Shyam Metalics makes strong debut, lists at 24% premium over issue price

The stock rallied to Rs 399, up 30 per cent from its issue price, in intra-day deals on the BSE

Shyam Metalics and Energy (SMEL) made a strong debut on the bourses, with the stock listing at Rs 380, a 24 per cent premium over its issue price of Rs 306 per share, on the National Stock Exchange (NSE) on Thursday.

On the BSE, the stock listed at Rs 367, a 20 per cent premium over the issue price. However, it surged to Rs 399, a 30 per cent premium against its issue price in intra-day deals.

At 10:03 am, SMEL was trading at Rs 394, a 29 per cent premium on the NSE and BSE. A combined 7.7 million shares have changed hands on both the exchanges, so far.

The Rs 909 crore initial public offering (IPO) had witnessed robust demand from investors as the issue was subscribed 121.4 times. The metal producer has fixed the price band of Rs 303-306 for the IPO.

The issue saw stellar demand from most investor group. Qualified institutional buyers and non-institutional investors were the biggest subscribers to the issue as their portions were subscribed 156 times and 340 times, respectively. The portion kept aside for retail investors was also subscribed 11.6 times.

SMEL is a long steel products and ferro alloy company based in Kolkata, with manufacturing plants at Sambalpur in Odisha, and Jamuria and Mangalpur in West Bengal.

Of the net proceeds, Rs 470 crore will be utilized to repay or prepayment of debt availed by the company. Residual funds will be used for general corporate purposes,” the company said in its draft red herring prospectus (DRHP).

At higher price band of Rs 306, SMEL is demanding a trailing twelve month (TTM) EV/EBITDA multiple of 8.6x, which is at premium to the peer average of 6.4x. Despite factoring in an exponential rise in EBITDA in Q4FY21, the company still appears to be overvalued in relation to its peers. That said, with favorable macros for steel consumption, cautious view on the international steel prices and higher demanded valuation, Choice Broking said.

According to the analysts at HDFC Securities, loss of any of SMEL’s suppliers or a failure by its suppliers to deliver some of its primary raw materials such as iron ore, iron ore fines, coal, chrome ore and manganese ore may have an adverse impact on its ability to continue manufacturing process.

Further, the steel industry is characterized by volatility in the prices of raw materials and energy which could adversely affect SMEL’s profitability; they said highlighting key concerns around the company’s financial stability.