Shyam Metalics stock poised for a weak start as OFS 11.5% discount kicks off
Shares of Shyam Metalics and Energy are expected to face downward pressure on September 11 due to the initiation of an offer-for-sale (OFS) by the company. The OFS has a floor price set at an 11.5 percent discount compared to the closing price on the previous trading day.
The OFS, valued at Rs 538 crore, officially commences on this day, with the floor price set at Rs 414 per share. This floor price is notably lower than the closing price of Rs 467.80 on the previous Friday. Such a substantial discount to the market price often leads to a negative sentiment among investors, as it suggests that the sellers (in this case, the promoters or existing shareholders) are willing to offload their shares at a lower price.
Shyam Metalics’ OFS is scheduled to be executed over two days, with the offer opening for non-retail investors on September 11 and for retail investors on September 12. Typically, OFS transactions are an avenue for existing shareholders to reduce their stake or exit their positions in a company. The decision to conduct an OFS at a discounted floor price may be driven by various factors, including the need for liquidity or a change in ownership structure.
Investors will be closely monitoring the market’s response to the OFS, as it can impact the stock’s price and trading activity during the OFS period. The discounted floor price may lead to selling pressure, but the extent of the impact will depend on investor demand and market conditions during the OFS window.
The OFS initiated by Shyam Metalics and Energy involves the sale of shares by the company’s promoter entities, Narantak Dealcomm and Subham Buildwell. Together, they intend to sell up to 1.3 crore shares, equivalent to a 5.11 percent stake in the company, through this offering. The anticipated proceeds from this OFS are estimated to be approximately Rs 538.20 crore.
As of the company’s shareholding data as of June, Narantak Dealcomm held a 19.95 percent stake in Shyam Metallics, while Subham Buildwell owned 27.65 percent. The decision to conduct this OFS is primarily driven by the need to comply with SEBI’s (Securities and Exchange Board of India’s) minimum public shareholding (MPS) norms.
SEBI’s MPS regulations mandate that publicly listed companies must have a minimum public shareholding to promote market liquidity and transparency. Companies are required to ensure that at least 25 percent of their total shares are held by public shareholders. In cases where the promoter holding exceeds this limit, as was the situation with Shyam Metallics, the company needs to take steps to reduce the promoter stake to meet the regulatory requirements.
Therefore, the OFS by Narantak Dealcomm and Subham Buildwell serves the purpose of aligning the company’s ownership structure with SEBI’s MPS norms, ensuring that a sufficient portion of the company’s shares are held by public investors in the market. This offering will also be closely monitored by investors and market participants to assess its impact on the stock’s price and trading dynamics.
The combined promoter shareholding in Shyam Metalics, as of June, stood at 88.35 percent, exceeding the regulatory requirement of a maximum of 75 percent promoter stake as per SEBI’s Minimum Public Shareholding (MPS) norms. To comply with these norms, the promoters are initiating the offer-for-sale (OFS) to reduce their collective ownership to the required level.
In addition to the OFS announcement, the company also recently reported its monthly sales data. The sales figures indicate a 40.1 percent year-on-year growth in aluminium foil sales. However, pellet sales experienced a decline of 34 percent, amounting to 74,427 tonnes.
ICICI Securities, a brokerage firm, maintains a ‘buy’ recommendation on Shyam Metalics’ stock with a price target of Rs 690. The positive outlook is driven by the company’s capital expenditure (capex) plan of Rs 3,900 crore, which underscores its commitment to expanding both scope and scale. This strategic focus on growth and expansion aligns with the company’s long-term objectives and could be viewed favorably by investors.
ICICI Securities has a positive outlook on Shyam Metalics’ capital expenditure (capex) plan, estimating that the payback period for this investment is likely to be less than 4 years. This assessment takes into account the brokerage firm’s estimate of declining commodity prices and an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin persisting in the range of 12-13 percent.
Furthermore, the firm notes that Shyam Metalics has ample headroom in its balance sheet, suggesting that the company has the financial capacity to pursue additional growth opportunities beyond the ongoing capex plan. This indicates a strong financial position and strategic foresight on the part of the company, which may be seen as a positive sign by investors.
The relatively short payback period for the capex investment, along with the company’s financial flexibility, underscores its commitment to expansion and its ability to capitalize on growth prospects in the market. Such assessments can be significant drivers of investor confidence in the company’s long-term prospects and strategic decision-making.
