SG Mart Limited (SGMART.NS) Q1 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the SG Mart Limited Q1 FY '26 Earnings Conference Call, hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar Saumya. Thank you, and over to you, sir.

Thank you, Anushka. Good afternoon, everyone, and thank you for joining us today. We at AMBIT Capital are pleased to host SG Mart's Q1 FY '26 Results Conference Call. We have with us today, Mr. Amit Thakur, Director, B2B Metal Trading; Mr. Suraj Kumar, Chief Financial Officer; Mr. Naman Rastog, GM Strategy; Mr. Archit Arora, VP, Service Center and Distribution Business; Mrs. Anamika Gulati, GM, Renewable Business; and Mr. Anubhav Gupta, Group Chief Strategy Officer. I would now hand over the call to the management for an opening remark, post which we will open the floor for a Q&A. Over to you, sir. Thank you.

Thanks, Kumar, and thanks to AMBIT for hosting SG Mart for its quarter 1 FY '26 earnings call. I welcome all the participants who have joined onto this call. We are a young team. That's why you see all the business heads are here to attend this call and address any queries which you may have. And we also have Mr. Shailendra Arora, who heads our TMT business. It's been 2 years since we conceptualized SG Mart and started the business with the vision to become India's leading B2B trading platform. Over the last 8 quarters, we have been able to create 4 business verticals to achieve this goal. Number one business vertical is B2B metal trading; second is establishment of a network of service centers in the country and abroad; third is the distribution business, which comprises of TMT and other downstream steel products; and number four vertical, which we added recently, is the renewable business. Over this time, we have been able to create a network wherein we have 2,313 customers, which are onboard and almost 246 suppliers are onboarded with us. So that's the strength of our marketplace, what we have created in the last 2 years. The competence here is to buy bulk steel from the steel mills and either to trade it to gain sales volume or to do some value add to gain on the profitability. Interestingly, if I elaborate on this, in FY '25, the Service Center business contributed 33% to our volume, but in terms of EBITDA the contribution was 50%. Similarly, in Q1, the Service Center business contributed 50% to the revenue, and the contribution to EBITDA was 60%. And we added Renewable business just to continue on this strategy, wherein you keep on adding multiple product lines which are highly profitable, and it shall improve the profitability for the company and ultimately improve the ROCE/ROE profile. TMT business is now on a pure royalty model, which is right now breaking even. It may require some minor investments to acquire more customers and get more partners on board. Now, coming specifically to Q1 performance, there was a miss on B2B trading volume due to poor steel availability in India in the first 3 months of the current financial year. This is evident from the sales volume data of top 3 steel producers, which has come out. The Q1 volume for them declined by 11% versus Q4 FY '25. So this also impacted SG Mart because right now, almost 95% of business is coming from steel. So steel availability did impact our business as well. But coming to Service Center business, the monthly run rate is now 40,000 tonnes a month from 5 operational service centers, which are one in Ghaziabad, second in Raipur, third in Bangalore, fourth in Pune and the fifth one in Dubai. We have acquired land for 2 new service centers, which are under construction, one in Jaipur and second one in Ahmedabad, and we are scouting for 3 more land parcels, one in Indore, second in Punjab, and thirdly, in South India. It would be either Chennai or Hyderabad. Meanwhile, we are creating our positioning of pan-India, and we are excited the way this business model got scaled up, which is backed by our brand equity. So what we have done is that we have taken 2 service centers on lease as well in the second quarter, one in Indore and second one in Ahmedabad. So the volume from these leased out service centers will start flowing from Q2 onwards. This goes on to adding to the asset-light model, where we believe that one city may have more potential to do more volume. So rather than investing into second service center, better is to take on the leased ones. Third vertical, TMT, it is scaling up pretty well. The Q4 volume was 39,000 tonnes versus 33,000 tonnes in Q4. We added one partner in Chennai in Q1. And in the next 9 months, we are going to add 3 more, maybe 4, one in West Bengal, second in Andhra Pradesh, third in Gujarat and fourth one to cater to the East market. Right now, there are 11 partners -- franchisee partners, which are operational. And lastly, on the Solar business, we started on a strong note with the current order book of around INR 285 crores. Now, this is executable over the next 6 months, and we expect similar worth of orders to book in next 1 to 2 months. So for the full year, we shall be doing around INR 400 crores to INR 500 crores worth of business from Renewable business. On the Distribution business, which is non-TMT, which are steel downstream products, here also the revenue for the quarter 1 was INR 196 crores, which was a significant scale up versus Q4, where the revenue was around INR 125 crores, INR 130 crores. So that business is also doing pretty well, as we continue to scale that up. Now -- so in quarter 1, when we saw that the steel supply is going to become a challenge, so we focused on the profitability. So whatever steel we bought, we ensured that we do some value add, we do some processing and we generate profits out of it. That's why despite such a low volume and such a low revenue, our EBITDA margin increased, which surpassed 3%. So this also suggests that -- I mean, on how lean cost models we are working. Despite a decline in revenue, I'm talking about Q-o-Q, we are able to improve our EBITDA margins. Now, coming like how we see the next 9 months. We are not at all disappointed by our Q1 performance because what we see is that almost 7 million tonnes of new steel capacity is going to get added in the second half with Jindal Steel & Power blast furnace and Jindal Stainless blast furnace getting fired up, and this will almost add 10% to the existing steel capacity in the country. And what we also saw was that the imports also opened up for next 3, 4 months. So there is no risk to our FY '26 guidance of INR 200 crores worth of EBITDA. We are 100% maintaining this guidance. You shall see the ramp up from Q2 onward itself. And quarter-on-quarter, you will see improvement in the revenue and absolute EBITDA. Now, coming on the balance sheet front. Our working capital days came down to 15 days, which was always the sustainable case, right? In Q4, it was slightly bloated because of the advance to steel suppliers ahead of the tariffs, which were imposed by the government. But now things are back on track, and our working capital days is 15, which shall remain at similar levels. This helped us to generate ROCE of 21% on an annualized basis. This ROCE will improve further as our profits improve from Q1 -- from Q2 onwards. So full-year ROCE shall be upward of 25%. We now have almost INR 1,000 crores worth of cash on our balance sheet, for which we believe that the mainly deployment will be for opening of warehouses and service centers. Now, this will only be like INR 150 crores, INR 200 crores worth of annual CapEx. We don't anticipate more than that. And the good part is that we are generating similar cash flows also on an annual basis. So mainly the cash will be used to fund the working capital, as we scale up our business quickly. It's just that one roadblock we saw in quarter 1 because of short supply of steel, but as things improve, we are highly geared up to double our turnover in next 2 years. So that whatever verticals, whatever ecosystem we created, we are able to leverage that on a full basis. That's all from our side, Saumya. We can now have our floor open for Q&A.

[Operator Instructions] We take the first question from the line of [ Vaibhav Mishra ] from [indiscernible].

Sir, my question is regarding the...

We will proceed with the next question, please come back in the queue. We take the next question from the line of [ Vivek Patel ], an individual investor.

I'm hoping I'm audible. So firstly, I just had a quick question in terms of is there any specific reason why our B2B metal trading segment suffered a much sharper decline than the industry, 11% downfall that was seen in the primary steel producers. Anything like internally that has happened which has led to this sharper decline? [Technical Difficulty]

We take the next question from the line of [ CA Garvit Goyal ] from [ Nvest Analytics LLP ].

I think there is some issue in this con call because previous participants were audible and you said they are not audible.

Anushka, is it that there is some problem at your end that participants -- you're not able to hear their voices?

I think there is some problem at the moderator end.

Anushka?

Yes, sir.

Am I audible?

Yes, please go ahead.

Sir, in the last few quarters, we have been seeing the divergence in actual results from the commentary, where we have missed our guidance multiple times. And in addition to that, promoter holdings is also getting reduced consistently over the quarters. So last time when we spoke, it was already middle of the quarter and you guided for INR 50 crore EBITDA for Q1 and that was to be in the line with the EBITDA growth only, but we did not achieve that. So my question is like I want to understand from you, why are we giving so much aggressive targets every time to the investors and falling a way behind of them if the environment is so much out of our control, particularly into the B2B metal trading side? Because last time also you mentioned like you have arranged or secured the availability of the steel. But this time, we are seeing the steel ability is not there -- was not there in the particular quarter. And secondly, if the opportunity is so big per the -- as per the management, then why the promoter holding is getting reduced, sir? So these are my 2 questions, sir.

Thanks, Mr. Goyal. So coming to the first part of it, see, I mean, coming -- so number one is that full-year target of INR 200 crores EBITDA in FY '26, right now it's -- now we are into fourth month of current financial year, so what I can tell you is that there is not going to be any miss on this, right? Of course, steel is a volatile business. Trading is even more volatile, right? So quarter-on-quarter, there could be some misses and hits, okay? Now why we are confident of INR 200 crore EBITDA or to achieve another INR 165 crores of EBITDA in the next 3 quarters, which is a run rate of around INR 55 crores on a quarterly basis, the groundwork, the ecosystem which we have built, right, in last 2 years, whether it is related to the service centers, which are now operational, or the new service centers, which we are going to open, right, or the leased ones, which we started, the renewable business, which we started and the order book what we have enhanced, right, or the TMT business scalability, right, the distribution products for downstream steel products, that scalability, right? So it's just that B2B metal trading, which is highly voluminous and it appears high on revenue in terms of value, but rest other businesses are doing pretty well, right? And the contribution in earnings from B2B Metal Trading is definitely lower than what it looks on the revenue side. So that's why we are confident that INR 200 crore EBITDA number shall be achieved. And we understand that, I mean, we have been aggressive, right, in terms of creating the business model. And similarly, we want to articulate the same strategy to our investors and analysts, right, that this is what we are capable of. It's just that -- I mean, Q1, things were not in our control, but things are improving, and it is highly visible that how we are going to achieve our numbers for the rest of the 3 quarters. Coming on to the second question. See, I mean, promoter holding right now is 51%, okay? And it is not going to get changed. I know maybe on website, there could be some SEBI-related classification. We are -- we shall rectify it. So what I can tell you is the family owns 51%, and it is not going to go below this number at any cost.

Understood. And sir, lastly, on the PAT growth. Last time, you mentioned PAT growth will be in line with the EBITDA growth only, but our finance cost is increasing significantly, which is hampering our PAT growth. So when we say INR 200 crores EBITDA for full year, what kind of PAT growth are we anticipating?

So see -- I mean, the interest cost shall be also offset by the other income which comes, right? So that's why we believe that PAT growth will match the EBITDA growth.

So like last year we did around INR 100 crores PAT, right? So we will be doing INR 200 crores PAT this year?

Yes, I mean, you can do the math, right? Again, I'm saying that the EBITDA growth will slow down the PAT growth.

The next question is from the line of [ Aman ]. Sorry, to interrupt, that participant has been -- went out from the queue. The next question is from the line of Dev Jatia from Seven Rivers Holding. [Operator Instructions] As there was no response from the participant, we would like to move to the next participant. The next question is from the line of Aryamaan Agarwal from Money Stories Asset Management.

So you had given a guidance of...

There is slightly echo. If you can speak...

Is it better now?

Awesome. Go ahead, please.

Perfect. So you had given a long-term guidance of INR 18,000 crores in 2027. So, one, are we still intact with that guidance? And also what sort of a guidance are we looking at for this year?

So, Aryamaan, see -- I mean, in terms of value, right, it also depends on how the steel prices are behaving, right, which no one knows, right? Steel was like INR 48,000 per tonne 6 months back, it went up to INR 52,000, INR 53,000 per tonne. And now again, it may go back, it may go up, right? So 5% to 10% price variation is a very normal thing in steel business, right? So that's why we are now giving guidance on the absolute EBITDA front, right? Because we know that our EBITDA spreads are protected in terms of volumes we do, right? It doesn't depend on how the NSR is moving. NSR is net selling realization. So that's why we are saying that FY '26, we shall do INR 200 crore EBITDA, which shall go up to INR 400 crores EBITDA in FY '27. Now for that, the revenue could be either INR 16,000 crores or INR 20,000 crores, tough to say, it depends on like how the steel prices behave.

Got it. And in the Service Center bit, how do you see the service centers ramping up over the next 2, 3 years, sir?

Yes. So we are pretty happy with the performance of this business vertical in particular, okay? I mean, we are already doing 40,000 tonnes on a monthly basis, right, which was despite the fact that steel availability was low, right? If steel was there, we could have touched 50,000, 60,000 tonnes also on a monthly run rate basis, right, from the 5 service centers, which are currently operational. We want to keep on adding 5 new service centers on our own, which will be owned by SG Mart, right, every year. And 2, 3, 4 service centers, we may add on lease basically as well, right? So which will further improve our ROCE, and it will help us faster scalability because if we have to go and put up a center, although it's a small one, but still it requires some timelines, right? So that's why we are more excited to take this model on lease basis as well, so yes. And in terms of margins, we are easily making 3.5%, 4% EBITDA margin, right, which is also like how we expected.

The next question is from the line of [ Rajiv Thakkar ] from [ Algo Next ] Capital.

My question, sir, is related to 2 things. One is related to the employee cost. That has increased. So is there increase in the employee count in the recent past? And since you intend to increase and scale up the various businesses outside metal trading, it will certainly require a lot of increase in the sales team. So what's the plan in terms of having the increase in the headcount over the upcoming quarters? That's the first question.

Right. So there are 2 reasons to this. One is like small portion of -- like notional ESOP expense, which gets accounted in P&L. But that's a bit small. The second, in quarter 1, we hired a team for renewable business, right? The benefits will start flowing in terms of revenue EBITDA from Q2 onwards, as you would see. So -- and of course, TMT business also got scaled up, so some addition to sales team there. So this employee cost increase is in line with the new -- the scalability of these business verticals over the next 2 to 3 quarters.

Sir, my next question is more related to the safeguard duty that was applied, 12%. And in the various commentary and news information that we observed, that, that is also not something which is surprising the overall barrier that the Indian industry was kind of expecting. So is that kind of going to be having any impact on the overall steel availability point which you are referring to?

So see, I mean, such incidents or such situations are always a short-term basis, right? I mean, yes, there was a safeguard duty which came in and imports stopped in the country. Then, the steel mills went for maintenance shutdowns, right? That's why in quarter 1, the sales volume of the top 3 steel producers was down 11%. I'm talking about Q1 versus Q4, right? So -- but the situation will not prolong, right? I mean, at some point, China prices came down so sharply that even imports became viable. And we saw that traders are booking imports in month of June and July, right? So -- and then from the third quarter, like I said, the Jindal Steel & Power Mill and Jindal Stainless Mill, right, those blast furnaces will be operational. And we may see almost a 10% increase in the flat steel supply, right? So, I guess, I mean, whatever happens, it's always like short-term driven. Long term, is India going to produce more steel? Answer is yes. Are Indian steel mills encouraged enough to put up more capacity? Answer is yes. Should India be having more steel supply? Answer is yes.

Sir, my last question is more about Jindal Steel themselves. They have kind of created an end customer kind of app where they can go ahead and access and take the steel directly. So is that kind of a direct competition for us? And since we are also kind of partner to JSW, is there some kind of conflict out there?

No, we don't see any conflict there. Their business model is slightly different than what we do, right? I mean, India having produced 150 million tonnes of steel every year and which is going to go up by 7%, 8% year-on-year through FY '30. So I mean, opportunity size is quite huge, right? So each one of the player has his own segment to operate into, right? Their model is pretty different than what we do.

The next question is from the line of Akshit Gupta from Oaklane Capital.

My question was on logistics costs. So earlier, you have guided that you will be setting up 1 (sic) [ 100 ] service center, but now you have revised down to 30. So because of this higher concentration at one place, won't be -- there will be a risk of average transportation distance, which would have increased to the customer? So like the procurement discount that we get from steel suppliers, won't that offset by transportation cost?

Akshit, when we said that we want to open 100 service centers in the country, okay, the -- our assumption was that 1 service center will not give more than 5,000 tonnes of volume, okay, on a monthly basis. But having operated 4 service centers in India so far and having leased out 2 service centers, right, adding to those 4 operational, what we see is that 1 service center has capability to do monthly volume of 10,000 to 15,000 tonnes, okay? So, I mean, that's why the number of service centers came down by like 2/3, okay? Because earlier assumption was that service centers will be doing business from 4,000 to 5,000 tonnes, but what we are seeing is that 1 service center can do actually 10,000 to 15,000 tonnes. So you cannot build 100 service centers, which are capable of doing 10,000 to 15,000 tonnes of monthly volume, right? This much of demand is not there. Idea is that we open 20, 30 service centers, which can do 10,000, 15,000 monthly volume, right? And then we see that if we go -- if we have to go to smaller towns, and it should not cannibalize our service centers, which are operational, right? So that part will start in like after 2 years, I would say. If 1 service center were doing 4,000, 5,000 tonnes, then we would have been forced to open more service centers. But 1 service center has given -- is giving me more than what I expected, right, then like going into Tier 2, Tier 3 towns, that will be Stage 2. So although...

So will there be an impact of logistics cost?

It is there, but it is manageable. Customer is ready to pay that, right? So just -- yes, sorry, just to conclude this that we may have reduced the guidance to open a number of service centers, but the revenue -- the volume from service centers will be similar, right? So we have not cut the guidance on revenue or volume from the Service Center business.

Okay. Okay. And you have now leased 2 new service centers. So in Q4, you have guided that each service center does around of INR 20 crores of EBITDA. So considering that it will -- the new 2 service centers, which we have leased will be functional from Q2, so will that also add an extra of INR 30 crores of EBITDA for the year?

See, I mean, lease service centers, obviously, you need to pay a nominal rent, right, to the owner, okay? So if on our own service center, we make 4% EBITDA margin, here, the margin will be, say, 3%, right, because we are not investing anything. And yes, so here, the simple math is that assuming 1 service center does 10,000 tonnes on a monthly basis, so full year is 1,20,000 tonnes. On that, you make INR 1,500 to INR 2,000 per tonne EBITDA, right? So which does give that number what you're talking about. So yes, I mean, idea to -- earlier to open more and more service centers, either through own model or lease model, the idea is to increase EBITDA, which could be like INR 15 crores to INR 20 crores addition per service center.

Okay. And in Q4, we have paid advances to the suppliers for the procurement of steel. And at that time, steel prices were down. After that, safeguard duty got activated in the country. So is there any reason that we have bought the -- like we have paid advances to the steel at a cheaper price, that's why our EBITDA margin has improved in this quarter?

Not really, because in June month, steel prices also came down, right? So there is no inventory loss or gain in this INR 35 crore of Q1 EBITDA.

Okay. Okay. And also like now Shiv Bansal has resigned from his position. So any reason that he resigned? And also, he was -- he used to work in the B2B trading segment. And this quarter, like B2B trading segment, volumes degrew by 50%. So is there any relation on -- or it is some other reason?

No, it's not like that. Actually, the B2B business is being handled by Amit Thakur, who is a director on Board as well, right? So B2B business has no relation to Mr. Shiv Bansal. Shiv Bansal resigned because what we wanted was to have head office of SG Mart in New Delhi, right? Shiv Bansalji were operating from Pune office. So because of family reasons, he could not shift to or move to Delhi, right? And anyway, in 1 to 2 years, he was at his retirement age, so he decided to kind of retire and move on. And now like we have our business verticals, all like 4, 5, right, who are sitting with me as we speak now. And yes, there is no disruption what we see from this management team.

The next question is from the line of [ Vikas Mistry ] from [ Moonshot Ventures ].

So my question is on technology side. So we are already seeing multiple start-ups doing B2B digitalization chain. So in that context, do we see some bit of competition from that side? And what are our customer parameters like turnaround time and satisfactions on that part?

See, like I said, that -- I mean, one has to compete specifically in steel trading, which is 150 million tonne of annual market, Vikas. Every player, whether it's a startup or it's an established player, okay, like now SG Mart, we have been into operations for last 2 years, so everyone has created its own business model, right? What verticals we have created, what I can tell you is that no one is emulating that, okay? No one is investing resources in creating the service centers. No one has a relationship with the steel players what SG Mart has, okay, which is backed by the group sister company in terms of steel performance, okay? No one has ventured into renewable business, like how we did, right? Very few of them have their own private labels in TMT for steel or other downstream products, right? So similarly, other players may have other strengths, right? What SG Mart is doing, we are playing on our strengths, right? And based on that, we have created these 4 business verticals. But what I can tell you is that no one is comparable to SG Mart if you look at these 4 verticals.

Yes, that is pretty understandable, but my question is specifically to B2B trading because these people are trying to give bundling of other services, like software for them, transparency in terms of pricing and some other parameters also. So is there any threat to this B2B trading, which we thought that, that will scale up to maybe INR 6,000 crores, INR 7,000 crores in a couple of years. Can we able to do that? Or is there any threat to that part of business?

Again, see, one has to compete in B2B metal space, right? One, that player must be carrying the relationship with steel mills similar to what SG Mart is having today, which we believe that none of the players has that capability as on date.

Okay. Okay. But one of the players is also doing $1 billion of revenue from that, so...

$1 billion is what, like when steel sector is like, what, $50 billion, on annualized basis?

More, more.

Okay. Okay.

It is $70 million, $80 million.

It's more than that. Yes. Yes, extension of that question is that so in last quarter, we have some shortages. So do we have to say no to some of our customers? And what are their reactions after that? And how we try to reduce that? Although it looks like that, a lot of supply of steel mills will be coming. But in that case, so in last quarter, if we have said no to some customers, so how they have procured their requirements?

So definitely, it's a situation where our sales team never wants to come, but yes. So see, there are 2 parts, right? One is when you do the allocation customer-wise, right, it's not that you give 0 tonnes to any customer, right? You allocate whatever you have because we, like I said, 2,500 customers, right? So you have aggregation, demand aggregation from them. And whatever steel comes, say, in Q1, it was lower, so then you do allocation on pro rata basis. Second is that customers also understand that it's not because of SG Mart, it's because of the steel industry where the production has been lower, right? And thirdly, Vikas, to be honest, Q1 in terms of business has also been slow, right, because of the pre-monsoon which came in like in June heavily, right, the construction activities halted big time. Auto demand, quite good demand, everything is like kind of a bit sluggish right now, right? So it's not that -- I mean, our sales team had to face major flak because of steel shortage.

The next question is from the line of Dharmil Shah from Dalmus Capital Management.

Just one question. I mean, for the B2B business, you mentioned that steel mills were able to supply 10% less than the previous quarter, but our volumes were down 55%. Just wanted to understand, I mean, what is the missing part here? I mean, whether it should be some other reason apart from the lower supply? And it's a stark difference from 10% and 55% volume degrowth.

There are 2 parts to it. Number one is overall steel supply shortage. Like I said, Indian steel mills produced 11% lower steel what they produced in Q4 FY '25, right? So this is the macro thing. Second is when there is short supply, right, when there is limited steel, we want to use that steel to do value addition, do some processing and sell it with higher profits, right? So we diverted all the steel to our service centers, and we generated more profits on that. That's why our Q1 EBITDA margin is 3%, right, which is highest so far. Now, once the steel availability is there, right, we will start diverting steel for B2B Metal Trading also. So it's a situational thing, right, which we believe that will recover from quarter 3 onwards with the commencement of 2 blast furnaces, one from JSPL, second from Jindal Stainless.

The next question is from the line of [ Mehul Panjwani ] from [ 40 Cents ].

Sir, I'm new to this company. So can you just highlight on what you mean by Renewable business?

Sure. So in Renewable business, the first product what we are working on is solar structures, which are ground-mounted solar structures, which are being used in the solar parks, right? So there are like 3, 4 types of steel sections, which are used to install the solar panels.

Okay. And sir, whom are you going to source it from?

Right. So here, the raw material is coated steel, which we are buying from steel mills again. And there is a mild processing to that coated steel, which gets converted into an open section, which actually goes on-site for the installation.

Okay. And sir, how much -- sorry? Yes, go ahead, sir.

Yes. So strengths -- yes, so there are 2 strengths, which we played on. Number one is our steel buying, right? So we are buying HR coil. We can also buy coated steel, right, from the same steel mill, right? So our sourcing power, procurement power at lower pricing, that is one. Second, that mild processing what we are talking about, right, to make those open sections, we are installing those small machines at our service centers only, right? So we already have a network of 4 service centers in the country, right? We are using those service centers to feed the demand, right? Normally, the solar parks are coming in Gujarat, Rajasthan, which we are feeding from our Ghaziabad Service Center. Then more mills will get installed in, say, our upcoming Hyderabad or Chennai service center or, say, Bangalore, which can cater to South India demand because a lot of solar parks are coming in Andhra Pradesh and Tamil Nadu and Telangana, of course. And some machines, we may install in our Raipur Service Center because some solar parks are also coming in Madhya Pradesh and Chhattisgarh belt as well, right? So these were the 2 strengths on which we played, and we saw that there is a gap because this market is huge, right, and it was not being catered by pan-India national players, so we jumped on to the opportunity, and we opened the vertical.

Right, sir. Sir, how much are you expecting it will add roughly to the top line for FY '26?

So we have INR 285 crores of order book, which shall be executed in the next 3 months, right? And similar, INR 280 crores, we shall be getting more. So put together, it should be around INR 550 crores to INR 600 crores worth of revenue should come from this vertical.

Right, sir. And regarding your service center, do you -- since you mentioned about Gujarat, do we have any service centers in Gujarat?

Ahmedabad, we are scouting land. We have purchased land, right? The service center should be operational in 7, 8 months.

Okay. That's the only one we are planning.

Plus, we took -- meanwhile, we took 1 service center on lease already, right? And our market is so big we believe that our service center, which will be owned by us plus the leased one, we can operate both together to meet the demand.

[Operator Instructions] The next question is from the line of Sneha Talreja from Nuvama.

Two questions from my end. One is related to seasonality, you, of course, mentioned that availability of steel will improve in H2, which is where those 2 plants come into play. But how can we see a quarter-on-quarter journey in terms of EBITDA movement? Of course, INR 45-odd crores clocked. You still have a target of INR 165-odd crores. Can we see H2 be like far more stronger and Q2 be gradually slower? So some sense there would be helpful.

So, Sneha, this is always the case, right? Even if you look at FY '25, we did almost INR 70 crores of EBITDA, right, in second half versus INR 103 crores for the full year, okay? So second half will always be skewed plus our service centers, these leased ones, will be like generating revenue, plus our Renewable business will be generating revenue. So yes, you can say that the -- that the -- I mean, the ramp-up will be Q2, Q3, Q4, every quarter we would be outperforming versus the previous quarter.

Understood. And the solar orders, if I'm not wrong, you said it has to be executed within the next 3 months, is that understanding correct?

That's right.

The next question is from the line of Chirag Shah from White Pine Investment Management.

Yes. So I have a question on the scale of our operations. If you go back to the earlier interactions, given the market share where we are and given the lineage that we have, sequentially, despite steel availability being an issue, our volume shouldn't have been down so much. Ideally, we are in a phase where we should be growing our volumes quarter-after-quarter unless there is extreme seasonality. And if I look at the presentation, our volume is down 50% sequentially.

So this is only because of the B2B business, Chirag, right? Seasonality does come into play, but the bigger reason was a short supply of steel, okay, which is not in our control. As SG Mart grows, we will add more products which are non-steel, right? So this impact will go down, correct, eventually. But see, I mean, we are a company -- we are a group, which is always a profit and ROCE focus. Despite the volume going down by 50%, as you mentioned, my EBITDA was almost flat, right, my ROCE improved over last quarter, right? So I'm not -- yes.

No, my point is a bit different. My point is a bit different. Even when you look at network service center, even over there, the volume is lower. I'm trying to drive a point that based on -- this is based on our earlier interactions that you had on the call, that the scale of operations that we are, the unorganized nature of market and small players, there is an open field for us to grow, okay? So I understand growth could be slower or smaller in that sense. But this is a complete reversal of the thesis that you have been highlighting some time back, okay? So either your learning, your understanding has changed about the nature of business with competitive intensity or ground level, how efficient is the unorganized market or regional players. So because -- and this disappointment is happening on a -- it is not the first quarter of disappointment. We have been disappointing for some of the other operational KPIs. And I appreciate it's a business, there are challenges. I'm not even discounting it with this. But I'm trying to understand, is your understanding of the opportunity in the near term that we have versus the longer-term opportunity, I'm not even debating, but the scale versus the available opportunity for next 2, 3 years, there is a disconnect? So is there a rethinking on that side based on your experience now of last 12, 15 months?

So, Chirag, let me be very, very clear, there is no reversal of thesis, okay? There is no change of the business model what we thought while starting SG Mart 2 years ago. The disappointment in volumes, right, and obviously, eventually it flows down to the profits as well, is only because of the short steel supply in quarter 1, right? Now, the customers which we had, say, 2,500 on board, it's a challenging business, but it's not that we are not able to sell to those 2,500 customers or we are not competent enough to sell to those 2,500 customers who are -- I mean, who are already on board with us. If there is no steel, right, which is there for trading, right, my trading volume will come down. It's as simple as that. Unless we start adding newer products. So we are evaluating more product categories outside steel, but not very aggressively. Steel is something which we understand, okay? So we want to be -- we want to ensure that this INR 200 crore of EBITDA, INR 400 crore of EBITDA next year, we are able to generate this much of cash flow, this much of profits from the existing business, then we invest into learning for other product categories, right? Because to understand a one product segment is not easy, right? These are cyclical -- trading is -- trading of commodity is always cyclical, right? So learnings are very, very costly. We don't -- if we have INR 1,000 crores cash lying in the books, that doesn't mean we take unnecessary risks on non-steel products, right? And like I mentioned earlier also, we are a management, which is highly focused on absolute profits and absolute return profile, okay? We are doing our homework. We are establishing the customer base. We are opening new service centers. We are talking to more and more steel mills, not only in India, but outside India also to source steel, right, to ensure that the steel supply is smooth without any disruption like what we saw in Q1. It may take 1, 2 more quarters to see that steel itself will be so much available in India in the next 6 months that we may not have such quarters where we may come and tell you, hey, I mean, we didn't get enough steel to grow our business. So I guess -- I mean, you have been patient, right, with us. We request you to just keep on monitoring us, keep on evaluating us our performance on quarter-on-quarter basis. This enigma of disappointment will go away. I can promise you that.

No, I appreciate your honest answer. The only thing is my thought process was that once you scale up the business, cyclicality becomes the inherent part of the business, you are linked to industry. When you are in a form of scaling up given the opportunity, irrespective of the market conditions, there cannot be a decline in volumes either way, either be it service center or this. I understand growth could be lower, fair point, absolutely acceptable point, fair point. We'll wait. We'll take it right now. We'll wait couple more quarters, yes.

Chirag, see, now just to gain volume, right, I could have given -- I could have sold steel at expensive price, I could have sourced steel from imports even at much higher value, and then, I would have sold in the market, done losses, right? And a lot of startups are doing that, right? A lot of companies in similar trade you will see, okay? You can look at their EBITDA margins, which will be negative. Like I said, we don't want to do any business at a loss, right? My -- I mean, we just don't understand that how to sell a product at INR 99 when you buy that product at INR 100. We do not know that business, and we do not wish to know that business ever. Anything we buy at INR 100, it has to be sold above INR 100, right? This...

Fair point. So you are in a sense saying that you need a normalized business condition to really take advantage of the arbitrage opportunities or inefficiencies which are there?

We are not working on any arbitrage. We are working on a very solid business plan, Chirag, right? We are not working on arbitrage. We are trying to create -- we have created an ecosystem for the steel industry in India wherein we are sourcing steel from -- we are sourcing products from more than 250 suppliers and selling to more than 2,500 customers. And this number will keep on increasing quarter-on-quarter.

Can I just request one thing, if possible, if it is not a competitive information, if you can put this number of customers in whichever form you -- either business-wise or aggregate...

We do give it in presentation, Chirag. We do give it in our presentation.

It is there in the presentation. Total number of customers...

Yes. I will tell you the slide number as well, Slide #10. Plus, I also gave these numbers in our opening remarks.

Okay. Fair point. Slide number -- I am on #10 -- Slide #10, so -- okay, we'll take it offline. We can take it offline. No problem. It's fine. We'll take it offline. It's a good data point for us to track on, at least in terms of addition of active customers. That would be a good data point. Business will automatically flow over a period of time.

Yes. Sorry, Chirag, Slide #7. You can look at it. Can we have last question, please?

The next question is from the line of [ Rahul Kumar ] from [ Vekaria ].

Just on this distribution business -- other distribution business, how is the profitability and the share of non-steel products moved here from, let's say, last quarter to this quarter? And what are the targets here for FY '26?

Right. So see, I mean, here the number of SKUs must be like more than 500, okay, what we are trading, 90% is steel and 10% are some products in other construction material, right? And we are slightly experimenting with other commodities, right? But we wish to keep it small. Like I said, our risk management is very, very strong, where we do not want to -- we do not want any sharp learning at a cost of our profits, right? So 90% steel, 10% non-steel, and margins vary from 1% to 3% based on the product segment. And yes, I think for full year, this should be like INR 1,000-crore-plus business.

Okay. Okay. And second question, on the inventory, how much mark-to-market hit on inventory we will have to take, let's say, versus the spot prices versus the valuation which we have done at -- as on June 30?

No, there is no gain or loss, Rahul.

Basis the current spot prices.

That's right.

Okay. And last question, there was another regulation related to the BIS norms for the import of steel related to the inputs. How is that? Is that impacting your business in any nature?

So imports have reduced because of that, right? It did impact our volumes, right, in last 2, 3 quarters, but we are super confident that internal steel supply in India itself will be so much that we need not rely on imports too much.

Okay. Okay. So let's say current -- let's say, for this quarter, how much of the steel which you had sold would have come from imports?

Zero.

Ladies and gentlemen, due to time constraints, that was the last question for the day. And I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, everyone, for joining onto our Q1 FY '26 earnings call. We shall see you during the next earnings call. Thank you so much.

On behalf of Elara Securities India Private Limited (sic) [ AMBIT Capital Private Limited ], that concludes this conference. Thank you for joining us, and you may now disconnect your lines.