UBS maintained a Buy rating on Shyam Metalics on October 7, predicting a 45% upside. The firm raised its target price to Rs 1,550. UBS said, "Shyam delivers capex at lower cost and with shorter timelines than the industry averages." Many investors have not fully priced in this growth yet.
UBS has maintained its 'Buy' rating on the stock and raised its target price by 24% to Rs 1,550. This implies an upside of a whopping 45% from the stock's closing price of Rs 1,067.3 today, October 7. "Our review of completed and upcoming projects indicates that Shyam delivers capex at lower cost and with shorter timelines than the industry averages, supporting superior ROIC and faster growth," UBS said.
UBS on Shyam Metalics: Earnings improvement
UBS expects the company's earnings before interest, tax, depreciation, and amortisation (EBITDA) per tonne to improve to Rs 8,400 by FY31 from Rs 4,700 in FY26. This reflects a 24% growth on compounded annual growth rate (CAGR) basis over FY26 to FY31, compared to 12% CAGR growth between FY21 and FY26.
The brokerage believes the market has not fully priced in the capex ramp up and that consensus earnings upgrades will follow. UBS has raised its FY28 EBITDA guidance for the company by 3% and FY29 EBITDA guidance by 8%. "Shyam trades at 7.5x one-year forward EV/EBITDA, in line with the three-year average, leaving room for multiple expansion," it added.
"Shyam's earnings profile is changing as it moves from low-value intermediates to higher realisation products. We expect the contribution from intermediates to decline from 33% of revenue in FY26 to 12% by FY31E, with stainless steel increasing from 7% to 25% and finished steel from 44% to 52%," the brokerage said.
UBS added that this shift will be driven by new businesses such as hot rolled coil, cold rolling mills, special bar quality, stainless steel flat products, and railway wagons. The brokerage expects Shyam Metalics EBITDA growth to materially outpace volume growth as more and more revenue comes from downstream and value-added products.
UBS on Shyam Metalics: Capex-led growth
UBS believes the company's growth is supported by a "large but focused" capital expenditure pipeline. The company is adding 1.58 million tonne per annum (MTPA) of hot rolled coil capacity, 0.8 MTPA of special bar quality, 4,800 railway wagons, 1.33 MTPA of stainless steel, and more aluminium foil and flat rolled capacity.
"Most of the capex is focussed on downstream businesses, which should support both revenue growth and margin expansion. Importantly, Shyam has demonstrated superior execution vs. industry peers. For major projects, Shyam's capex costs are 10-20% lower while completion timelines are 24-30 months vs. the industry norm of 30-36 months," UBS said.
UBS on Shyam Metalics: Next leg of growth
UBS has raised its target price on Shyam Metalics as it believes the company will drive future growth from capex plans and value added products. The brokerage says the market has not fully priced in these factors and projects a 45% upside.