Aug 01, 2023
In an interaction with Brij Bhushan Agarwal, VCMD of Shyam Metalics & Energy Limited
In Q1FY24, the revenues of the company surged by 3 per cent on a YoY basis to Rs 3,307 crore, while the net profit of the company dipped by more than 40 per cent. What were the contributing factors to
In Q1FY24, the revenues of the company surged by 3 per cent on a YoY basis to Rs 3,307 crore, while the net profit of the company dipped by more than 40 per cent. What were the contributing factors to the company’s performance?
The revenue and profitability have to be analysed from three dimensions – sales volume, product mix and realisation. Compared to the last year, the sales volume of steel products has increased by 14 per cent, while the sales of pellets and ferroalloys have increased by 4 per cent. On the products mix side, we have sold more of higher value finished steel products constituting 48 per cent of our overall revenues in Q1 this year versus finished steel contributing 41 per cent of revenues in the previous year. However, there has been a meaningful decline in steel prices compared to the previous year. The realisation for finished steel products declined by 12 per cent on a year-on-year basis.
So, the combination of overall higher volume and higher share of finished steel products have helped us generate higher overall revenues compared to the previous year despite the fall in realised prices. However, the raw material prices remained relatively elevated, resulting in compression of margins. This has been an industry-wide phenomenon and not unique to us. We have seen a quarter-on-quarter decline as well in steel prices but have been able to hold our margins steady. This shows the operational efficiency and resilience of the organisation and the dedication of our employees to overcome difficult situations. We believe that with a stronger product mix and increasing volumes, we will continue to achieve better performance in the coming years.
What is the current competitive landscape for your company, and what are your plans for enhancing your competitive position?
Overall, the demand for steel, especially long steel products remains very strong in India due to robust economic growth in the country and focus on infrastructure developments. We are the 6th largest integrated long steel producer in the country. To enhance our competitive position and resilience across commodity cycles, we are increasing our production volume and at the same time foraying into newer segments to improve the product basket.
If you look at the recent corporate actions and capex announcements, we have acquired Ramsarup Industries and Mittal Corp through the IBC process at attractive valuations. With Mittal Corp, we are foraying into the stainless steel business. We have announced our entry into the colour-coated flat steel segment catering to the roofing and construction segments. We have also announced plans to enter into the stainless flat products segment and DI pipes business. We are strengthening our capabilities in the aluminium foils business, which is already a leader in the country in terms of the product segment in which it operates. So, Shyam Metalics is continuously evolving into a better version of itself, and we believe, this will make us one of the most diversified metal players in the country.
Despite the fluctuations in the market, margins have predominantly stayed steady. Regarding the operational performance and margins, what is the current visibility and outlook?
Margins for the business remained steady on a sequential basis in Q1 FY24 despite about 4 per cent reduction in finished steel prices. While steel prices continued to fall into Q2, we have seen some stabilisation now. However, in India, demand for steel is generally lower in the first half due to seasonal patterns. We believe that in the seasonally strong second half of the year, we should see better prices and demand; and together with growing volume and improved product mix, profitability should improve.
Can you shed some light on the greenfield expansion of your Cold Rolling Mill?
We are in the process of establishing a greenfield project for a cold rolling mill, spanning 94 acres in Jamuria, West Bengal, adjacent to our existing plant. The project carries a total capital expenditure of Rs 603 crore. We can use our existing distribution network to sell the products to roofing and construction segment customers.
In phase one, the mill will accommodate a capacity of 2,50,000 tons, followed by an expansion to 1,50,000 tons in Phase II. This expansion is sanctioned under the Production Linked Incentive (PLI) scheme and will focus on producing GI/GL coils and PPGL (Pre-Painted Galvalume Coils). The execution of this venture falls under our wholly owned subsidiary, Shyam Metalics Flat Products Pvt Ltd, underscoring our commitment to growth and innovation.
Can you shed some light on the company’s capex plans?
The Board's approval of a Rs 3915 crore CAPEX plan marks a pivotal move for Shyam Metalics’ next growth phase. This initiative will drive an enriched product mix, higher volume, and enhanced market presence. Out of the total CAPEX, Rs 625 crore is allotted to Ramsarup Industry Limited, of which Rs 250 crore will be contributed by the joint venture partner.
Our power capacity will see a 220-megawatt boost, with 90 megawatts at Sambalpur, 20 megawatts at Jamuria, and 40 megawatts at Ramsarup Industrial Kharagpur. We will enhance solar power capacity by 100 megawatts. Further, we are enhancing our downstream facility by an additional 1.4 million tonnes consisting of stainless flat products, DI pipe, parallel flange beam, and steel wires.
DSIJ’s ‘Flash News Investment' weekly Newsletter recommends profit-making ideas for you based on fundamental and technical analysis. If this interests you, do download the service details here.In Q1FY24, the revenues of the company surged by 3 per cent on a YoY basis to Rs 3,307 crore, while the net profit of the company dipped by more than 40 per cent. What were the contributing factors to the company’s performance?What is the current competitive landscape for your company, and what are your plans for enhancing your competitive position?Despite the fluctuations in the market, margins have predominantly stayed steady. Regarding the operational performance and margins, what is the current visibility and outlook?Can you shed some light on the greenfield expansion of your Cold Rolling Mill?Can you shed some light on the company’s capex plans?