Interview with Sanjay Kumar Agarwal, Joint MD of Shyam Metalics & Energy Ltd

25 Aug, 2023

4 min read

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Interview with Sanjay Kumar Agarwal, Joint MD of Shyam Metalics & Energy Ltd
As the Indian steel industry continues to evolve, we are poised to adapt and seize the potential that these changes present, voices Sanjay Kumar Agarwal, Joint Managing Director of Shyam Metalics & Energy Limited.

In Q1FY24, the revenues of the company surged by 3% on a YoY basis to Rs 3,307 crore, while the net profit of the company dipped by more than 40%. What were the contributing factors to the company’s performance?   

I would like to begin by attributing our growth to the dedicated efforts of our team and the consistent demand for our offerings. Our company’s solid financial standing is also underscored by CRISIL's external ratings of AA stable for long-term borrowing and A1+ for short-term borrowing.  

In terms of our sales mix, a substantial portion, accounting for 48% of the total value, is contributed by finished steel volumes. Despite a 4% decline in realization, our EBITDA remains resilient on a recurring basis. Notably, our Q1 FY24 EBITDA reached Rs 405 crore, maintaining a stable margin of 12.2%. 

Turning to our profitability, our profit after tax for the quarter stands at Rs 235 crore. While there is a 43% year-on-year decline, our PAT margins for the quarter stood at 7.11%. This performance is robust considering the prevailing market trends and industry benchmarks. 

Our operational strategy centres on advancing sales or relying on a letter of credit basis, thereby reducing debtors and inventory periods to a remarkable 15 to 30 days and 70 to 80 days, respectively. Reinforcing our commitment to growth, we reinvest a significant 70% of our cash generation into the business, maintaining a liquidity surplus of 20%, and sharing 10% with our valued shareholders as dividends. 

Overall, our company’s disciplined approach to operations reflects our unwavering commitment to sustainable growth and value creation. 

You have also granted approval for a fundraising of approximately Rs 3,600 crore. How do you intend to utilize these funds?  

We've already unveiled a new capital expenditure of nearly Rs 3,900 crore. This investment will expand speciality alloy capacity, enhance captive power generation, and diversify the product mix. Funding for these projects can be done entirely through internal accruals. However, we have taken the approval of the Board to raise additional funds from the markets to the extent of Rs 3600 crore. The exact amount of fundraise will depend on management decisions and other market factors.  

At the moment, what are your top 3 strategic priorities?   

Our approach to group projects and recent acquisitions is meticulously aligned with our overarching strategy of achieving efficient and cost-effective growth. One of our key strengths lies in our ability to consistently generate substantial cash flows. This, combined with our industry-leading gearing ratio, reinforces our confidence in meeting the financial demands of upcoming CAPEX requirements.  

Furthermore, our expansion into a strategically chosen area underscores our dedication to fostering continuous reinvestment of profits and nurturing sustained growth, all while ensuring the stability of our balance sheet. This strategic move aligns seamlessly with our goal to establish a lasting presence across various end products that are directly linked to our expertise and our role in the metal purification value chain. 

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Our approach is one of foresight and adaptability by strategically leveraging group projects, acquisitions, and our financial prowess, we are poised to achieve sustained growth and resilience. Our commitment to reinvestment, expertise-driven diversification, and prudent financial management positions us to not only navigate challenges but to thrive in an ever-changing business landscape. 

What is your outlook on the Indian steel sector for the next few quarters?  

The Indian steel sector is projected to increase by 7%-8% and the current demand for the year resonates with the country's status as the world's second-largest crude steel producer. The remarkable 4.2% surge in output to an unprecedented 125.3 million tonnes during the 2022-23 period is a clear indicator of the sector's robust growth. It's evident that the steel industry is an integral driver of India's economic expansion. 

As the Indian steel industry continues to evolve, we are poised to adapt and seize the potential that these changes present. Our cautious optimism is anchored in our ability to leverage our strengths and navigate uncertainties with a pragmatic approach. We recognize that the sector's contribution to economic growth is not only substantial but also fluid, mirroring the broader fluctuations in the global economy. 

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