SG Mart Limited (512329) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SG Mart Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] I now hand the conference over to Mr. Harsh Pathak, Emkay Global Financial Services. Thank you, and over to you, sir.

Yes. Thank you, Manav. Good evening, everyone. First of all, sorry for the delay due to some technical snag during uploading the results, we had to postpone the call. However, we'll start the call now. I would like to welcome the management and thank them for the opportunity. We have with us today Mr. Shiv Bansal, Joint Managing Director; Mr. Suraj Kumar, Chief Financial Officer; Mr. Anubhav Gupta, Group Chief Strategy Officer; and Mr. Naman Rastogi, General Manager, Strategy and Investor Relations. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.

Thanks, Harsh, and thanks, Emkay, for hosting SG Mart for its quarter 3 FY '25 earnings call. I welcome all the participants who have joined on this call. We would like to apologize for starting this call late as there was a technical snag with the stock exchanges while uploading the results. I'm not sure how much time everyone got to look at the results, but I would quickly run you through the results, and we'll discuss about our performance, and then we will have a Q&A session. So if you look at the revenue, we did around INR 13.5 billion, which was, of course, a big jump on Y-o-Y basis. But quarter-on-quarter, it was a decline because of our B2B business where there were no imports in the quarter 3. Q2, there was a bump-up in the B2B metal trading business because of heavy imports. But in Q3, imports were not viable. So all the sales -- all the supply was domestic. We'll talk about segment-wise performance once I finish the run down on the quarter 3 results. Our business EBITDA recovered sharply to INR 28 crores, which is a big jump Q-o-Q and Y-o-Y. Last quarter, we had to book inventory losses, but this quarter was business as usual. And our operating margins -- operating EBITDA margin was 2.1%, which we have been guiding for. And because of other income, the net profit also was INR 28 crores, which increased both Q-o-Q and Y-o-Y, with a net margin of 2.1%. The working capital days were 10, which was slightly -- which was -- which are higher compared to FY '24 March numbers. But here, nothing to worry because the inventory days and debtor days are stagnant. It is just that the creditor days have reduced as we are sourcing more steel from domestic players. So a lot of money is into advances to buy steel. But still, our ROCE on this working capital is 32%. So again, we are getting to normalized WC and also more and more service stations are opening. So working capital days, as we have guided for, will remain between 15 to 20 days. But still, we have some time to go there. And ROE stands at 8%, which includes obviously INR 800 crores of fixed deposits in the balance sheet. Otherwise, ROE would also be upward of 20% if we calculate business ROE. Then there is a big jump in the registered customers. So now we are servicing 2,126 customers, which was at 1,270 last quarter. So a lot of new customers got added. And at the same pace, the registered vendors, the suppliers for various products that also increased to 223 from 145. We spent around INR 142 crores in the first 9 months of current fiscal year towards the CapEx. So 2 of our service centers are operational, the Ghaziabad and the Bangalore. The other 3, Dubai and Raipur and Pune we spent money to finish the construction and start those units. So one by one, all will be operational in Feb. Plus, we have identified 5 new locations for new service centers for which the CapEx should start next month. They started identifying the land. An update on our solar structure business. We have ordered the machinery, which will roll the solar mounted ground structures. And we expect -- as we are talking, the trials are underway, at the machine supplier end, and we expect to have a first sale in the month of February itself. We see this as a big revenue potential for SG Mart as we are getting into hyper-growth renewable sector in the country, which will boost our revenue and profitability both. Now coming to the segment-wise. Now there are like 3 segments for revenue: number 1 is B2B metal trading; second is service center business; and third is B2C, which is distribution business. Now INR 1,350 crores of console revenue in Q3, it results to sales volume of like 290,000 tonnes at below 300,000 tonnes. Now out of this, the B2B metal business, if you look at the imports, like there was absence of imported steel. So this business declined from like INR 1,200 crores to INR 700 crores Q-on-Q. And the service center business is ramping up pretty quickly. So here, there is a small jump on a quarter-on-quarter basis, but this will be heavy jump in Q4 as the Pune, Raipur and Dubai service centers are operationalized. Plus we will see quarter-on-quarter growth for a number of quarters as more and more service centers will keep on opening. Then third, the B2C, which is distribution business, here also we saw a 5% jump on quarter-on-quarter basis with the TMT sales gaining some momentum as the construction activity picked up in Q3. And we expect that Q4, the construction activity shall further pick up and it will boost our TMT sales volume. Then like last quarter, we introduced light structural business as well. So that is also ramping up gradually as we are adding more and more customers to sell those products. So overall, the run rate of 1.2 million, 1.5 million tonnes of sales volume is what we are looking at on an annual basis with a 2.1% to 2.25% EBITDA margin as the business scales up. And once we have more service centers coming up once the solar structure sales start, you will see the margin also picking up pretty strongly and we will achieve towards 2.5% of guided EBITDA margin. And our revenue guidance of INR 18,000 crores in FY '27, that remains stable except the fact that the steel prices, depending on like how the steel prices will be, the exact value will vary on that, but volume which we had in mind, which was like 2.5 million to 3 million tonnes. This is what we're going to achieve by FY '27 with desired EBITDA margin of 2.5% and 20 days of -- 15 to 20 days of net working capital cycle, which will keep our ROCEs in upward of 30% range. That's it from our side. And now we can have the Q&A session. Thank you so much.

[Operator Instructions] We have our first question from the line of [ Abhishek Gupta ] from AB Capital.

You have guided for INR 7,000 crores to INR 8,000 crores revenue for FY '25 and INR 13,000 crores to INR 14,000 crores revenue for '26. So are you still holding on to that guidance?

So this guidance is based on the volume, right, and net selling realization because steel prices have fallen sharply by 15% to 20% in last 12 months. So that's why the value will decrease because anything we do is a pass-through to our customers. So yes, I mean, the basis of INR 7,000 crores revenue guidance was around 1.2 million to 1.5 million tonne of sales volume. So this is what we are going to achieve, right? And next year, it was based on around like 1.8 million, 2 million tonnes of sales volumes. Again, this is what we shall achieve. So sales volume we shall achieve but exact revenue will depend on the value what we get -- what we realize on steel prices.

So on value terms, can you tell us how much it might be?

I'm sorry. Can you come again?

In value terms, can you give -- put a number to it as to how much we will achieve in FY '25 and in '26 based on the current prices?

Yes, yes. So far, we have around 900,000 tonnes and it's between number 350,000 tonnes in Q4. So we shall surpass 1.2 million tonnes for the full year.

No, no, sir, on value term?

So again, you see value term, so far, we are at like INR 4,300 crores, right, somewhere around. And if we do INR 1,600, INR 1,700 crores, right, so we will be around INR 6,000 crores.

And in FY '26, can you tell the a number?

So you should expect like a 40% jump over this.

Thank you. We have our next question from the line of [ Heet Pari ] from Ashika Institutional Equities.

So my question is on the service center business. So Raipur and Dubai service centers were going to be operational this quarter. So what caused delay in these centers? And number two, sir, the already existing 2 service center business what kind of volumes are we seeing from those centers? We firstly mentioned about the -- reaching up to 40,000, 50,000 tonnes a month of volume from those service centers. So how is the demand side there?

So right now, the volume from service center is around like 40,000 tonnes per month, right, from these 2 service centers, okay? Now with the -- so this is our -- so that's our max as well while opening the service center, that service center in a metro city, that should give volume between 20,000 to 30,000 tonnes a month, right? And the smaller centers in smaller cities will give volume of like near about 5,000 tonnes, right? So far, the 2 centers which are operational, they are in metro cities, so that's why the volumes are high, 40,000 tonnes put together. And Pune also we started -- Pune, what we are doing is that since our service center is still not finished. So we took a service center on rent, and started shipping the market. So next month, when we move from the rental place to our own service center, the volume will increase. And on Raipur and Dubai, of course, will further boost the volume. And the reason why these service centers were delayed was because of some extended monsoon in the quarter 3, which hampered the construction of the industrial shelves.

And sir, what about the zinc business, how is the volume in this quarter?

So zinc business is like a bit of opportunistic, right? This quarter, the revenue from zinc was not that high, right. At peak, it was doing, say, INR 5 crores to INR 10 crores per month. But this quarter, it was a bit low because there was volatility in zinc pricing, so we did not try to do much.

And if you can quantify?

That will be a very small number.

And sir, lastly, if you could give me the breakup from all the 3 verticals in terms of volume for this quarter as well as for 9 months, sir?

Like I said that we are tag below 300,000 tonnes, right, 150,000 tonnes is B2B, 50,000, 60,000 tonnes is -- I'm talking about the quarter, right? So 100,000 tonnes is for the service center and around 45,000 tonnes is for distribution business. That's how the mix becomes around below 300,000.

And sir, lastly, sir, we haven't booked the inventory launch this quarter.

Sorry, say it again.

If I may, I was just confirming, sir, we haven't booked any inventory loss this quarter, right?

Inventory what? Loss?

Yes. Inventory loss. Last quarter, we booked around 17 to 18...

Last quarter there was very sharp decline in the steel prices of almost 15%, right? So this doesn't happen often. It's once in a decade scenario when prices fall that sharp. So yes, I mean INR 1,000, INR 2,000 per tonne movement in steel prices does not impact our business model or hit our margin.

Yes, I was just confirming. So there was no effect in this quarter.

That's right.

we have our next question from the line of Krunal Shah from Enam Investment.

Hi, Anubhav. just wanted a clarification on the numbers you mentioned. So you said service center did 100,000 tonnes volumes for the quarter, right?

300,000 tonnes.

No, no, the service center business.

Service center, yes. So service there 2 things. One is stock and sell, and second is the sheet cutting, right? So you put together, it's around that.

Okay. Stock and sell and sheet cutting you put it together over there. Margin would be different, right, for both because cutting would be higher, stock and sell would be just normal like B2B.

No, so stock and sell is higher than B2B. In B2B, we get like a 1%, 1.5% margin. But in stock and sell, you sell in retail, right? So obviously, you get a better margin, much higher.

And so in terms of the blended margins for the service center business right now, where would that stand at?

It can assume like around 3% to 4%.

3% to 4%. Okay. So that is including the stock and sell because that's...

Yes, yes, yes.

And so now we have these 3 service centers running. In terms of capacity utilization, what would that be? Or in terms of peak capacity, what could that be?

The service centers can do minimum like 70%, 80% more business from what it is because like I said, the inventory -- stock and sell, we just need to keep inventory. Inventory is still small. It isn't much end space, we have lot of space available. If you come and look at our service centers you will find that, our service centers are pretty big. Then second is sheet cutting, right? So there also demand is more -- we want to ramp up more. We can order machinery and install. So from existing setup, we can easily sell 70%, 80% more if there is demand.

So that 20,000 number that you mentioned can easily go to 40,000 kind of?

Yes, yes.

For the larger demand.

If there is demand in that region.

If there's demand in that region, right. So now you have identified 5 more sites. So these would be mostly the smaller cities?

3 are big 2 are small. So right now, the focus is to leverage on the larger cities, because that's easy sell. And then in second phase, we will move towards smaller cities. But we believe that in India, we can have at least 15, 20 large service centers.

And in the larger cities, how is the competition reacting to your entry in the service center business?

So they are very small so we don't have any organized players there, right? So they are pretty small mom-and-pop stores, so as such -- I mean, difficult to say the reaction because they're unorganized and small mom-and-pop. But yes, I mean we have our strength in steel sourcing and then strong brand, right? So what more do we have to do.

In terms of B2B metal trading, you said that imports were unviable for the quarter. Can you just elaborate more on that?

So one is that there is a risk of safeguard duties. So anyways, the imports are minimalized. Then second, the domestic steel prices have come off so much that the steel prices after all the duties in India. They are also at parity, right? So there is no point of keeping up 90 days of cycle, which can hog the steel price swings. So domestic is viable today.

So just for imports, you have 90 days kind of cycle from ordering to delivery?

Sorry to interrupt. Sir, may I please request you to please rejoin the queue.

Yes, yes, yes. So the sale takes like 90 days to reach you.

We have our next question from the line of Chirag from White Pine Investment Management.

Just a clarification. Our business model works on per kg basis, right, and not on a margin basis because the steel price keeps coming down, then if business model is on margin basis, then it has a direct impact on our profitability.

Right.

So that's what my question is, so is that business model based on margin basis, or it's a per kg basis?

See, I mean, obviously, steel, normally you look at rupees per tonne, right? That's the right way to look at it.

So hypothetical -- what I'm asking is suppose on INR 100 per tonne, you need 2% -- INR 2 per tonne kind of EBITDA. If 100 becomes 90 your EBITDA per tonne will also become 1.8, right? It will not stay as 2.

So how we should look it -- so obviously, as steel prices go up and down, the percentage margin will change, but we have been making around INR 1,000 per tonne EBITDA.

Your voice is cracking. Apologies for this, but sir, your voice is cracking.

Am I audible now? Is it better?

Yes, yes, you are back, yes.

[indiscernible]

Your voice is cracking. Can I reconnect you?

Okay. Yes. Let me reconnect. [Technical difficulty]

[Operator Instructions] We have the management back with us. Anubhav, sir, over to you.

I'm so sorry. I hope I'm audible now.

Yes, sir.

So when we say that 2% to 2.5% EBITDA margin, that is based on the assumption of rupees per ton as well, that calculation. So if you look at -- I mean, our EBITDA per ton over the last quarter, it has been around like INR 1,000 per tonne, INR 200 a tonne. Obviously, Q2 was bad, otherwise, on -- barring Q2, we have been around INR 1,000 per tonne, plus/minus, and that's why 2%, 2.5% EBITDA range.

So why? Because you always speak in terms of margin, and that's why I was curious. Internally, you look at per tonne basis, or you look at margin basis?

So business model is looked at per tonne basis, okay? But yes, I mean, because there are multiple verticals, right? So that's why for investors and analysts we are talking about margin. See, I mean but whatever steel prices behave, right, say, like from INR 60,000 a tonne right now, the selling price is INR 50,000 a tonne. From here on, the volatility won't be that much, right? Obviously, there would be some new moon scenarios, but we should be in that range plus/minus 5%, 10%. So even if you look at optically, the margin will be between 2% to 2.5%.

So if steel prices are on the higher side, our margins would be the lower end and if steel price are lower side, our margin should be at the higher end once the volatility subsidized. That is the way to look at it.

That is right.

Sir, second is, can you just talk about this ForEx accounting why it's a business gain and unlike how the accounting standards required to other income. So because you don't export, so it has to be more on the import.

Yes, yes. This is imports only. So we gain on import income, right, steel prices, the margin what we made the auditors wanted to show it as like a ForEx gain. But then none of our contracts are neglected...

So sir, can you talk a bit about it how it is exactly structured so that it is not a volatile income or not a speculative income in that sense, whenever you import, it is not going to loss?

No, it is not. It is not. It's a gain on sale of imported scheme, right? Why auditors put it in other income is because we classify it as like ForEx gain. But then my point is that we don't keep any contract naked, we're always hedged. ForEx gain comes or ForEx loss comes when your contracts are naked, right? None of our contracts are naked. They are always hedged. But just because of some classification, they have to put it in like other income. So what I can tell you on record is that it's -- that none of our contracts are naked, they always hedged. So there is no -- there is no risk or gain to be ForEx volatility.

So when you say hedge, do you refer to the end customer purchase in selling hedging or currently hedging?

Dollar is hedged.

We have our next question from the line of Rishikesh from RoboCapital.

Sir, can you guide for the revenues for quarter 4 and for FY '26 as well?

You mean the volume?

Revenue guidance.

I mean we should be between INR 1,500 crores to INR 1,700 crores for Q4. Obviously, we are waiting for some pickup in construction activity, which can lift our TMT sales, and also pickup in overall steel demand, which is led by multiple industries, whether it is capital goods or construction or by goods. So there is like overall stress in the country. That is what is like preventing us from doing the INR 2,000 crores of revenue run rate per quarter. But based on current scenario, we believe that we should be touching minimum INR 1,500 crores and things pickup, so we can reach INR 1,700 crores , INR 1,800 crores as well. But yes, I mean, INR 1,500 crores is we should definitely do. And FY '26, so assuming we do INR 1,500 crores in Q4. So the full year, we shall be closing around INR 6,000 crores, right? And like I said that -- I mean, we should assume 40% jump -- 40%, 50% jump on this. So yes INR 9,000 crores, INR 10,000 crores is what should come. I hope I'm clear.

Yes, I'm sorry. So currently, we are at 1.6% EBITDA margin. So what has to happen for us to go to 2.5% level? And by when is it possible? Can you say for the full year FY '26, you can achieve that margin?

So 1.6% for 9 months is because of inventory losses in Q2, which are now going to be repeated, right? So if I remove inventory losses, we are already above 2%, right? As new service centers come up, which have more profitable products, right? So margin should inch up to 2.2%, 2.3%, 2.4% and 2.5% eventually as we also ramp up our solar structure business.

We have our next question from the line of Alisha Mahawla from Envision Capital.

Just wanted to understand in B2B metal trading, you said that imports were not viable because of parity in domestic steel prices, which means that then we could have just procured domestically. Then why the volume degrowth sequentially?

Yes. Alisha, see it takes time to make deals with steel producers, right, because they have their own commitments. So it's just that like suddenly the imports became unviable, right? And then we started talking to all the steel mills, right? So yes, for Q4, we are pretty sorted. But yes, we didn't have much time to procure that much steel, right? And that steel has to come at our cost. So yes, I mean, Q4, now we have good supply tie-ups with all the mills. And see, also -- see, in India, like in last 11, 12 months, since NMDC and JSPL put up the capacity after a gap of 5 years in Indian upstream steel sector, then JSW 2 blast furnaces started. So overall, 10 million to 12 million tonnes of new steel capacity came. But actual steel in the market is only around like 30%, 40% of that. The rest of the blast furnaces are still getting ramped up. So scenario is improving month-on-month for domestic steel supply. And in Q4, Q1, we expect like a lot of steel coming from Indian mill which would boost our B2B metal trading volumes.

Understood. Just a clarification here. Do we have tie-ups or have we started sourcing from all the top 5 steel manufacturers because I believe earlier we were only working with 1 or 2. So have we managed to now have...

Yes, yes. We are buying steel from top 4 producers out of 5.

Okay. Understood. Now moving to the service center business. Raipur and Pune have they started or are they yet to start? I know you mentioned there was a delay, but as...

Yes. So Raipur has not started. Raipur will start next month. Pune, because of delay, what we did was we did a -- we took a small service center on rent, and then we will move to our own service center next month when it is 100% ready.

So the way to understand it is at all 3, Dubai, Pune and Raipur will probably start by end of Feb or March, which means they will only start contributing in Q1 of next year?

That's right. So yes, there is a 3, 4 months delay because of like this monsoon is taking monsoon, impacting the construction activity.

And the 5 sites that we have identified, how quickly will they commercialize? What is the kind of lead time one can expect?

Next day. I mean when steel prices move. So normally steel prices are revised once in a month, right, on the first or second day of every month. So whatever the actions we have, whether plus or minus, we also revised it immediately.

No sorry, I think my question was -- I don't think it was very audible. The 5 sites that we have identified for the service center business, you mentioned that we've identified 5 sites, right? Just wanted to know by when can we expect it to commercialize? What is the lead time?

I'm so sorry. Okay, okay. Yes. So the target is December 2025 to March 2026.

Almost towards the end of next year.

Yes. That's right. Because these are larger sites, right, which can do 15,000 to 8,000 tonnes of volume every month. So we need 1 year to fully construct those.

But sir, aspiration is to probably add 20 service centers...

That's right. Yes, yes, yes. So Alisha, see I mean -- see we just took a pause for 2 months, okay? Because imports were not happening, right? And then we were tying up with domestic steel players. And now that the steel looks visible to come in abundance, right, in Indian market. So 2 months we were slow. And now we have kick started it, right? So 5 we've identified, sites, my team is already talking to the people who can sell land identification is in process. And 5 more new sites we have identified. So the work will start on 10 sites during this year. 5 will be finished by December and another 5 may finish by May, June, next year. And if Q4, like Q1, we have said that, yes, this 10 million tonne steel has now started coming in the market, right? And then nothing stops us from going for like 10, 15 sites in single shot next year, 2026 calendar year. So just that we cautiously took a call for 2 months. We just wanted to see how the steel supply behaves, right? On paper, 10 million tonne steel has come, right? But in market, it's only 3 million, 4 million tonnes, which has come, right? But it has to come, right, because blast furnaces have got fired, they have started. So 2, 3 months, this ramp-up is taking time. The moment it hits, we will be ready with our service centers.

[Operator Instructions] We have our next question from the line of Dharmil Shah from Dalmus Capital Management.

Just wanted to know why were the imports unviable? If you can elaborate on that part. Maybe you mentioned it, but I may have missed it earlier.

Sure. So it's the costing, right, the landed cost of imported steel in India versus the domestic steel prices.

So the prices were quite high for imports. Is this what you are referring to?

Not high. No, not high, but -- but for -- the gap was so low that it doesn't make sense to import.

And usually, what is the mix between the domestic sourcing and imports? I mean, what was it this quarter? And what would you like it to be?

This quarter was too low, right? Last quarter was -- in Q2, on an average, like -- I mean, given the stress in domestic steel prices anyway see everyone is talking about bringing safeguard duties on every product, right? So if there is a safeguard duty on steel also, so then imports will be 100% unviable anyway, right? So import is not part of our business model now.

Understood. And can you again just give a breakup of segmental volume breakup for all the 3 divisions?

So out of INR 1,300 crores, which we do, right? This is what you want the breakup?

Yes. volume breakup for the 3 divisions.

Volume, right. So overall quarter was around 300,000 tonnes, right? Out of that, B2B for the quarter was around 150,000 tonnes, 100,000 was service centers and 50,000-tonne was distributions.

[Operator Instructions] We have our next question from the line of Ayush Vimal from Clearview Capital.

You scaled up the B2B division quite well over the last few quarters. My question is, are you really displacing the existing distributors, which the plants used to cater to or your rather distributing capacity from fresh plants that are being set up, is it more of market share that you're gaining or you're more relying on market growth?

So there are 2 things. One is that we're not trying to displace anyone, right? What we are trying to do here is become a large reseller of steel and then distributors can buy through us, right? It is like, say one distributor is attach to steel mill 1, right? But he is not getting steel from steel 2. So he can buy material from SG Mart for steel mill 2 because SG Mart is buying from all the steel mills. 1, 2, 3, 4, 5. Okay? So this is one type of growth. Second is like the steel mills are also attached with a lot of small dealers and distributors. So they themselves are telling us that, okay, you become large reseller and then let the smaller distributors buy through you because their headache comes down, right? And third is, yes, I mean, steel demand in the country is growing okay compared to like whatever barring form of data we keep on hearing. So yes, I mean, incremental steel supply, which is coming in, we are taking that share as well.

Point one, right, what I basically understood is you're actually pushing down the distributor who's directly buying from the plants down the distribution chain. So now instead of directly buying from the plants, he's buying it through you. In terms of pricing and working capital, is he better off buying through you compared to buying directly from the plant? And if so, why is that the case?

No, because see, the steel mill always work on quantity discounts, right? You buy X tonne, you get discount, like you get X quantity you get Y discount, you buy Z quantity, you get A discount, right? So because we are buying more. So obviously, just as a slab cycle, like my cost of purchase is low, right? So yes, which I keep it to myself and pass it on to the dealers, and then I am having steel for multiple steel mills, right? So I'm keeping the stock, so for him it becomes just in time.

Got it. Fair enough.

And then if you see, I have 10 days as well, right, whereas steel mills normally don't offer credit to its dealers.

So basically, the steel mills are able to evacuate capacity faster when they deal through you and that is why they're giving you that quantity discount, I guess.

That is right. Yes.

Just a clarification. So the INR 6.2 crores of derivative income that's included above EBITDA in this quarter....

No, no, that is not derivative income. I mean that's a gain on my steel sales, right? But yes, somehow it just got into classification of ForEx.

No, that's very well understood. I understood the logic behind it. My question is, you had incurred a loss of about INR 3 crores in the first 2 quarters combined, right? Because the 9-month gain is 3.5 and -- the 9 months gain is 3.5% and this quarter is 6.5%. So the loss that you had incurred for the first 2 quarters, in your presentation, is it included above EBITDA? Or is it included below EBITDA?

So 9 months numbers have been adjusted basically.

Okay. So for quarter 1 and quarter 2, the numbers that you have in your presentation, right, in the table, the loss is appearing...

Yes, because that number was very small, right? So we didn't bother much, but this quarter, the number came out to be pretty big so we had to highlight it.

We have our next question from the line of Vikas Mistry from Moonshot Ventures.

So we were discussing that our business is EBITDA per tonne. So we said -- you said that it's INR 1,000 per tonne, then if the steel prices goes up, which we don't see it go up in hurry. But if it goes up, then the margins would start reducing. And what will be the steady state, we think that the steady state margins will be INR 1,300 per tonne as we're trying to scale up other...

No, no, no. If steel prices go up, what I was saying was that optically percentage margin will be down. But it will not impact my EBITDA per tonne, which is INR 1,000 today. Okay? It doesn't get impacted.

Yes, yes, that's also we're saying. But let's assume in a hypothetical case in FY '27, the prices of steel goes to INR 60 per day. Then your EBITDA margins would be lesser than 2.5 -- it should be around 2%. Is it the right understanding?

There could be, but then there could be some inventory gains like in Q2, I booked inventory loss, right? Steel prices crashed by INR 8,000 a tonne. Now if we assume that...

Sorry to interrupt. Inventory gain is a onetime exercise, so we don't look at that.

So that's what. So when we are looking at our business model on a per tonne basis, then percentage margin, like 2.1%, 2.5% doesn't make sense. Plus then we do have a lot more value-added products, right? Like in service center business, I make INR 2,000 per tonne, which is like 4% margin today, right? When I will have 30, 40 service centers up and running by FY '27, we should look, right? A lot of my revenue will be highly profitable. Then solar content structures, again, it's a highly profitable product, right, which we are adding to our portfolio. So I think what I can tell you is that no matter steel prices are INR 50,000 or INR 60,000 a tonne, our focus is that from INR 1,000 per tonne, we take it to around INR 1,200, INR 1,300 per tonne based on the product mix.

We have our next question from the line of Vivek Patel from [ Baicom ] Family Office.

Just 2 quick questions. First is, what is the HRC price as of now? And what are the steps taken to mitigate the recent price change impact?

Right now the market rate is INR 47,500 to INR 48,000 per tonne.

And what about the -- what are the steps? Or is it in the model so that the price change would not hurt us as much as it could hurt others, so to speak?

Sorry, I'm not able to hear you properly. Can you speak a bit like away from the mic?

Is it better now, sir?

Yes.

Yes. I'm just asking as to the price change that happens, how does that impact us in the sense that how does the business model absorb that in resemblance to the price change impact?

Fair enough. So in India, like the steel prices are normally revised once in a month on first or second date of every month. 11 out of 12 months, so this is the scenario, right? It's only like 1 month when the revision could be twice, but normally 11 out of 12 months, the revision is once, the first week of the month. By second, third normally the steel company -- the steel authority normally comes out with the pricing. And whatever revision is done, whether plus or minus, we immediately react to that. We immediately react to that.

Okay, understood. And secondly, in your investor presentation in the FY '27 expected revenues of INR 18,000 crores. In that slide, it is written that we expect 33% of that, which is INR 6,000 crores to be coming from service center segment. But in the last con call, if I'm not correct or misunderstood, I think you had mentioned the contribution from service center to be 40% to 50% of your FY '27 revenues. Am I understanding it correct? Or is there any...

The business will be split into 3 segments, INR 6,000 crores each. And this INR 18,000 crore number depending on the steel prices. So yes, whatever it is, whether it is INR 15,000 crores or INR 18,000 crores, it will depend on the steel prices. The volume should be around 3 million tonnes basically.

We have our next question from the line of Bhavin Pande from Athena Investments.

Congratulations on good set of numbers in a tough environment. Anubhav, so how do you look at ramping up of white label products in the mix because they are more margin accretive. So how do you look at this angle?

There are 2 main products here. One is light structural, second is TMT bar, rebars. Both are used in construction and unfortunately, construction demand has been pretty slow. So we're not able to ramp up TMT sales significantly. But yes, I mean, we wait for the environment to become better, which it should in the next few months and then white label products will grow at a much faster pace.

So we can expect some benefits to flow through towards margins, right?

Definitely, definitely, yes. So see, I mean for margins, service center will boost my margin. Solar structure will boost my margin. [indiscernible] will boost my margin. We have enough new products, enough up which will keep on boosting my margins. Can you take last 2 question, please?

We have our next question from the line of [ Rakesh Jain ] from RK Capital.

I wanted to know what will be the interest expense trajectory going forward? So even though you're sitting on cash today, there is a significant interest cost due to your working capital requirements, I believe. So how should we see this interest expense trajectory as well as the other income trajectory in the next -- over the next few quarters?

If you look at my gross log today, I mean, my total capital employed, which should be all funded from cash in my books, but I have not done that. So working capital, why you see debt on my books is because I tell my salespeople that, hey, you don't have cash on your company balance sheet, okay? So say, for example, my fixed deposit rate is 7% today. I take limit from HDFC Bank at 7.1%, 10 bps extra. And then I tell my salesperson that if you are using this working capital, which is at a cost of 7.1%. So he is always under pressure for the collections. If I tell him that this is companies, equity companies, network companies cash on the books, so the receivable cycle may deteriorate, which I don't want to. So this is just to put pressure on our sales team that this is like interest-bearing loans and you have to ensure that the working capital cycle remains pretty low.

I hope your sale employees are not listening to this call anyway.

That's what. So that's a little -- so it's only us, the management, here on the call, that's right.

But going forward, like this interest expense trajectory like as and when you start opening more and more service centers. And so you will have to maybe take some debt or raise some equity as you progress towards your goal...

No, no, no. To reach -- see, I mean, this money which we have in the books, the cash flow what we are generating today it is enough to do INR 30,000 crores, INR 35,000 crores business. The total capital employed, what we understand is like INR 2,500 crores. So INR 1,300 crores, INR 1,400 crores is my cash when we started the business plus INR 700 crores, INR 800 crores will be cash flow cumulative generation. So INR 2,500 crores is what we shall invest to generate INR 30,000 crores, INR 35,000 crores of revenue.

So the interest cost will remain stable at these levels or it's not going to increase in the future, the interest expense?

So it will go -- see, if I grow my business, I will need more working capital. So my other income will also increase and my interest income will also increase. So more or less like they will remain same.

So it will not be the case that your other income will start going down in the future as you open more and more service centers and your interest expense will continue. So that's not the case. Basically, both will offset each other more or less.

Yes, yes. Because right now, it is working on very light working capital days. Unless we have 20, 25 service centers, which will take my working capital to like 20, 25 days, which eventually it will, till then the interest income and the interest cost shall match each other.

But the 20, 25 service centers, you are planning to open over the next...

Just to end to it, yes, I mean, in the next 15, 20 months, we shall be like 15 service centers operation and 10 will be under construction.

Ladies and gentlemen, the last question for today is from the line of Aastha from Pkeday Advisors.

We saw first time in our Q-to-Q revenue, the revenues have dropped in -- for the first time. And sir, we have revised our revenue guidance as well. So is this the seasonality finally catching up?

No, no. The reason for fall in quarter-on-quarter revenue was on the account of less imports in Q3 compared to Q2. Q2, there was a big spurt in import volumes. But this quarter, import was not viable, and it took us 1 to 2 months to make deals with the Indian steel mills for steel supply, which we have now in place. So yes, I mean INR 300 crore, INR 400 crore revenue loss may be there for the whole year of FY '25.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management closing comments.

Thanks, Manav, and again, thanks to Harsh and Emkay for hosting us. And apologies for this delay for the call to all the participants. If there are any questions unanswered, please reach out to our team, Naman, Suraj and myself. We shall address everything. Thanks so much. Have a nice evening.

Thank you so much, sir. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.