Shyam Metalics grey market premium surges by 68% as IPO opens; should you subscribe?

Shyam Metalics and Energy’s Rs 909-crore IPO opened for subscription today, after the company raised Rs 269.94 crore from 21 anchor investors on Friday. Shyam Metalics, an integrated metal producer, has allocated 88.21 lakh equity shares at Rs 306 per share to the anchor investors. The grey market premium in Shyam Metalics shares have surged to Rs 155 per share over the IPO price of Rs 306, according to the people who deal in shares of unlisted companies. The shares were seen trading at Rs 515, up 68 per cent, over the issue size. The issue comprises fresh issue of equity shares worth Rs 657 crore and an offer for sale (OFS) of up to Rs 252 crore by the selling shareholders. Most research and brokerage firms have given a ‘subscribe’ rating to the issue. Investors would need a minimum of Rs 13,770 at the upper end of the price band for one lot.

Geojit Financial Services
Rating: Subscribe

At the upper price band of Rs 306, Geojit Financial Services said that Shyam Metalics is available at EV/EBITDA of 9.1x (FY21 annualized) which appears fully priced. The brokerage firm has recommended to subscribe the issue with a short to medium term perspective on the back of optimistic international prices and rise in domestic demand. It said that the domestic steel demand impacted by COVID-19, will pick up in FY22 and continue its strong growth at 6 per cent through FY25. Restrictions on Chinese exports due to higher domestic demand and surging international steel prices will benefit Indian Steel makers like Shyam Metalics and Energy.

Reliance Securities
Rating: Subscribe

The brokerage has valued the IPO at 2.4x of 9MFY21 book value and 12.8x of FY21 annualized earnings, and said that it looks to be reasonably valued. Shyam Metalics’ net debt/equity and net debt/EBITDA as on 9MFY21 stood at 0.2x and 0.8x, respectively, which are quite impressive and offer an edge over its peers. The brokerage firm believes that the domestic steel industry is witnessing a structural change with increasing commitment towards reduction in carbon emission by large producing countries like China, which essentially bodes well for the domestic steel makers.

HDFC Securities
Rating: Not rated

Shyam Metalics and Energy has a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. It had reported healthy operational as well as financial growth despite downturns in the industry. The brokerage firm said that the company is least leveraged group among its peers. The strategic location of the plant can help in increasing the market reach and optimize logistics costs. Also, having a presence in high-growth market may enable players to achieve faster growth and offset the rising competition.

Ventura Securities
Rating: Subscribe

Ventura Securities has valued the stock at Rs 436.4 (FY23 EV/EBITDA 6X) on the post issue equity and initiated coverage with a subscribe rating. “Our price target represents an upside potential of 42.6 per cent over 18-24 months from the IPO price,” it said. Backward and forward integrated manufacturing plants provide Shyam Metalics and Energy flexibility to optimize its product portfolio dynamically to capture maximum value and hence operating margins.

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