Newly listed metal stock may rise up to 30% on rise in ICICI Securities

Brokerage house ICICI Securities has started coverage on metal stock with buy rating and target price of 400 per share, which means an upside potential of up to 30%. The Kolkata-based long steel products and ferro alloys-focused company sells intermediate and final products across the steel value chain.

“The key drivers for Shyam Metallics are the mini mill configuration, which allows close cost monitoring, capex optimization as some of the costly EPC contracts can be avoided, conservative capital structure keeping the company well positioned through cycles And the tightly controlled cost structure and low capex intensity allow for an increased return ratio through the cycle,” the note said. However, higher raw material (RM) costs are a major interim risk to margins.

Looking at the portfolio of Pallets/DRI/Billets/TMT+ Structural, the metal producer has seen significant improvement in operating profitability in FY2011. The company intends to expand capacity at two of its three plants.

Shyam Metallics is undergoing expansion of capex capacity of 2.5 million tonnes per annum A significantly lower capital expenditure metric of $40 billion – $215 per tonne. This allows us to be a little more constructive on the through cycle return profile and consequently, through cycle P/BV which one can write off to SMEs,” the note from ICICI Securities added.

The company’s focus on continuous efficiency improvement, improved productivity and cost rationalization has enabled it to deliver consistent and strong financial and operational performance. The company has relatively better financial strength as compared to other companies operating in the long and intermediate steel sector.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.