Shyam Metalics grey market premium surges ahead of IPO; should you subscribe amid commodity cycle upswing?

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June 10, 2021 10:58 AM

Shyam Metalics and Energy share price in the grey market surged 43 per cent to Rs 436, ahead of its Rs 909-crore IPO, which opens next week on June 14.

Shyam Metalics IPO, Tata steel, initial public offer, grey marketThe IPO of Shyam Metalics comes at a time when the metal sector is enjoying a dream run, and the momentum advantage is totally in favour of metal stocks

Shyam Metalics and Energy share price in the grey market surged 43 per cent to Rs 436, ahead of its Rs 909-crore IPO, which opens next week on June 14. Shyam Metalics shares were trading with a premium of Rs 140-145 per share in the grey market, over the issue price of Rs 306 per share, on Thursday, one day before the bidding for anchor investors, according to the people who deal in shares of unlisted companies. Shyam Metalics, an integrated metal producer, has fixed a price band of Rs 303-306 a share of face value of Rs 10, each.

Up to 50 per cent of the net offer has been reserved for Qualified Institutional Buyers (QIBs), 35 per cent for the retail category and the remaining 15 per cent portion for non-institutional investors. While up to 3 lakh shares have been fixed for subscription by employees. A discount of Rs 15 per share will be given to the eligible employees bidding in the employee reservation portion. Investors can bid for a minimum of 45 equity shares and in multiples of 45 shares.

Expansion plans may strengthen Shyam Metalics financials

The IPO of Shyam Metalics comes at a time when the metal sector is enjoying a dream run, and the momentum advantage is totally in favour of metal stocks, said Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares. On the financial front, the price at upper band is Rs 306, the PE ratio based on annualised FY21 EPS comes at 12x which seems to be quite reasonable and leaving enough headroom for investors. “The expansion plans, which are huge, will be a key thing to watch as this should further strengthen the financials of the company going ahead. The only concern is that the metal industry is cyclical in nature and the stock prices are very sensitive to the cycle,” Doshi told Financial Express Online.

Should you subscribe to Shyam Metalics and Energy IPO?

The commodity cycle upswing is working in the steel makers’ favor. “The steel sector remains exposed to steel prices globally, which declined significantly in fiscal 2016 impacting realizations and operating profitability. The group’s operating margin declined to 9.4%, currently, its OPM is at 18.2% (9MFY21. 14.3% in FY20,20.5% in FY19 and 18.1% in FY18, which is highly cyclical) given the upcycle,” Aditya Kondawar, Founder, COO, JST Investments, told Financial Express Online. Kondawar added that the company may perform till the time steel or commodity cycle is in an upswing, but the IPO is an ‘Avoid’, given the highly cyclical nature of the steel business & the current prices being much higher than the last 20 years average.

The price to earnings P/E ratio based on diluted EPS for fiscal 2020 for Shyam Metalics and Energy at the upper end of the price band is 21. The weighted average return on net worth for fiscals 2020, 2019 and 2018 is 17.93 per cent. In comparison to listed industry peers such as Tata Steel, SAIL, Jindal Steel and Power, Shyam Metalics and Energy plants benefit from the location as most of their plants are in West Bengal and Orissa which has got main supply for Iron ore and coal belt, said an analyst. “The company’s valuation is in line and the stock would get oversubscribed with the present demand from the investors,” Rajesh Singla, Founder & CEO of pre-IPO consultancy firm Planify India, told Financial Express Online.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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