#COMPANY #POTENTIAL

• India’s net sugar production for the SS (sugar season) 2025-26 season is estimated to be ~30.4 MMT (million metric tonnes), a growth of 16.5% YoY. This is based on early estimates from satellite imagery, rainfall data and field reports. The increase is attributed to favorable monsoon conditions and improved crop health, despite only a marginal increase in the overall sugarcane area. • The industry expects a diversion of ~4.5 MMT of sugar to ethanol and ~2 MMT for exports. This will ensure market stability and prevent pricing pressure on sugar. • FRP (Fair & Remunerative Price) of sugarcane for SS 2024-25 has been revised to ₹340 per quintal and is linked to a basic recovery of 10.25%. • The company is actively pursuing policy support from the government for revisions to ethanol pricing and MSP (minimum sale price) of sugar. A potential increase in the State Advised Price (SAP) for sugarcane is likely, which could help increase crushing and provide raw material for ethanol. The company is hopeful that ethanol prices will increase in FY26. • The central government has approved the national policy on biofuels aimed at achieving 20% blending of ethanol in petrol. In ESY (Ethanol Supply Year) 2024-25, the country achieved ethanol blending of 17.98%. • The National Policy on Biofuels allows the use of food grains for biofuel production during surplus phases. It also promotes the use of feedstock such as corn, rotten potatoes, damaged or unfit food grains and agricultural residues for ethanol production. • A reduced GST (goods and service tax) of 5% will be applied to ethanol, while ENA (Extra Neutral Alcohol) will be exempted from GST.

#COMPANY #OUTLOOK

• Going forward, the company expects the government to restore FRP linked ethanol pricing, which would improve margins and support blending targets. • It anticipates cane availability to be ~15%-20% higher in the current sugar year. Its cane development initiatives are likely to lead to an improvement in both cane availability and recovery for the next year. Further, the dependency on the red rot affected Co0238 variety has been reduced to ~6% thereby lowering disease risk and aiding stable sugar recoveries. • Over the next 2-3 years, it expects to witness steady growth in cane availability with improved varieties. It is developing an inhouse high yielding variety of sugarcane. • They envisages sugar sales in FY26 to exceed 10 lakh tonnes backed by higher inventory and planned liquidation. • The management highlighted that due to delayed planting in 2-3 factories, they may experience slightly lower cane availability as the yields will have less months to grow. • The company anticipates a positive year for cane production, with yields looking better due to favorable rain distribution. In FY26, they are hopeful for an increase in crushing and recovery compared to FY25 levels. • The management anticipates that the crushing season to start early in SS 2025-26 backed by festival timings and favorable weather conditions. • They anticipate higher diversion of sugarcane towards ethanol if prices are revised upwards. • Going forward, the PLA facility would generate revenue of ~₹2,000 crore with an EBITDA margin of ~35%. Further, this facility is expected to be commissioned in Q3 FY27. CASE STUDY

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Shyam Metalics and Energy Ltd Company details report

Shyam Metalics and Energy Ltd is a steel manufacturing company and it is into production of intermediate & final steel products. It got listed on NSE and BSE on 24th June 2021. It has its steel manufacturing plants located at Sambalpur in Odisha and Jamuria & Mangalpur in West Bengal. Its production capacity as on 31st March 2024, was ~13.5 million tonne per annum (MTPA) of which Iron Pellet is 6 MTPA, Ferro Alloy Plant 0.22 MTPA, Iron Making is 2.9MT, Liquid Steel is 2.2 MT and Finished Steel is ~2.07 MT, aluminium foil is 0.024 MT and 0.15 MT of stainless steel. The product range includes the following items: iron pellets, sponge iron, steel billets, TMT, structural products, wire rods, and ferro alloys. ~82% of power requirements is met through its captive power plants located at manufacturing plants. As on 30th June 2024, its captive power capacity had reached to 377 MW. The group’s manufacturing plants in Odisha and West Bengal are in close proximity to mineral rich belt of iron ore, manganese ore, chrome ore and coal. SMEL also has long term linkages for coal as well as chrome ore with Mahanadi Coal Field and Odisha Mining Corporation Limited, respectively. It source its iron ore/iron ore fines from the mine owners located in Odisha. It is one of the few integrated metal producing companies in India with captive railway sidings. SMEL primarily produces intermediate and long steel products such as iron pellets, sponge iron, steel billets, TMT (thermo mechanical treatment), structural products, wire rods, and ferro alloys products with a specific focus on high margin products such as customised billets and specialized ferro alloys for special steel applications. It had recently commissioned aluminium plant in Pakuria, West Bengal with a capacity of 40,000 TPA. The company had proposed new product expansions of ductile iron pipes. Its TMT and structural products are sold under the brand ‘SEL’ and logo Shyam Metalics and Energy Limited. It has ~2060+ dealers & distributors stock and sell the finished products across 32 States (including union territories).

Sales Volume

#SALES #GROWTH 5 Year CAGR 28.2%

In FY25, net sales increased by ~15% YoY to ₹15,138 cr led by ~5% YoY volume growth to 3.82 MT across all segments except iron pellets and ~9% YoY increase in price realization driven by aluminium and stainless steel. In Q1 FY26, net sales increased by 22% YoY to ₹4,419 cr led by ~15% YoY increase in price realization and ~6% volume growth to 1.06 MT. On a sequential basis, the sales growth was 7% driven by higher sales volume by 9% which was offset by lower price realization by 2%.

#EBITDA #GROWTH

In FY25, the EBITDA stood at ₹1,868 cr, up by 16% YoY driven by growth in sales. In Q1 FY26, the EBITDA stood at ₹580 cr, up by 19% YoY and 13% QoQ. It grew on a YoY basis mainly on account of metallics and aluminum.

#PAT #GROWTH

In FY25, PAT declined by 12% YoY to ₹909 cr because of deferred tax adjustments in FY24, which created a high base effect. The PBT grew by 32% YoY. In Q1 FY26, PAT stood at ₹291 cr, up by 5% YoY and 32% QoQ. On a sequential basis, the growth was driven by lower depreciation and finance cost.

#EBITDA #MARGIN

In FY25, the EBITDA margin expanded by 18 bps YoY to 12.3% mainly on account of lower other expenses as a percentage of sales. In Q1 FY26, the EBITDA margin contracted by 38 bps YoY and expanded by 67 bps QoQ to 13.1%. It declined on a YoY basis mainly on account of specialty alloy.

#PAT #MARGIN

In FY25, PAT margin contracted to 6% (v/s 7.8% in FY24) due to tax adjustments in FY24. In Q1 FY26, PAT margin contracted by 106 bps YoY to 6.6%. However, it expanded by 126 bps on a QoQ basis.

#COMPANY #POTENTIAL

• India’s finished steel consumption is anticipated to increase to 230 million tonnes (MT) by FY31. • There is an investment opportunity as this sector is witnessing consolidation of companies, which has led to investment by companies from other sectors. This further provides an opportunity for the global players to invest into Indian market. • Various Government’s initiatives drive growth in the sector such as National Steel Policy (NSP) 2017, which was implemented to encourage the industry to reach global benchmarks. In July 21, the Union Cabinet approved the Production Linked Incentive (PLI) scheme for speciality steel. The scheme is expected to attract investment worth ~₹400 billion. • Indian railways has proposed to spend ₹2   lakh crore a year till FY2023-24 to upgrade infrastructure, providing opportunities for increased demand of rail steel. • The opening of the mining sector and rapid investment in the infrastructure sector is expected to result in a growth in capital goods which consumes nearly 15 percent of the domestic steel produced. • The Indian Army, Navy and Air Force along with Defense Research and Development Organization (DRDO) and the Ordinance Factory have expressed great potential for domestic fulfilment of special steel alloy requirements in the defense sector. • Under housing for all by 2022 scheme, 10-12 million houses and 29.5 million units in rural areas are to be constructed with potential steel demand of 50-60 MT.

#COMPANY #OUTLOOK

• The company is increasing its combined production capacity from ~13.66 MTPA to 22.99 MTPA by FY27. This would include beneficiation plant of 3 MTPA, Billets (heavy structural mill) 0.4 MTPA, parallel flange beams 0.4 MTPA, colour coated Sheet 0.4 MTPA, sponge iron 1.2 MTPA, blast furnace 1.05 MTPA, coke oven 0.7 MTPA, DI Pipe 0.6 MTPA and others. • They are looking to increase the power generation in the captive power plant by 340 MW, resulting in a capacity growth from 357 MW to 697 MW. This will contribute ~85% to the total power requirements of the company, in the coming period. • The company’s low carbon ferro chrome project had been commissioned and ~70% of revenue from this project is through exports. The management plans to double its capacity in next 1 year. • They have now taken control over Ramsarup Industries Ltd. The acquisition was carried out via SS Natural Resources Pvt Ltd, a special purpose vehicle (SPV) in which the company holds 60% stake. The acquisition would help the company in improving its infrastructure facilities and build a new product mix. They would be incurring a total capex of ₹747 crore for its revival. • The contribution from the value-added product in revenue is expected to move up to 80% of the revenue in next 5 years from the present contribution of more than 50% to the revenue. • They announced the expansion of its production capabilities with the establishment of a greenfield Cold Rolling Mill (CRM) in Jamuria, West Bengal. It will have a total capacity of 0.4 MT annually. The project has a total capital cost of ₹603 cr, with ₹346 cr invested and ₹257 cr pending. The mill will specialize in producing pre-painted galvalume coils (PPGL) and coils of galvanized iron/galvanized steel (GI/GL). • The company will expand its stainless-steel production capacity from 1.5 lakh ton to 6 lakh ton in the next 5 years.
• They will also expand its carbon steel production capacity to 3.6 MT from 2.32 MT in next 2-3 years. • They have commissioned the color coated complex. In the color coated sheet, the EBITDA per ton is expected to be ₹5,500-₹6,500 in the coming period. The complete operations of the same will commence from December-January 2025 onwards. • The company will spend ₹1,160 cr over next 3 years to increase stainless steel capacity. • The DI pipe plant is going to be commissioned in FY26. • The company has signed the MOU (Memorandum of understanding) in aluminum foil business for EV batteries with the best of the battery manufacturers in the country and are expecting that they will be in full swing from FY25-FY26. • The company is aiming to achieve 15%-17% CAGR for sales, over the next 4-5 years. It will be driven by expansion in aluminum products & stainless steel, enhancing value of long products and focus on B2C (business to consumer) business.