Shyam Metalics and Energy Limited (SHYAMMETL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '26 Earnings Conference Call of Shyam Metalics and Energy Limited, hosted by MUFG Intime. [Operator Instructions] I now hand the conference over to Mr. Pankaj Harlalka, Head IR from Shyam Metalics. Thank you, and over to you, sir.

Thank you. Good afternoon to everyone, and thanks for connecting with us on our first con call of this financial year. On behalf of Shyam Metalics, I am delighted to welcome you all to this call, particularly our shareholders and our industry analysts. Thank you for taking the time out on this call to discuss our latest results and performance. Our results and detailed investor presentation has been uploaded on the exchanges as well as our website. I hope everyone had a chance to go through it. To discuss our results, we have with us our Chairman and Managing Director, Mr. Brij Bhushan Agarwal; and our Director of Finance, Mr. Deepak Agarwal. They will take you through our results, and then we'll proceed to Q&A session. Before we proceed, a small disclaimer. This conference call may contain some forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. The actual results may differ materially. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. A detailed safe harbor statement is also given on the Page 2 of the company's investor presentation. Now I would like to hand over the call to Bhushanji. Thank you, and over to you, sir.

Very, very good afternoon, everyone. Thank you for joining the call. FY '25 has been a very volatile year for our company, a period well defined by strong operational achievement, [ resilience in ] growth and effective strategic execution. Despite a dynamic industry landscape, we remain focused on integration, diversification and expanding our value-added portfolio. This approach enabled us to deliver solid performance across all the business verticals. I'm pleased to share that we have delivered a robust and resilient performance this quarter. Your company revenue growth has been close to 22% year-on-year, while the operating EBITDA rose to an impressive 19%. Volume growth was particularly notable with 32% year-on-year increase. This result reflects our continued emphasis on operational efficiency, rigorous cost management and balanced product mix supported by growth contribution from value-added products. Our blast furnace and color-coated facilities commissioned in FY '25 have performed strongly this quarter with operational stabilization achieved ahead of schedule. In Q1 FY '26, the pig iron plant recorded a utilization rate of 104%, while color-coated unit reached close to 70%, indicating a healthy ramp-up and positive momentum. This reflects not just operational excellence, but also our ability to execute project ahead of expectations, showcasing strong ramp-up capabilities and performance-driven culture. We believe our core strength lies in driving efficiencies through both vertical and horizontal integration. This strategy enhances profitability, broaden our customer base and helps mitigate margin volatility. Our continued focus on backward integration is expected to further improve operational performance and increase the revenue share from the finished goods. Our production capabilities remain strong, underscoring our commitment to operational excellence and ongoing investment in the most modern advanced technology. Through upgradation, modernization and process enhancement, we have expanded both our capacity and product quality and gone more and more value-added to enhance the profitability and the bottom line. The Aluminum segment continues to demonstrate a very solid performance, and we are confident in expanding our presence in this space. By developing the niche product for special applications, we aim to drive growth in both volume and profitability in the coming quarters. At Shyam Metalics, we remain firmly committed to executing our growth and road map. As Q1 FY '26, we have incurred up to INR 7,003 crores in the capital expenditure, representing 70% of our total planned CapEx. Of this, close to INR 4,900 crores has been capitalized. Our announced investments are progressing well, and we anticipate timely completion. As stated during our call, most of our carbon steel CapEx is expected to become operational by FY '26 with the stainless steel and aluminum projects on track for commissioning in the year FY '27. These investments are fully aligned with our long-term vision, strategy and focus on deeper integration and improved efficiency and sustainability. We expect then to be earning accretive with a contribute meaningful in the terms of revenue profitability from '27, '28 onwards. In conclusion, we are proud of how our team continues to deliver in the challenging environment while staying focused on the long-term values and commitments. By consistently executing strategic projects and optimizing efficiency, we are well in position to maintain our annual CAGR of close to 15%. Thank you for your continued support and trust. We look forward to engage with you in the upcoming quarter. With this, I conclude my speech, and I would request our CFO and Director, Mr. Deepak Agarwal to take us through the financial performance. Thank you so much. Deepak, up to you.

Thank you, sir. A very good afternoon to all the participants. I thank all of you for taking time out of this call to discuss the results for the first quarter of the current financial year ended 2026. I will be glad to share a quick review of the reported consolidated financials for the first quarter under review for the financial year 2025-'26. I am elated to say that in spite of ongoing geopolitical crisis and the U.S. President Donald Trump induced tariff uncertainty, which has negatively impacted the current market scenario. Shyam being the exceptional market player as always has not only restrained its existing moment of growth and the reinforce our trust in our strong business model, which continues to generate healthy cash flow. We expect with a reasonable strong demand recovery on the back of recent policy announcement made by the government towards railway, roadways, civil aviation, gas pipeline, towards affordable housing and the incremental budgetary allocation to this sector is likely to drive the demand for both long steel and as well as in stainless stell. I would now like to draw your attention to the financial of the company on a consolidated basis. In the first quarter of the current financial year, on a consolidated basis, the company reported an operating revenue of INR 4,419 crores, a growth of 22.4% over quarter 1 of the last financial year. The sales mix constitute a high percentage of volume from finished steel, which accounts for 76% of the total revenue. Over the past quarter, the price of product across steel have been subdued, except for aluminum foil. The margin have remained at par on the back of reductions in raw material prices for our consumption. The company has been able to book an operating EBITDA of INR 580 crores, sustainability increased by 18.8% over quarter 1 of the last financial year and operating EBITDA margin in quarter 1 of the current financial year was 13.12%. This margin mainly increased over the previous quarter is on the back of our performance of a newly introduced product, pig iron and color-coated sheet. Our profit after tax for the quarter stand at INR 291 crores, which has seen an increase of 5.3% year-on-year. The PAT margin in the quarter is 6.6%, which is quite sound considering the current market trend and peer comparison. At Shyam Metalics, we always follow disciplined capital allocation policy. Under this policy, we remain invested 70% of our cash generated back into the business, return 20% as a liquidity surplus and return 10% to our esteemed shareholders on account of dividend. Our ambitious CapEx plans have been laid out in the investor presentation, and we are well track to execute them as per the expected time line. We have around INR 5,599 crores CapEx pending capitalization and out of which we have spent INR 2,114 crores. In this quarter, we spent INR 419 crores and the remaining INR 3,485 crores shall be spent over the next 2 years from our internal accrual and from cash generated from our operations. As mentioned by our CMD sir earlier, the company has declared an interim dividend of INR 1.8 per share, amounting to an outgo of INR 52.24 crores, which is pursuant to our disciplined capital allocation policy. We now have a consistent track record of declaring dividend from -- since our listing in June 2021. We look forward with the optimizations as we progress on our growth journey, and we are confident of achieving a robust performance and financial performance going ahead. Now I conclude my portion of speech through the floor open for the question-answer session. Thank you. Thank you to all the investors.

[Operator Instructions] The first question is from the line of Amit Dixit from Goldman Sachs.

Congratulations for a good set of numbers. Couple of questions to...

Sorry to interrupt, sir. Sir, your voice is not audible. Can you please use your handset or you can be more louder.

I'm using my handset. Is it better now?

Yes, you are audible. Yes, please carry on, Amit.

So a couple of questions from my side. The first one is regarding the a couple of 2 resolutions, fundraising resolutions amounting to INR 7,500-odd crores. Now the company is reasonably cash rich and our pending CapEx is hardly INR 3,500 crores. Just wanted to understand the genesis of these. Are these merely enabling resolutions at this point in time? Or you have certain targets in mind for spending this money?

As far as the fundraising resolution, this is basically enabling resolutions. Earlier, we are enabling the resolutions of INR 3,600 crores, which was expired because the resolution is valid for 1 year. This time, because in this Board meeting, we are also fixing our Annual General Meeting. And subject to the approval of [ same, ] we are just going to enable our resolution as far as fundraising to the extent of INR 4,500 crores on account of various issues like QIP, preferences and any type of issues. That's it.

So there is another INR 3,000 crores through debt actually. So I mean -- and this amounts to INR 7,500 crores. So I wanted to understand that if we have...

This is also enabling. As you're all aware that the Shyam Metalics is always in the CapEx mode. And we have -- whatever we have announced our CapEx of INR 10,000 crores, out of this INR 10,000 crores, we have already incurred INR 7,000 crores and balance INR 3,000 crores will be incurred maybe in the next 2 years. And we will -- definitely another round of CapEx plan is on the table, our committee -- our CapEx committee is working and evaluating and going forward. As and when it is required, we are just enabling the resolutions as far as NCD or any type of date estimate. If it's required, then we can able to go ahead. Otherwise, it is just like an [ enabling ].

No, sure. Understood. The second question is essentially that I find a new product that is HR pipe. Now this product I'm seeing for the first time, in the -- in our presentation also. So just wanted to understand whether it is an intermediate product that you would -- that you are testing the market with and later on, we would have some broadened commerciality of this? Or is it something that we are trying to get into, let us say, ERW pipe segment or something? So I just wanted a little bit more color on this and our future plans with respect to this HR pipe product?

Amit, right now, we just commissioned the CR plant. HR is just a byproduct. Presently, we don't have any such plans to go into a pipe business. These are the off-cut which generally generates when you buy the big HR coil. You have to maximize the value of the byproduct. This is just a byproduct, nothing on the primary side.

The next question is from the line of Shaleen Kumar from UBS Securities India.

Am I audible...

Yes, yes, very much audible, Shaleen, yes.

Congratulations, Bhushanji. Congratulations, Deepakji. Pretty good solid number in the environment. So just want to understand a few things here. So I believe a part of this strong performance is coming from our new units of pig iron and color-coated sheet. So is this -- have you captured the benefit completely in the quarter? Or there can be more to come in the incremental quarter? I mean like were they completely utilized their units? Or there is still some scope to build in from existing capacity?

Presently, you can say there's not much more head-on this unit presently because I think more or less, it is capitalized. And today, I'm very happy to say that we are operating the pig iron facility at more than 120% rating presently. And this is something none of the company in India is operating the capacity of the pig iron at this capacity. Our fuel consumption is also very, very, very well in comparison with our peers. We have taken the best technologies, and we have done a lot of R&D in setting up this plant. And I'm pretty happy to see this. And in the time to come, yes, there will be a lot of other improvement, but it will take a little time because now we are in the monsoon time. And this is the first monsoon like we'll be facing with our new setup. Maybe in the next 6 months, the much more better picture, larger picture will be on the table, yes.

[Technical Difficulty] If I just ask like a basic question. What was leading to such high occupancy, such a high utilization, right? Are you able to produce at a lower cost, strong demand? What's driving this utilization?

If you see, generally, the blast furnace is operating at 3.5 rate. Like I will just give you an example like today, we have set up a 600 cubic meter blast furnace. And for a 600 cubic meter blast furnace, the optimum capacity, what is guaranteed generally is close to 2,100 tonnes. But constantly, we are producing 2,700 tonnes today, which is close to 4.5 rating. Generally, the size vis-a-vis the capacity, the run rate is 4.5 in comparison with 3.5. And we expect that we should be able to go 2,000, 3,000 tonnes or maybe a little less than 3,000 tonnes. Since it is a monsoon time, we don't want to take a lot of new challenges because it's the first monsoon and a lot of -- generally, the teething issues are always on the front of the moisture and other concerns are there. But we are pretty sure we'll be able to touch it to close to 2,900 tonnes.

Got it, sir. And also, just want to understand the status of our captive power unit...

Sorry to interrupt, sir. Sir, your voice is cracking.

Sir, just want to understand the status of our new captive power plant. What's the current position on that?

We have commissioned the first 90-megawatt of Odisha. And the second 90-megawatt of Bengal plant is under the final stage of commissioning. We expect that by end of August or early September, we should be able to commission that as well.

Sir, if I -- just if you can help us, like, what kind of benefit will come on a quarterly or annually basis once the both units are fully operational? Just help us for [ estimate ] if you can.

So most of our power plants are based on -- the fuel is rejects and waste heat gases and all. So our cost of generation is close to INR 2, INR 2.5 a kWH. So it is definitely going to increase the -- enhance the bottom line because the cost is going to be more competitive. Whatever some percentage of import we are taking from the grid, we will be able to reduce it. And we expect that this will be also enhancing our bottom line and will help us to be more cost effective.

Got it, sir. Maybe one question -- just last question, and then I can come back to the queue. I did get a chance to ask this question earlier also...

Sorry to interrupt, sir. Sir, your voice is cracking.

Okay. I will join back the queue then.

The next question is from the line of [ Preeti Agarwal ] from SK Associates.

So the stainless steel wire segment has entry barriers due to customer approval time lines. Have you cleared any approvals in Q1 and which export markets are being targeted? Also, you mentioned 7,000 to 12,000 tonnes of EBITDA in wire division and even INR 30,000 per tonne in select products. So what proportion of your output in FY '26 is expected in these higher-margin SKUs?

Stainless steel wire, we just commissioned the plant. And presently, we are operating at close to 30%, 35%. We are overcoming all the challenges of the stability. And we also have started the export market, started exporting the material. So this year, we'll be stabilizing our market. And I expect that we should be able to get close to 10,000 tonnes of wire this year, which will be a very substantial growth in the terms of the new plant and new technology what we are adopting. And we expect that we'll be able to ramp up to close to 20,000 tonnes for next year. And approvals are very general process. It's a generic thing. I think there's nothing to worry as such because whatever Shyam Metalics has done, we have done always a world-class and all the best of the compliance in the terms of machines and all the quality aspect has been taken well care of.

Okay. Understood. And also, you mentioned evaluating new project post FY '27. So are you actively considering entry into HRC long products for construction or anything beyond metal?

We are doing a lot of product on the construction. Our long product is more than 2 million tonne capacity. So this has to grow up. We are increasing -- we are revamping our existing plant. We are trying to see more better optimization in the terms of -- because by some kind of a modification, you find like we can definitely enhance it to 10%, 15% more. Apart from that, the new plants are also under the planning stage, which we are seeking -- in the next couple of years, we will be able to roll out that as well. So these are all continuous things day in, day out. If you see every unit is having a volume growth year-on-year. So this will continue growing in the average CAGR of around 15%.

The next question is from the line of [ Vikas Gupta ] from RJ Investments.

Yes. So my first question is on the stainless steel flat products project, when exactly do you expect to begin commercial production? And what's the expected volume in FY '26? And for the aluminum foil and fin projects, what is the status of the oil stock plant stock battery foil line? Has any part of the 2.5x capacity expansion already gone live?

Related to the aluminum plant, the construction is going on. And we have declared that by end of '27, we will be commissioning the plant. So almost after a year or a little more than later, we'll be commissioning the aluminum plant. And even the stainless steel plant has been also projected end of '27, which is -- as of now, it is under track, maybe 1 or 2 months, it can go a little plus or minus.

Understood, sir. And my further question is, any update on the wire and bright bar divisions in the stainless steel segment that were to stabilize over 3 to 6 months? Has customer qualification started?

I just answered this question before. It's almost -- we already started exporting and all and other things are under progress. We expect that everything should stable in the next 3 to 6 months.

[Operator Instructions] The next question is from the line of Kunal Devendra Kothari from Nuvama Wealth Management. Kunal, you are not audible. As there is no response from the current participant, we are moving towards next participant. The next question is from the line of Kartikeya Pandey from B&K Securities.

Yes. So I had a few questions. So first was that can we expect a similar kind of EBITDA run in the coming quarters as well? And what is the pricing outlook for the second quarter?

See this is a monsoon time and these 3 months are generally a challenging month starting from July, August, September. But yes, it's not going to have a major impact because we are also focusing on more and more cost reductions. It's not going to have a very big impact. But yes, this is going to be a month where a little bit of pressure will be there this quarter on the pricing side.

And I would also like to add one more thing as far as pricing, we will not consider only the pricing. If you see our track record, we will be always a volume growth whatever be the EBITDA we are generating, we are adding our capacity, and we are generating more EBITDA from our adding our product capacity.

Okay. And another question that I had was on the fundraise part. So can we assume that this INR 7,500 crores of enabling resolution, like will it be fully utilized for the CapEx plan?

As of now, there is no such plan for utilization of this fundraising. We are just enabling the regulations subject to the approval of the shareholder. And then when if it is required, then definitely we will achieve. But as of now, there is no plan for any fundraising or something. This is just like an enabling.

[Operator Instructions] The next question is from the line of Devesh Lakhotia from IKIGAI Asset Manager.

So a couple of questions. One is on the aluminum segment, the ADD also, I think, was approved in terms of foils in the past couple of months ago. So are we seeing any improvement over there? Because at least in terms of margins and volumes, it's not reflected as of now. And the second one is just wanted your thoughts in terms of the entry into wagons that we have announced with a INR 300 crore CapEx, just rationale and the opportunity you are seeing over there? So those...

See, definitely, there is a good spot in the demand in the aluminum foil. And the margins are definitely improving, but people are faring over with their own inventories on the sales side as well as on the buy side. Generally, all these things takes some transition phases are there in the level of 3, 4 months. We'll start seeing more and more better numbers in the time to come. And when we are talking from the wagon point of view, it's a very small unit on the size of our company. And since we had a railway siding, we had complete infrastructure. And with such a low CapEx also enable us to utilize our stainless steel plates, which are going to be manufactured in our plant. So basically, it is more a strategy side, and we will be able to enhance more value, like one of the company only in the country which has the capability to produce top core to metal. So this is basically a concept where we are seeing that a lot of stainless wagons are being introduced by the government, and we are coming up with a flat product in the stainless steel. So we expect that it will help us to create more value for the organization and our shareholders by this forward integration. Thank you so much.

The next question is from the line of Kunal Devendra Kothari from Nuvama Wealth Management.

Many congratulations for a great set of numbers. Sir, a few questions from my -- this is in regard to our key projects. So is it possible to share what are the 3 projects which are going to be executed in this [Technical Difficulty]? Second question is, are we looking at any other sector also to enter into it? Because earlier we were looking to enter into DI pipe mill, but we have not seen any CapEx going on over there. So that -- any thought on that? And on top of it, now because by year-end [ trend, ] we are going to end up with all the projects which is ongoing. So do we have something in mind now because our company now is on a bigger shape instead of doing small, small projects, which we have been successfully doing it, do we [Technical Difficulty] which can change the orbit of the company?

First of all, I must tell you the diversification, what Shyam Metalics is doing is not a commodity diversification. If you see the kind of business what we have created in the aluminum sector and going for the expansion in aluminum, we are -- we have more than doubling the foil capacity and also going backward integration, putting up a downstream value-added product, which is 100% substitute like pins and other critical aluminum component, which is used in the automotive as well as in the railways and other sectors. So we are not working in this small orbit. We are working more on the quality and more niche products with the high return and more sustainable business. So we expect that this aluminum business in the next couple of years should at least grow by more than 250% what we are doing today. So first of all, what we are doing, we start with a very, very small pilot model. We learn and then we expand. Even in stainless steel, our orbit is very decent. We started with close to around INR 1,200 crores, INR 1,500 crores top line in the first year. And now we are targeting of more than INR 5,500, INR 6,000 crores in next 2 to 3 years. We learn the business and then we make our model, and we make sure that all our business yield should have a decent IRR and ROI return. Related to your ductile business, yes, at present, it is a very small CapEx for us. We have put this project on hold for some time because we are seeing some kind of a challenge coming up in the businesses in respect to ductile. First of all, some changes are there on the OPVC side where we are seeing that minus INR 400 [ crores ] is replacing. And apart from that, we are also seeing that very big expansion is coming up in ductile. So we are just evaluating again. I know we have not invested because these things we had been evaluating for more than 6 to 9 months. And now we have decided that we will keep this project on hold, and it is a very small CapEx in terms of the overall size of the CapEx what we have decided. And any other questions?

Yes. I was looking at, sir, any other sector we are looking to enter the way we have gone to wagons and what are the key projects which are going to be executed in FY '26?