Shyam Metalics and Energy Limited (SHYAMMETL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Shyam Metalics and Energy Limited Q1 FY '27 Earnings Call Conference Call hosted by Ernst & Young. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pankaj Harlalka from Shyam Metalics. Over to you, sir.

Thank you, Sania. Good afternoon to everyone, and thanks for connecting with us on our first con call of this financial year. On behalf of Shyam Metalics, I'm delighted to welcome you all to this call, particularly our shareholders and our industry analysts. Thank you for taking the time out on this call to discuss our latest results and performance. Our results and a detailed investor presentation has been uploaded on the exchanges as well as on our website. I hope everyone had a chance to go through it. To discuss our results, we have with us our Chairman and Managing Director, Mr. Brij Bhushan Agarwal; our Executive Director and Director of Finance, Mr. Deepak Kumar Agarwal; and [ Mr. Banesh Ada ] from E&Y, our Investor Relations partner. They will take you through our results, and then we will proceed to the Q&A session. Now I would like to hand over the call to Bhushanji. Thank you, and over to you, sir.

Hi. Good afternoon, and good evening, everyone. [Foreign Language] Ladies and gentlemen, a warm welcome to everyone on behalf of Shyam Metalics. I sincerely thank all of you for joining us today. Your continued trust, support, engagement has been extremely instrumental in our journey, and we deeply value long-standing relationship, trust we had been building day by day with our investors, analysts, stakeholders and all the participants. We commenced Q1 FY '27 on spectacular strong note, delivering another quarter of robust growth, driven by extremely disciplined execution, operational excellence and the resilience of our entire integrated business modeling. During Q1 FY '27, the revenue grew by 23% year-on-year to approximately INR 5,500 crores, while EBITDA and PAT also followed an increase by 28% and 21%, respectively. EBITDA margin expanded by 100 basis points on a year-on basis, reflecting sustained operational efficiency on the back of cost optimization, improved product mix benefiting to our integrated operation and focusing more on B2C and value-added product, innovation and values. Before I speak about our business progress, let me briefly touch upon the broader industry environment. Globally, the metal industries continues to witness volatility due to the fluctuation in the prices, trade flow, geopolitical development. However, medium to long term look extremely constructive and positive, supported by infrastructure spending, smart manufacturing growth, renewals and infra housing and all these sectors. In India, demand continues to remain healthy, driven by the growth. And as we know, our country being a developing nation, the fast tragedy growth of last 10 years has witnessed the growth all across the sector by the government-led infrastructure development, [indiscernible] modernization, urbanization, manufacturing expansion and increasing focus on domestic value addition. This trend continues to provide a strong foundation for growth across metals, such as steel, stainless steel, aluminum and specialty alloy. Since our inception and philosophy, we had always built a diversified integrated value chain metal business that creates long-term value sustainable for all of our respective shareholders. In this regard, one of the key highlights during the quarter was unveiling of our Vision 2031 road map with -- which articulates our long-term vision ambition of transforming Shyam Metalics from commodity-focused steel manufacturer into a diversified value-added metal conglomerate with a stronger and more resilient earning profile. Those strategic investment across stainless steel, specialty steel, aluminum and other HR coils are on the downstream business. We are building multiple growth engines that will enhance value addition with extremely deep integration and significant strengthening of our profitability, sustainability and perennial growth over the coming years. We have recently achieved an important milestone by starting the commissioning of our additional capacity of aluminum facilities in [ Odisha ], further strengthening our downstream aluminum capabilities. This facility enabled us to manufacture varieties of aluminum pulp stocks, which will be converted into foils catering to both domestic and international market, while significantly increasing value addition from our existing portfolio. The aluminum flat roll product projects remains on the track for commissioning during the second quarter. All major projects across our portfolio continues to progress as planned, and we expect to commission within the targeted time line. Importantly, several of the key project drivers, which we have discussed during our investors meet and our target of 2031 comes from the expansion of HR coil plant, specialty steel plant, aluminum plants and special bar plants, which are all under the construction stage and will be commissioned as per the target given. One of the biggest competitive strength continues to be our integrated operation and industry-leading cost position. As we know, energy is a very big raw material for the metal business, and our competence on our cost and control on the energy is highly appreciable. During the quarter, Shyam Metalics acquired 26% equity stake in [ Emerge ] Green Power Private Limited, which is constantly becoming an associate company of the company. The investment is aligned for a long-term commitment towards sustainable energy, security and operational efficiency. The partnership is expected to reduce our dependence on grid power, lower energy cost and increase our share on the renewal operations and support our ESG objectives. Over time, this initiative is all over expected to contribute improved EBITDA margins through the lower cost related operational expenditure while strengthening compliance with evolving regulatory and sustainable requirement. As we all know, this IPO from INR 6,000 crores revenue, in 4 years, we have marched to close to INR 18,500 crores, and EBITDA from INR 600 crores to INR 2,300 crores and with a CAGR of more than 20%. With our present expansion, what we have declared and the progress at site. We are very sure that we will maintain this growth trajectory, what we had been doing in the past, and will become more and more investor and stakeholders friendly in the time to come. This also reflects our capital policies allocation, strong internal cash generation and long-standing commitment from self-funded growth. And the current quarter's run rate annualized revenue have a potential to deliver robust year-on-year growth, with operating EBITDA expected to grow at a significant decent piece, supported by sustainable margin expansion. Even at this scale, our long-term EBITDA margin aspiration of around [ 14% to 15% ] remain very conservative considering that we are already operating at close to 13% to 14% EBITDA margin with several high-value business yet to contribute. This provides strong visibility for our future earnings expansion and reinforce our confidence in the long-term value creation potential of our Vision 2031 strategy. Looking ahead, supported by a diversified portfolio, strong financial position and well-defined growth pipeline, we remain well positioned to keep it capitalized on emerging opportunity and create sustainable long-term value for all our respective shareholders. Thank you once again, and now I would love to hear the financial -- and pass on the phone to Deepakji to share all the financials and further discuss on the financial effect. Thank you.

Thank you, sir. Good evening, everyone, and thank you for joining us today for Shyam Metalics and Energy's Earnings Call for the first quarter of the current financial year. Myself, Deepak Agarwal, Director Finance and Group [indiscernible] of the company, am pleased to present our financials and operational performance for the quarter 1 of the Board of Directors and the entire Shyam Metalics family. Our Chairman and Managing Director, Mr. Brij Bhushan Agarwalji has already shared his perspectives on the business and our strategic priorities. I would now like to take you through the financial performance, key operational developments, strategic initiatives that continue to strengthen our foundation for sustainable growth. I am pleased to report that we have begun with the current financial year on a strong footing, delivering a healthy performance across our key financial and operating parameter. Despite a dynamic market environment, our integrated business model, diversified product portfolio and focus and operational excellence have enabled us to deliver consistent growth while maintaining the financial discipline. During the first quarter of the current financial year, our revenue from operations stood at INR 5,455 crores, registering a growth of 23.3% on a year-on-year basis and 4.1% on quarter-on-quarter basis. Similarly, the EBITDA for the quarter stood at INR 812 crore, which is a total EBITDA, which is reflecting a growth of 28.3% on a year-on-year basis and 7.4% on quarter-on-quarter. And as far as EBITDA margin expanded to 14.9% in compared with the 14.3% in quarter 1 of the last financial year and 14.4% in quarter 4 of the last financial year. Similarly, our operating EBITDA stood at INR 765 crores, with an operating EBITDA margin of 14%, supported by an improved product mix, stronger operational efficiency, better realization across key product categories. Profit after tax for the quarter stood at INR 351 crores, reflecting a growth of 20.6% on a year-on-year basis and 12.6% on a quarter-on-quarter basis. The PAT margin stood at 6.4% against 6% in the last quarter. We are also pleased to say that our Board has declared an interim dividend of INR 1.8 per share. This reflects our continued commitment to delivering consistent shareholder return, while maintaining a prudent and disciplined approach to capital allocation. What is particularly encouraging is that this performance has been driven by a combination of volume growth, value-added product contribution and disciplined cost management. Our continuous focus on maximizing efficiencies across the value chain is translating into a stronger profitability and sustainable earnings growth. We continue to witness healthy demand across several product categories, enabling us to further strengthen our market position. The growth in our business continues to be supported by increasing contribution from value-added products as we continue to invest in downstream operation. Our strategy of moving up the value chain while maintaining our cost leadership position remain intact. Our balance sheet continues to remain one of our key strength. We maintain a conservative financial profile defined by lower leverage, strong liquidity and healthy cash generation. Our disciplined capital allocation approach and focus on working capital efficiency continued to support both growth and financial resilience. This financial skill allows us to pursue strategic investment while maintaining flexibility to navigate market cycles and capitalizing on emerging opportunity. Now I would like to touch base upon key update during this quarter. We have successfully commissioning of our aluminum file facility and our investment in renewable energy to Emerge Green Power are important steps towards strengthening our value-added product portfolio, improving energy efficiency, enhancing the sustainability of our operations. This investment remains aligned with our broader objectives of driving profitability and sustainability growth. All our previous announcement -- announced CapEx projects remains on track and are expected to significantly enhance our product portfolio and value-added capability over the coming year. We are pleased to share the successful commissioning of our color coated plant in April 2026, which increased our coal rolling capacity by [ 16% ] from 0.25 metric ton 0.4 metric tonne -- million tonne. The expanding facility position us to address high-growth opportunity across solar energy, automotive, infrastructure and consumer durable while strengthening our downstream value-added product portfolio. On the capital expenditure front, we incurred INR 575 crores during this quarter towards our ongoing expansion project going forward that balance approximately INR 9,580 crores of our announced CapEx is expected to be deployed over the next 3 to 4 years across our planned project. We remain confident in funding this investment, primarily through internal accruals, supported by our strong cash generation and healthy balance sheet. These investments are aligned with our long-term vision of expanding our presence in specialty products, strengthening downstream integration and improving margin sustainability. As this project ramp up, we expect a meaningful improvement in earning qualities, profitability and capital efficiency. We remain confident of delivering a 600 to 700 basis point improvement in return on equity and return on capital by 2031, supported by higher utilization, richer value-added product portfolio and increasing contributions from our transition businesses. As we move forward, we remain confident about the opportunities ahead. Our integration operations, focus on value-added products, strong financial positions, ongoing strategic investments provide a solid foundation for the sustained growth. We will continue to focus on operational excellence, prudent capital allocation and creating long-term value for all our stakeholders, partners. With that, I would like to conclude my remarks. Thank you once again for your continued trust and support. We will now be happy to take up your question as well. Thank you. Thank you to everyone.

[Operator Instructions] The first question is from the line of Amit Dixit from Goldman Sachs.

Yes. Congratulations for a very good set of numbers. Two questions from my side. The first one is, essentially, if I look at 2 divisions, aluminum and specialty alloys, EBITDA per tonne in aluminum has gone up almost 52% Y-o-Y. Is it more driven by LME prices? Or is our product mix also has a role to play over here? Also, in specialty alloys, if I see EBITDA margin Q1 FY '27 is almost 20.5%. In FY '31 vision that you shared with us, EBITDA margin works out to roughly 15%. Now this is a significant variance that we see despite many of the things not getting reflected. So just wanted your comments on both of these numbers.

Wonderful. Thank you, Amit. First of all, regarding the aluminum, the numbers have improved. It is a mix of the benefit, what we are getting on the price from the LME side. Also, improvement in the product mix, which we have been doing continuously. And related to your question number two, related to the specialty alloy, yes, the numbers have improved because there's a good demand of the specialty alloy, what we are making. And we are improving day by day in creating more special alloys so that we fetched more and more better values. So related to that 2031 number when we are discussing -- we are discussing as a complete holistic number of Shyam Metalics, where one of the part is specialty alloy, aluminum is the other part, carbon steel is other part. So when we are talking overall, we are trying to see that in the time to come, we should be able to have around 15% to 17% or 16%, we are talking on the overall business value side. And sometimes, the numbers may go up, sometimes the number may come down, there's a stock gain losses, market fluctuation and all. So this is -- what we are giving you the number is completely extremely conservative and very prudent. Thank you.

Sir, just to push that further, I mean, if I look at aluminum and look at the other division, which is stainless steel. The numbers that we see in Q1, I mean, compared to your FY '31 vision looks like -- FY '31 vision is a tad conservative. I mean being conservative is, of course, fine. But I think from the look of the numbers that Q1 FY '27 was not -- I mean, too great a quarter. And FY '31, when a lot of backward integration will be built in both these divisions, it looks like we are headed for a much better number in FY '31 if things stand where they are like Q1 FY '27. We are headed for a much better number in EBITDA, at least, than what you guided in your Investor Day.

This has been our trajectory record like whatever numbers we have given, we have over delivered it in the last 4 years, if you see. And in last 4 years, from this number to this number, so in terms of EBITDA, our revenue was -- if you see, it is much beyond what we had from -- we would love to be conservative. This is our nature, that we take all the safety factors in our process and all. And we can't change with our habit. We rather believe to speak less and deliver more. So that has been one of our approach. And if you see all the projects, what we have declared and from the numbers are generating, if you see -- the beauty is if you see the commissioning date and time of the project, most of the projects will be commissioned in '29, majorly '28, '29, 3 years from today. And the numbers, what we are promising is for 2031. So there is a lot of good story, still going to ripe up in between. And you would love to see that what we speak, we should be able to deliver much before much better so that -- we are all very confident for the company and the growth and all the surprises have been taken within that time.

Great, sir. The second question is essentially on the demand side. Now what we have seen that prices of secondary rebars have actually gone down significantly. And not only secondary, but also primary rebar. I just wanted to understand whether it is a seasonal factor or you see the demand being weak on the ground?

Every time during the season, every time during this kind of season and all this kind of issue always crop up because of the monsoon, floods, logistic, people. So this is something very regular. There's no surprise. And if you see from the overall demand prospect, we all know that the country is doing very well. Still, there is a growth of 7% to 8% every year on steel. And rebar contributes the major consumption of steel in the country close [ 50% ], 55% of the overall steel production. So it will grow. And I think we don't have to be really worried because we are now in a different mode of growth story as a country. And Shyam Metalics means the plants on the east part of the country will see a new growth story because a lot of investments are going to come up on the east side, Northeast side since we have 2 government aligned, first time in last 50 years. So we will definitely get a lot of advantage of our position, location in the time to come. And these are all phases, which should not be bothered for this 2, 3 months demand supply capital because we are seeing this for almost more than 15 years now, and we are very well prepared with these kind of the prices and on how to keep our speed at pace and also manage the market demand and supply. Thank you.

And the next question is from the line of [ Vikas ] from [ Serene Alpha ].

Hello. Am I audible?

Yes, yes.

Congratulations on a good set of numbers, sir. My question on aluminum plant, you are talking about the newly commissioned aluminum foil plant in Odisha and your announcement with starting the commercial production. So any update on this order book pipeline or on a commercial order are you getting from there?

We are already in the business. We have a lot of order bookings. We have almost close to more than 10 months order bookings from our existing plant.

Any number, sir?

So the plant has been commissioned. It will take a few months to get -- streamline issues and all. So numbers, we have already given the projection in our annual numbers. But this year is both [indiscernible].

Sorry to interrupt...

Getting some value this year, yes. Hello?

Yes, yes, sir.

Continue, sir. Continue.

Continue, sir.

So we don't have to worry. And we have been in this business for almost more than -- we know what, when and how to do it. So it's not a new project for us in terms of the expansion of our existing business. So we should not be at all worried on any concern.

And it is a start or a trial that is with [indiscernible]?

It has started. Commissioning starts, it takes time. The plant is set. So the -- all the operations and other things will -- is in the process, and it will take some time to completely make it 100% operational. We have to follow step-by-step. Yes, yes, yes.

The next question is from the line of [ Richard Agarwal ] from Unified Mutual Fund.

Congrats on the numbers. Sir, if you could just refresh our memory and let us know what projects are we seeing commission in the near term, maybe in the next 4 to 6 quarters or so?

Very good afternoon, and thank you, dear. See, this year, we are going to commission -- we have already commissioned our expansion of the flat product color-coated line. So we expect that the numbers are really going to be fantastic this year. I think it should be almost more than double this year in the flat products. And the aluminum business has been commissioned, so it will take another 3, 4 months to regularize completely. So we should expect that from the third quarter onwards, we should start seeing the real value coming up in the aluminum space. And a few steelmaking -- iron-making facility is going to be commissioned by end of second year or early third quarter. So this is also going to add a lot of value. So quarter 3, quarter 4 is extremely very important for us on the new value-added side. And some power plants are going to be commissioned in the second quarter. So this is also going to help us a lot in terms of improving further our bottom lines. I think majorly -- that's all -- anything I left Deepak?

No, no, nothing. You've covered everything.

I covered everything.

Got it. And just, sir, on our FY '31 plan, I believe the aluminum and both CRM, the volumes that we mentioned, we currently have the capacities for same after -- after the recent commissioning. Given the demand scenario, how you outlined it, can we expect maybe another leg of CapEx in these 2 pockets?

Yes, yes, yes. We are planning another CapEx, but still is under the diligence stage because once we commission our HR plant where we'll be producing close to 2 million [ tonnes ]. So we will be definitely doing an expansion of another downstream project, but it is under the Board and a lot of studies are going on. So we should -- will be clear by third quarter. But yes, definitely, there will be a lot of -- another good story is ripping up in next 2 to 3 years. [indiscernible] project, these are projects are on the ground. [Foreign Language]

Got it. And sir, on the last bit, more of a long-term strategic kind of question. Are we planning something on the iron ore bit as well. Given the size of our steel portion 5 years out from now, can we expect that we go further and integrate more backwards given our exposure in [indiscernible]?

We are doing a continuous due diligence on the iron ore assets and all. But most of the assets are at a very high premium. And we feel that it is not going to be wise on our scale of business to add a lot of cost on the raw material. Because for us, raw material is not a problem. They are very near to the mines. Two, for the better integration, we are -- we have commissioned the [ benification ] plant. We will be using the low-grade iron ore and beneficiate and we'll be adding more from the iron of that. Three, if you see this is a very interesting strategy, what we have taken a couple of years before. We were extremely clear about the iron ore pricing, supplies and all. So development is more on the downstream value additions. So we are integrating more on the downstream and high value and B2C because here, we see a better value and more sustainable from the business point of view. Thank you.

The next question is from the line of Satyadeep Jain from AMBIT Capital.

Just firstly, on stainless steel. In the vision document, the EBITDA implied seems to be almost INR 15,000, INR 16,000 per tonne on stainless steel. Just trying to understand what kind of project -- product mix are you considering for stainless steel and how much 300 series when the flat steel capacity rises?

See, we have been very conservative. I think we have shown around INR 14,000 [ a tonne ], number one. Number two, our major product, 2/3 is going to be 200 and 400, which is almost a nickel-free seal, and close to 35%, 40% is going to be 300 series. So it's going to be a mix of 200, 300 and 400. And these will be [indiscernible] to the flat steel, so yes.

No, I was asking -- the stick iron will be used for 200, 400 series. So for 300 series, given high nickel content, you'll be sourcing a nickel from outside for that?

Yes, yes. Nickel, we don't have a nickel in our country. So we will be taking nickel from -- maybe we'll be buying some scraps and we'll be buying some nickel pig iron, which everybody does worldwide for making a nickel grade. So these are only the 2 alternative worldwide. There's no other alternative.

And for the CRM and cold -- color coated and CRM, the EBITDA per tonne was INR 8,500 almost per tonne this quarter. Is that something that can be a sustainable number we can look at if the HR capacity comes up?

See, if you see all the numbers, what we have shared is this quarter number, we are penetrating more on the B2C market and we are developing our brand. There might be some little bit of changes in the sluggish time because market is competitive. But yes, in the time to come, this is going to be exactly the number we are focusing.

Just maybe 1 or 2 follow-up questions. On the fundraising approval of INR 4,500 crores, given that you do expect to meet the CapEx from internal cash flow, is that mainly enabling the solution? Or is there a thought to there some funds for...

Enabling resolution. Just -- no, no, it's just enable resolution. Nothing very serious on the table.

Lastly, on Emerge Green, you mentioned there's been an acquisition of 26% interest. Just what kind of capacity are you looking at? And this company, if I understand, is not commissioned any capacity in India yet. Just maybe any thought, is it -- it's not a related party, I understand. I think, maybe anything you can share on what kind of capacity you're looking at? And what is the background for this company?

Not very clear with your question. Actually, I'm traveling [indiscernible].

This is basically what we are announcing our solar project. To solar, whatever we have announced, we have announced only a CapEx basis, no...

That? Okay, okay. Solar project, okay, okay. So this is all -- right now, you don't need to do any major CapEx from your internal accruals. A lot of companies in the solar spaces, they are installing the plant on the JV with a very little bit of equity. They're setting up the plant with a buyback agreement and all. So we find that structure is more better because why we -- and they bring business at around 8%, 9%, 10% yield. And it's much more comfortable in the terms of the warranty and guarantee of the equipment. So we are just changing the strategy, investing more with the JV companies to build, run and operate and creating the value for the company. Am I right because this is not what is required to say, right?

This is basically what we have announced earlier on the CapEx model in a solar project. Now we are trying to transfer and modify from CapEx to OpEx model, where we will get the long-term agreement with the investors and putting up some solar renewable energy projects at our -- in those plants. That is our strategy.

I understand this is a group CapEx model where you put in 26% equity. But it seems -- just trying to wonder -- this is not a related party...