Shyam Metalics shares: UBS maintains 'Buy' call, sees 36% upside potential

Foreign brokerage UBS maintained its 'Buy' rating on Shyam Metalics and Energy Ltd (SMEL) shares along with upwardly revising the one-year price target to Rs 1,175 from Rs 1,150 earlier, indicating a 35.83 per cent upside potential from Monday's closing price of Rs 865.

"SMEL is the second-largest manufacturer of aluminium foil in India and is expected to be a key beneficiary of the anti-dumping duty announced on Chinese aluminium foil imports. We expect SMEL to generate Rs 1-1.25bn additional EBITDA over the next 2 years on the back of the ADD and additional aluminium foil capacity coming online. Additionally, the 12% safeguard duty announced on steel products is expected to lead to improving EBITDA/t for the colour-coated sheets business of SMEL. We build these advantages into our estimates, increasing our FY26/27E EBITDA by 2 per cent/4 per cent leading to an increased PT (price target) of Rs 1,175 (earlier Rs 1,150)," UBS stated.

The brokerage noted that the company has an existing aluminium foil capacity of 26,400MT (annual) and is in the works to increase this by an additional 18,000MT. "Currently, the EBITDA/t is roughly Rs 35,000/t which post the ADD is expected to increase by Rs 20,000/t. Further, SMEL is also working on backward integration by putting a 60,000MT capacity of aluminium flat-rolled, of which ~42,000MT is to be used internally as aluminium foil stock (key raw material for manufacturing aluminium foil), which is mostly imported. The balanced foil is likely used for manufacturing value-added products such as AC fin stock among others. This is further expected to positively aid EBITDA/t," it also said.

"The 12 per cent safeguard duty on steel products is also expected to benefit SMEL as it offers a price increase opportunity for the colour-coated sheet business. SMEL currently has a capacity of 0.25-0.3mn tons and will be doubling it in FY26," UBS added.

"SMEL is the most diversified metals player with a robust execution track record of delivering capacities on time. It has spent Rs 5,900 crore on capex until 9MFY25 as part of its 5-year capex plan, which began in FY23 and will spend Rs 410 crore in Q4. Upcoming units in the next few quarters are an oxygen plant, captive power plant, beneficiation unit, small stainless steel units, etc. The increasing share of value-added capacities especially on the aluminium and stainless steel front is expected to drive higher realization whereas on the cost front, initiatives like captive power and backward integration should aid profitability," it further stated.

As of December 2024, promoters held a 74.59 per cent stake in the firm.