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Shera Energy Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤23rd Feb 26

Summary : Shera Energy is poised for significant growth through strategic backward and forward integration, particularly in Zambia and high-value products, despite short-term volume fluctuations and raw material price volatility.

Management Perspective positive : Management expressed 'decisive execution and accelerated momentum,' 'entering a very exciting phase,' and 'more confident looking to our investments.' They also stated, 'Shera is going to multiply' and 'Don't be worried' about funding.

Concall Report Analysis & Insights

Business Overview

  1. Shera Energy is an integrated manufacturer of nonferrous metals like copper, aluminum, and brass.
  2. Products are extensively used in critical sectors such as transformers, motors, and electrical cables.
  3. The company operates a fully integrated manufacturing platform from melting to finishing.
  4. Engages in recycling operations, producing nickel-based alloys, tubes, and strips.

Future Growth Prospects

  1. Commissioning a copper cathode facility in Zambia, targeting 1,200 metric tons annually with USD12M revenue.
  2. Aggressively expanding into higher value-added segments like electrical conductors, superfine wires, and solar ribbons.
  3. Backward integration is expected to improve margins by 15-20%, forward integration by 7-10%.
  4. Planned capital investment of INR300-500 crores for Zambia expansion, aiming for 5x-10x capacity increase.
  5. New capex for EHV grade transformer winding production (765 kV lines) expected by Q2 FY27.
  6. Company expects top-line revenue to double within two years and EPS to double in 2-3 years.

Management Insights

  1. The first nine months of FY26 marked decisive execution and accelerated momentum.
  2. Delivered strong financial performance with 30% total income growth and 55% EBITDA growth.
  3. Zambia operation is scaling up from trial to 5,000 metric tons annually over the next few years.
  4. Backward and forward integration initiatives will significantly improve margins.
  5. EBITDA lines are consistently growing on both year-on-year and quarter-on-quarter basis.
  6. Company can switch production between copper and aluminum based on market demand and prices.

Signs of Skepticism

  1. Management was vague on the exact timeline and funding for the INR300-500 crore capex for Zambia.
  2. Initial trial production in Zambia required a 1-month break for plant modifications due to recovery issues.
  3. Analyst noted stagnant Q3 revenue despite rising metal prices, implying a volume decline.

Risk Factors

  1. Raw material price volatility, as seen with an abnormal increase in Q3.
  2. Decline in Q3 sales volume by 2-3% quarter-on-quarter.
  3. New hydrometallurgy technology in Zambia is a learning curve for the company.
  4. Initial trial production in Zambia showed lower-than-expected recovery, requiring process modifications.
  5. Increased finance costs due to long-term debt for Zambian investments.

Good To Know

  1. Company is eligible for migration to the Main Board from SME in the next couple of months.
  2. Current market capitalization is approximately INR300 crores.
  3. Maintains roughly 60 days of inventory for its diverse product and recycling operations.
  4. The company has been operating for 30 years.

Key Drivers

  1. Zambia copper cathode commercial production.
  2. Forward integration into EHV conductors.
  3. Migration to Main Board for institutional participation.
  4. Expected doubling of revenue and EPS in 2-3 years.

Key Analyst Discussions

Competitive Environment

  1. Shera is unique in India for operating in all three base metals: copper, aluminum, and brass.
  2. Competitors like Precision and KSH do not have recycling or aluminum/brass businesses.
  3. Management focuses on internal efficiency and customer needs rather than direct peer comparison.

Market Trends & Consumer Behavior

  1. There is strong demand for copper cathodes, with copper consistently in shortfall.
  2. Annual average price increase of 5-7% is observed across all metals.
  3. The market did not immediately absorb a 40% LME price hike in Q3.
  4. Company can flexibly switch production between metals based on market dynamics and demand.

Financial Highlights

  1. Q3 revenue was stagnant despite rising copper and aluminum prices.
  2. Raw material consumption increased by 7.5% in price, not volume, in Q3.
  3. Q3 volume declined by 240 tons Q-o-Q, but 9-month volume increased 12% Y-o-Y.
  4. Finance costs increased due to long-term debt for Zambian investments.
  5. EBITDA margin improved to 6.24% in Q3 from 5.49% in Q2 and 4.51% in Q3 FY25.

Product Composition

  1. Currently produces mid-voltage winding wires.
  2. Investing in EHV grade transformer winding (CTC conductor) for 765 kV transmission lines.
  3. Production can be switched between copper and aluminum based on customer demand.

Strategic Considerations

  1. Zambia production started trial in January; commercial production expected in Q1 next FY.
  2. Zambia has sufficient hydro power, with a future solar JV planned for 24/7 supply.
  3. Capex of INR300-500 crores for Zambia expansion will be funded by equity and debt.
  4. Machines for forward integration (EHV conductors) have arrived and are being installed.
  5. Improving inventory holding is challenging due to diverse product mix and recycling operations.
Shera Energy Ltd (SHERA) Concall Report Analysis & Insights | Dhanarthi