About the issue
The nearly two decade old company has opened its three-day public offer (between June 14 and 16) at a price band of Rs 303-306 per share. Of the Rs 909 crore that the company aims to raise, Rs 657 crore could come via fresh issue (21.5-21.7 million shares) and the remaining Rs 252 crore could come via OFS.
“Of the net proceeds, Rs 470 crore will be utilized to repay or prepayment of debt availed by the company. Residual funds will be used for general corporate purposes,” the company said in its draft red herring prospectus (DRHP).
About 50 per cent of the net issue shall be allocated to qualified institutional buyers, while rest 15 per cent and 35 per cent is reserved for non-institutional bidders and retail investors, respectively. Three lakh shares are reserved for eligible employees. By 1 PM, 51 per cent of the issue had been subscribed on Monday.
Geojit Financial Services | Subscribe
Between fiscal year 2018-20 (FY18-20), SMEL’s revenue grew at a CAGR of 8 per cent while net profit de-grew by 19.7 per cent CAGR due to expansion plans and Covid-19 related disruptions. Going forward, it’s expected to double its current aggregate installed metal capacity from 5.71 MTPA (as of December 31, 2020) to 11.60 MTPA by FY25.
Further, the company’s diversification to pig iron, ductile iron pipes and aluminium foil will result in augmentation of profits and further de-risking of the revenue streams, the brokerage said.
“SMEL is the least leveraged among its peers with debt to equity ratio (D/E) at 0.3x in 9MFY21 and with debt to EBITDA at 1.3x. The proceeds from the offer will be used to pay their debt obligations which will further de-leverage their balance sheet and increase their profitability,” it said in its IPO
Choice Broking | Subscribe with Caution
At higher price band of Rs 306, SMEL is demanding a trailing twelve month (TTM) EV/EBITDA multiple of 8.6x, which is at premium to the peer average of 6.4x. Despite factoring in an exponential rise in EBITDA in Q4FY21, the company still appears to be overvalued in relation to its peers. That said, with favorable macros for steel consumption, cautious view on the international steel prices and higher demanded valuation, the brokerage has assigned a “Subscribe with Caution” rating for the issue.
Reliance Securities | Subscribe
is valued at 2.4x of 9MFY21 book value and 12.8x of FY21 annualized earnings, which look to be reasonably valued. However, considering improved visibility of demand recovery in domestic as well as international markets
led by strong focus on infrastructure development and steady pricing scenario, financial performance of SMEL is expected to improve significantly in the coming quarters.
“Further, strong balance sheet along with best-in class leveraging positioning offers an edge to SMEL. Additionally, operating cash flow (OCF) yield at 8.4 per cent as on 9MFY21 looks to be impressive and expected to improve further with higher cash flow generation in the ensuing quarters. Hence, we recommend SUBSCRIBE to this issue,” it said.
Ventura Securities | Subscribe
The brokerage expects revenue to grow at 36.5 per cent CAGR to Rs 11,106 crore over the period FY20-23. EBITDA and net earnings over the same period are also set to grow at a faster pace of 44.7 per cent CAGR to Rs 1,956 crore and 49.8 per cent CAGR to Rs 1,144 crore, respectively.
Besides, EBITDA/tonne and operating margins are expected to improve to Rs 12,895/tonne (growth of 65.7 per cent over FY20) and 17.6 per cent (+280bps over FY20).
“We value the stock at Rs 436.4 (FY23 EV/EBITDA 6X) on the post issue equity and initiate coverage with a SUBSCRIBE. Our price target represents an upside potential of 42.6 per cent over 18-24 months from the IPO
price,” it said.
HDFC Securities | Not Rated
According to the analysts at the brokerage, loss of any of SMEL’s suppliers or a failure by its suppliers to deliver some of its primary raw materials such as iron ore, iron ore fines, coal, chrome ore and manganese ore may have an adverse impact on its ability to continue manufacturing process.
Further, the steel industry is characterized by volatility in the prices of raw materials and energy which could adversely affect SMEL’s profitability, they said highlighting key concerns around the company’s financial stability.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.