SG Mart Limited (512329) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the SG Mart Limited Q1 FY '27 Earnings Conference Call, hosted by Antique Stock Broking Limited. [Operator Instructions] I would now like to hand the conference over to Mr. Pallav Agarwal from Antique Stock Broking.

Thank you, and over to you, sir. Thank you, Manav, and good evening, everyone. Warm welcome to SG Mart's first quarter FY '27 earnings call. We have the senior management team represented by Mr. Amit Thakur, Director, B2B Metal Trading Mr. Suresh Kumar, the Chief Financial Officer; Mr. Astarta, the VP, Service an and Distribution business, Anamika Gulati, Senior numbers business and Mr. Anil Gupta, the Group Chief Strategy Officer. So now I'd like to hand over the call to Mr. Anubhav Gupta for his opening remarks. Over to you, Anubhav.

And thanks, Antique, for hosting SG Mart for its quarter 1 FY '27 earnings call. On behalf of SG Mart, I welcome all the participants on this call, and I would like to extend a warm welcome to everyone who has joined this call. It gives me a lot of pleasure to announce that Q1 FY '27 is the second quarter of sustained revenue and profitability for the consecutive quarters. It proves that our business model is working well and is throwing the return and the profitability as expected. The mart business model has evolved from trading to manufacturing and in its new start, we are focusing on 5 key pillars, which are: number 1, manufacturing. Number 2 is branding. #3 is distribution. #4 is network of service center and #5 is online marketplace. So under these new product categories, we have already launched 10 products and 7 are in pipeline, which will be launched in the next 2 quarters. So the new categories which have been formed are, #1, the products through service centers. #2 is various steel profiles. #3 is the renewal structures; and #4, various products in the accessories category. So right now, the idea in smart is to create a manufacturing platform with the ability to sell an own brand through network of service centers and our own distribution network. On top of that, we will have our own online sales channel to boost reach and profitability. So talking about category-wise revenue and profitability numbers. So from Service Center, we did volume of 160,000 tonnes in quarter 1. The profitability in this business is intact within the range of INR 2,000 per tonne. As of now, we have 7 service centers, which are fully operational, and we shall launch 5 service centers every year to take this number to 25 by 2029. The second business is steel profiles into multiple products, which cater to industries like construction, infrastructure and industries. The total volume we did here is 18,000 tonnes and the capacity -- 18,000 tonnes in quarter 1, so which means for the full year, the run rate is around 75,000 tonnes. We already had capacity of 200,000 tonnes for these various products, which will ramp up over the next few years. The renewable structures, we did volume of around 11,000 tonnes. The run rate for the full year is around 50,000 tonnes. Here also, our capacity is already around 200,000 tonnes. So we are having enough capacity for next 2 to 3 years to meet the demand from the solar industry. The EBITDA per tonne across these steel profile business and renewable business is around INR 3,000 to INR 4,000 per tonne and it will improve as we will set up our own backward manufacturing line in the next 1.5 years, which will boost our profitability to INR 6,000, INR 7,000 per tonne. And the last segment is Eisler we have already launched 2 products and the revenue ramp-up has already begun there. So for quarter 1 FY '27, if we annualize the financials, the ROC comes to around 23%, with net cash on books around INR 690 crores. We spent INR 90 crore of CapEx in quarter 1. And for full year, we should be spending around INR 400 crores to INR 500 crores. Now given that our focus is on manufacturing and setting up service centers, the total CapEx requirement in the business will be above INR 1500 crores in the next 2 to 3 years. Now INR 700 crores, we already have on books. And next 2, 3 years, we will have enough operating cash flow to meet this CapEx demand. So there is no requirement of any new capital raising or any dilution, anything will be funded from existing cash on the books plus internal tax ostentation? So we are overall pretty pleased with how SG Mart is shaping up, how each of the verticals is shaping up and we are bullish on the product pipeline, which we recently launched in last few quarters, plus the new pipeline of 7 products we have already planned plus there will be like new categories like contract eating, et cetera, which we will add to the existing revenue streams. All in all, we wish to have 7 to 8 revenue streams with the multiple products and which will give the scale to SG Mart in terms of manufacturing and sales through our distribution network and using our own brand. Catering to multiple industries like infrastructure, construction, renewables industries, including large-scale and small-scale board. So by 2030, we expect SG Mart to reach a scale where it would have a unique positioning in terms of helping India and its industries in terms of manufacturing and distribution. So that's it from our side. We're happy to take questions now.

[Operator Instructions] We have our first question from the line of Brian at from Trista Asset Managers.

Am, I audible?

Yes, sir. We can hear you.

Yes. So my first question is around a customer side for you, and SG Mart has built a relationship more than 3,500 customers across industrial and fastest segments. So how content is the revenue today? And do you see customer concentration reducing further as newer product categories mature and as we just continue with this part could be help you understand the landscape in the organized infrastructure material distribution business to was structural advantages allow SG Mart markets against retinal distributors and other, this is the first question.

So coming to the first part of it, the customer concentration is very, very wide in SG Mart's case. You got to understand the customer base as per the product category. So for example, #1 product category is service centers. Now service centers, our customer base is widely spread out because we have customers in terms of small fabricators to large fabricators, capital good companies with small to large scale then EPC contractors, in building companies, we good companies, automobile sector, agricultural equipment companies, right? So it has a very wide range of customer base. But the concentration is very, very wide, okay? Then second is steel profiles. Now if you look at the applications for steel profiles, which is again into renewables and infrastructure in industries, housing construction, commercial construction, so all type of segments, infrastructure or real estate, it caters to, again, the customer base is very, very wide, and there is hardly any concentration. Then solar structures, yes, this business has a limited number of EPC companies and independent power producers who are present into renewable solar structure -- solar business. So here, it will be like top 20, 30 EPC/IT team, which we would be catering to. But then again, right now, the solar structure business is contributing very little to the overall revenue of SG Mart. So again, customer bases very well. And lastly, accessories, again, it is sold to a number of large customers, a number of small customers, sorry. So here, also the risk of consultation is not there.

Okay. Fair enough. And right, you have mentioned about the few profile. So sir, what revenue and profitability contribution do you expect from steel profile and solar structures over the next 2, 3 years, any number in your mind?

No cost right so put together, if you see 18,000 tonnes we did in steel profiles and 11,000 tonne volume we did in solar structures, put together, it is 30,000 tonnes in quarter 1. If you analyze it is around 120,000 tonnes. Put together, we already have capacity -- installed capacity of around 400,000 tonnes. So we can grow this business by 3.5x to 4x in next 2 to 3 years or meeting the industry demand.

Got it. Perfect. And then last 1 question from my side, then 1 in the queue. So sir, what are the biggest execution risk to achieving the target that you have given 50% gig over the next 3 years that we have we have to keep in our mind while analyzing the company.

So see, I mean, again, we need to break up execution risk into 4 separate business. Service centers, we wish to have a 25 number in the next 3 years, right? So we already have 7, we have already started working on 7 new centers. So 12 sectors will be up in ready say in next 6 months to 1 year. So once we achieve 12 operational service centers, then doubling that number in 2 to 3 years' time, it should not be much of a problem. Then we have already identified cities and land parcels. We know the business model, how to run the service center, what kind of market end demand, et cetera. Everything is manned, right? So execution risk gets very, very low. Now then second is solar structures and steel profiles, the other product two categories, the are also -- we have already installed profiling capacity of 400,000 tonnes versus 120,000 tonnes under what we are at today. Now here, the bigger part is to set up the backward integrated line, okay? Because both these product categories, they use special coated steel, okay? So right now, we are purchasing that special coated steel from third parties, but SG Mart wishes to have its own cool indicated line. So that process, we have already started by acquiring land in Rio and in the next 18 months, the backward indicated line will be fully operational. There also, the group has lengthy experience in putting up such lines. So given the project has already kickstarted execution risk doesn't play much of a role there? And third, adding new products in the accessories we have a lot of service centers with idle space. So infrastructure is already there. We need to put up the plant. I mean, we need to put out machinery to start maturing or products. So given all the cash line in the books plus solid operating cash flow generation in the next 2 to 3 years, we don't see much of a risk to put up these lines.

Okay. Over to got and can you for clarification and look for our coming quarters.

We have our next question from the line of Vishal Mehta from Oakland Capital.

Yes, sir, just a couple of questions. First is that this quarter, we've seen a healthy jump in the realization because of the pricing increase. Could you just break that down? So we've seen also a margin improvement, which has been strong. So could you highlight if there was any inventory gain or this is a structural shift in terms of how we should look at margins going forward.

Vishal, if you look at the NSR, that is net selling realization yet, it has gone up. So 1 is yes, steel prices went up right by around INR 2,500 to INR 3,000 per tonne from first April 1st to 30th June period, okay? But also NSR is up because of increased sale of steel profiles and renewable structures? Okay. So like I said, this is a special coated steel, where the radiations are almost INR 10,000, INR 15,000 per tonne higher than the average HR coal-based product, what we sell. Okay. And the revenue mix, as you can see in the table that the contribution is increasing quarter-on-quarter. Plus the margins also in these products are superior, which led to like EBITDA margin of more than 4%. Yes, yes. Just to actuate like inventory gain is miniscule because if you look at the inventory -- absolute entry, like in FY '26, March -- 31st of March 2026, the inventory lying in the books was INR 283 crores in quarter 1, by 30 June, it fell to INR 209 crores. So despite higher steel prices, our absolute inventory has reduced significantly, okay? So we are improving our inventory churn. So since the inventory reduced, there was not much of booking any inventory gains. And that's what we're going to continue with better inventory churns, the risk of inventory losses or gains in P&L, we want to minimize like how we did in APL for of steel tubes. Similarly, we want to achieve that in SG Mart as well.

Sir, just to summer this up, you're saying that this 4.5% EBITDA margin that we've done this quarter seems more structural than a one-off because of better pricing?

Right. So I will not guide EBITDA percentage right now, Vishal, because like quarter-on-quarter, because in next quarter, say, in quarter 2, if the service center business picks up, which was pretty slow in quarter 1 and there, the margins are like INR 1,800 to INR 2,000 per tonne. So if revenue mix from service center business increases, then my blended EBITDA per tonne may come down, okay? But absolutely, EBITDA will definitely grow because the steel profile business and renewable business will do more volume than it did in Q1 because every quarter, we will see the ramp-up, okay? But at the same time, my revenue from service center may increase,, right? So yes, tough to give guidance for EBITDA percentage or EBITDA per tonne quarter-on-quarter, but absolutely EBITDA will definitely be superior than previous quarters.

Got it. Sir, just to complement that the incremental information in the presentation has been very helpful. Just a suggestion, if on the Slide 19 where we -- 16 slide number where we mentioned the segmental split, if you could also add the EBITDA for each segment, it will be really helpful for us to track the performance more granularly. So that's just a suggestion because we do that in APL Apollo as it is. So we're just extending it to SG Mart as well.

Vishal, we will up on it.

We have our next question from the line of Sneha from Nama Mel.

Congrats on numbers. Just a couple of questions from my end. Could you actually help us with the service center economics, how much time does it take to form 1 service center that we send how many kilometers rates could actually 1 service center powered and economics, like how much are you putting in and some division between land and probably machine and then what could be the throughput that we can attain frome each service center, broadly, this is the first one.

So Sneha,when we say that we wish to have 25 service centers by 2029, 2030, so idea is to cover Pan India, right, with each service center being present and operational in every industry sweet cluster of India, okay? So what homework we have done is that every 400 to 600 kilometers so on an average of 500 kilometers, you will find like 1 large industrial cluster coming up. Okay. So you'll find our service centers, which are widely spread across and each being at a distance for 400 to 500 kilometers from each other. So that's the basic fundamental that we want to cover whole India. We want to cover each and every industrial cluster of the country. Now the math how is work is that typically, you want to have like 5 acres to 10 acres, okay, depending on the size of the service center. But typical is 5 to 6 acres so which under you want to have, and it will have a covered area of minimum 100,000 square foot. So -- and it will have like typical machinery of slitting and pretend and imposing, et cetera, okay? So normally, it takes around INR 50 crores -- INR 40 crores to INR 50 crores to put up a service center of this size, which I mentioned. And right from the land acquisition to install machineries having built up area, everything, it takes like 9 months to 15 months, again, depending on how quickly we are able to get line cleared, et cetera, okay? So 9 months to 15 months, is the time period where we are able to set up these service centers. So like I said, INR 50 crores is the gross block investment which we put up initially. Now service center does business of around 8,000 tonnes per month, which means around INR 40 crores of revenue per month and INR 500 crores per annum. Having a working capital requirement of 20 days, so which means that we need to have INR 25 crores to INR 30 crores of working capital investment in the service center. So INR 50 plus INR 25 crore is INR 75 crores to INR 75 crores to INR 80 crores of total capital employment. And if we do 800 -- sorry, 8,000 tonnes per month, that means 100,000 tonnes per annum with INR 2,000 per ton EBITDA, so we will get EBITDA of INR 20 crores on a capital employment of around INR 75 crores to INR 80 crores. So this is the economics, which we work on. Now there are 2 levers to boost ROC further from these levels. Number 1 is the B2B metal trading, okay, which right now is not much of a focus area. But as our reach is expanding, right, so we will get demand for bulk sales also, right? So as we are able to agitate demand for metal -- B2B metal trading, as more service centers open up, we can always do trading, right? And there is no investment required for B2B metal trading. So it will boost my ROC, right, without investing any dollar. Second, we will start -- so right now, the products what is selling service center are the #1 metal sheets, HR coil sheets, okay, in both sheets and slated correct. Now we want to add coated steel also here, okay, for which the backward indication plant is being put up in Raipur. So once that starts, that pooling starts, it will improve by same-store sales growth and since it's a specialized coated sheets, the margin also will be like INR 5,000 per tonne versus INR 2,000 per what we make on -- what we made on hot-rolled, HR-based material. So I mean, service centers can also give us 35% kind of ROC once both these products start adding to the revenue.

Got it. My second question is, I think in your opening remarks, you said you were also working towards some sort of contract manufacturing, which will come up. Could you -- do you want to expand that? Or what are you thinking about which areas, what contract manufacturing?

Yes, Sneha. So maybe next quarter, we will have some accurate answer to that, right? We're exploring various industries where there is a gap in giving manufacturing ecosystem to the companies who are selling under their brands, right? It could be in multiple categories. Obviously, we'll start with one, make it successful and then we go to the second category. So maybe in the second quarter call, we will be able to give you exact like what we have done.

Understood. And last 2 questions. One is on the customer diversification. I think you've mentioned it very well that your customers are completely diversified. Could you explain how is the order book with these customers? How many days of order book do you entail, what sort of new to orders do you receive? And what's a turnaround period, how much inventory do you have to maintain.

So Sneha solar structures, most of the businesses of the shelf product, okay? And we get regular orders from the customers. So normally, the turnaround time would be like 24 hours to 48 hours. Only in solar structure business, where -- which is like slightly project specific, the order book stands for like 2 to 3 months else everything is like off the shelf segment?

We have our next question from the line of Rahul Kumar from Hikari Fund.

Just 1 question, I think going back to the profitability part. Can you just help us understand the EBITDA per tonne for the various segments for this quarter? And what would be the sustainable figures going forward for these segments?

Sure. So comment to the first product category, which is service centers, where we make anywhere between INR 1,800 to INR 2,000 per tonne, okay. Then second, the steel profile, we make around INR 3,000 to INR 4,000 per tonne, which is based on the purchased coated steel from outside. Similarly, in renewable structure, solar structures we make around INR 3,000 to INR 3,500 per tonne. Again, it is based on the purchased material from outside, now in both these segments, once our backward integration starts, say, in 1.5 years, the margin will increase beyond INR 5,000 per tonne. And last few necessities, again, these are like specialized accessories where we margins could be like in double digit, depending on like multiple products. So that's what it is.

Okay. Okay. For this particular quarter, are there one-offs as this number.

No, it's all the regular business profitability.

Understood. Second question which I had was on the working capital. I think there is a slight increase in the working total working capital because of the trade favors, which has gone down. So is this more of a...

So again, our current assets have gone up. If you look at our balance sheet, what we have given, the other current assets have increased to like INR 211 crores from INR 188 crores. So this is, again, the advances what we pay to the steam mills. Now in last 4, 5 months, because of all the geopolitical turbulence what we have seen, I mean we always want to have a credible source of steel. So for that, we always have some advances line with the steel mills as our scale increases improves, I mean, this will definitely come down. So it will improve my working capital dam.And also like these are the new business verticals that have been created so initially, it will have some extra inventory like you saw that we have already brought inventory from INR 283 crores to INR 209 crores despite increase in the steel prices. So absolute reduction in inventory in tonnage is much more sharper than what you see these numbers in value. So this will continue and with better payment terms or credit terms with our steel suppliers, you will see inventory being further -- I'm sorry, departing capital or being rationalized from current levels?

Okay. Okay. Referring to the trade payables part, which has actually declined from.

Our sales results are also the money which you have to pay to your suppliers, right, which is mainly steel mills. So here also, I mean we have made payments, right to ensure that there is regular supply of steel. It's just that the scenario in the geopolitical scenario is double end. It's always better to play safe. Now that all our processing units, our sales channel, everything is being established, so we don't want any disruption in the steel suppliers.

Okay. Okay and in terms of capacity, what you mentioned for the profiles and the renewables. So the launch product, which you have shown in the presentation, so the capacity is versus these products?

No, that's right. So number one, so product number one, if you go to Slide #7, okay? So #1 product is cut, which is part of steel profile, then ZC Perlin, 3 product, that's part of steel profile racking profiles cable trade, okay. So these are part of the steel profile and solar module on structure is part of solar structure. So product 1, 2, 3, 4 and 6 plus there are 2 more products, which you will launch, the capacity is already there, which we will launch in quarter 2, quarter 3. So put together, we have installed capacity of 400,000 tonnes. And in quarter 1, we did 30,000 tonnes for both the segments in total.

Okay. Okay. So in that context, you had mentioned in the opening remarks that you'll spend some INR 1,500 crores on CapEx, so which particular segments will be these...

Okay. So -- number 1 is service centers. So like we have 7 in operation, right? So we need to open 15 more -- 15 to 18 more each service center requires a INR 50 crores of investment. Right. So this is 1 number. Okay say, 18x50 which is like INR 800 crores, INR 900 crores, which will be put up to acquire land and build share and installed machineries. So total gross book formation. And then some CapEx, we will have -- some CapEx, we will have for the back on integration line of quote.

Okay. And then backward integration will be -- this will be a centralized facility, right? Not...

That is right. In wire, yes.

Okay. Okay. And have we incurred the CapEx for that? Or is it still come..

So land has required and so land has been acquired and the construction has begun. Okay. And some machinery has also been ordered.

[Operator Instructions] The next question is from the line of Garik Goel from Carin Alpa.

Hello am I audible.

Yes, sir.

Sir, my question is on service center. Like you mentioned in this quarter, there are some issues and hence, the business was lower, which will ramp up in Q2. And looking at the target number, earlier, we were targeting around 30 service centers by 2030. Now we are speaking about 25. So I just wanted to understand, are there any challenges that we are facing right now in the terms of adding up the new service centers as well as ramping up the existing one.

See, I mean -- if you look at the quarterly volume, Q1 FY '27, the volume was 160,000 tonnes, right, from service centers. Now Q-o-Q, there is a debt, right, which because of seasonality. But in Q1 FY '26, the volume was 120,000 tonnes. So we have increased from 121,000 tonnes to 160,000 tonnes on Y-o-Y basis. So there is no slowdown. When I said that volumes were -- so that was on Q-o-Q basis, right, and that was due to seasonality. Now Q2, the volume shall pick up, right, Q-o-Q? And that's what I meant. So we are looking at Y-o-Y growth here because all these products have seasonality, right, not to be compared on a Q2 basis in terms of volume. What was the second question?

In terms of our long-term target of establishing that's right.

Yes. So see, again, this number is 30, 25, it doesn't matter. What matters is that are we covering pan-India? Are we covering each and every industrial cluster in Indian state? So yes, we are doing that, okay? Are be able to achieve 800,000 tonne monthly volume from 25 service centers? Answer is yes. So it is not about number of service centers. It is about the coverage and plus, it is about the revenue, the volume what we can generate from each service center.

Got it. Got it. And secondly, so this year, like you mentioned, in the upcoming quarters in absolute terms, maybe relative terms, it can vary. But in a absolute terms, we will be seeing improvement in EBITDA on a quarter-on-quarter basis. So what kind of EBITDA target do we have for this particular year financially as '27?

So see, I mean, we had mentioned like in quarter 4 call, okay, we had mentioned around INR 300 crores for FY '27 in terms of absolute EBITDA. I think -- I mean, given the momentum what we have bought in quarter 1 and assuming there is no such drastic deterioration in macro environment because of ongoing geopolitical tension. We should be able to do that unless like the only caveat is or some disruption at macrolevel.

Understood. And are you seeing any kind of disruption right now, I mean that can be a challenge to...

Sorry to interrupt, sir. May please request you to rejoin the queue as there are several participants waiting for their turn.

Just to close this loop, so see, disruption, yes, I mean, till 10 days ago, we were of the view that now or is getting over between Iran and U.S., okay? Now the steel prices -- sorry, the oil prices have again started to shoot up. It will again have a rework impact on the commodities including steel. So if there is too much of volatility, it will impact sales for sure, okay? And a lot of industries or customer industries will suffer right. So it's been only 10 days since the war has restarted. I think we'll take another 2, 3 weeks before it starts hurting businesses. I mean, in March, everyone suffered because of the shortage of fuel gas, petrol diesel, right? So if that situation comes again, then the whole country business environment will suffer? Nothing specific to us, nothing specific to our business, but in general, if things become worse, it will impact.