter-on-quarter, reaching ₹7,811 per tonne.
4. The company benefited from lower thermal coal costs, which almost balanced out the effects of the decline in realisation.

The brokerage added that going forward company’s management anticipates that lower thermal coal and iron ore prices, along with capacity ramp-up, will contribute to improved margins. Additionally, it said that underlying commodity prices have reached their lowest point and are poised for a rebound, which should lead to enhanced profitability.

The analysts also said that the recent approvals and recommendations by the board regarding the appointment of new auditors, independent directors and reconstitution of key committees are likely to
reinforce investor confidence.

Price Action: Shyam Metallics’ share price was down 0.03% to trade at ₹393.65 in the early hours of trading on Wednesday.

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