What’s triggering ICICI Sec to see over 95% upside targeting a new all-time high on this metal stock?

The brokerage firm ICICI Securities is seeing a 96% upside on Shyam Metalics and Energy from its current market price, targeting an all-time high level of ₹570 on the back of multi-fold and multi-faceted growth potential.

ICICI Sec said in a note that this “upside in Shyam Metalics and Energy’s (SMEL) stock price from CMP on the back of: 1) ramp-up and stabilisation of existing capacities; 2) recent foray into stainless steel and colour-coated steel, which is likely to yield an additional EBITDA of Rs6bn by FY25E; 3) earnings contribution from Ramsarup Industries; and 4) niche capacities (in aluminium foil and low-carbon ferrochrome), which are likely to be earnings-accretive. As a result, we expect EBITDA to grow >2x by FY25E compared to FY23E, even on our assumption of declining commodity prices.”

“Going ahead, we expect margins to improve further due to integration benefits of ferrochrome with stainless steel, and metallics with finished steel, as the diversified product mix pans out. Besides, low leverage compared to peers, consistent dividend payout and higher returns (owing to low capex intensity) are additional sweeteners,” the brokerage further added.

“Taking cognisance of earnings from new projects and capacity roll-out plan, we raise our FY24E EBITDA by 29% while slightly pruning our FY23E EBITDA by 4%. We introduce FY25E financials at this stage and lower our valuation multiple to 4.5x (earlier 5x) owing to the earnings being contingent on upcoming capacities and their timely ramp-up. Our revised TP works out to Rs570/share (earlier Rs425) 4.5x as we roll over to FY25E EBITDA (discount of 25% over major steel peers),” ICICI Sec note added.

In terms of valuation, the research analysts of ICICI Securities said “We find SMEL best placed among steel companies under our coverage as a result of its attractive growth prospects. On valuations, the stock is trading at 2.4x FY25E EBITDA – lowest among peers. We recommend SMEL as the top pick among steel players under our coverage with a revised target price of Rs570 (earlier Rs425) on 4.5x FY25E EBITDA. In the near term, we see the required dilution of promotors’ stake to 75% by Jun’24 (currently at 88.35%) as the key risk to stock performance.”

The shares of Shyam Metalics and Energy closed on the NSE at ₹289.95 apiece level, down by 0.74% from the previous close of ₹292.10. The stock touched a 52-week-high of ₹371.05 on (12-Apr-2022) and a 52-week-low of ₹254.55 on (29-Mar-2023). The all-time high level of Shyam Metalics and Energy was recorded at ₹461.15 apiece in July 2021 and an all-time low at ₹254.55 in March 2023. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.