Check this concall silent points
Please double check because I am forwarding it as I received
4 Likes
Agree! Management explained in the concall that why the revenue guidance couldn’t be met for FY 25 (because of unviability of imports and they had to engage with domestic steel suppliers for the supply and thus lost a couple of months) and why they are still keeping the long term guidance of FY 27 unchanged. With this result, PE fell down from 70 to 41 and price to sales is now 0.8. New service centres are coming up which will increase the margins.
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Isn’t the fall in topline a result of steep fall in steel prices ???
If yes, why would / why should the mkt take it seriously ( in negative sense )
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This is exactly my point.
SG Mart works in a cyclical industry where fluctuations in commodity prices determines the sales and hence the profitability.
Simple question is how many cyclical trading companies are trading above 40 PE. You find very few such companies.
SG Mart is trading at such valuations because of the promoter pedigree and high sales guidance for the coming years, hence it’s only plausible for the market to expect near perfect results.
Disc - in my watchlist
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I have another question. If the steel prices continues to stay low then what? Is this a good thing or bad for SG Mart?
Disc: significant part of my PF
Its a neutral thing - IMO
So … their topline targets won’t be met. But the volumes and bottomline will keep growing
I have a few problems with today’s call
- No of service centers opened was zero this quarter. Management said due to the monsoon they weren’t able to open the service centre on time. One service centre in Dubai was also supposed to be opened, which wasn’t opened.
- Someone asked about FY26 topline. Management said they will do 40% growth on FY25, FY25 topline would be arround 6000 cr. This means FY 26 may be 8400 crore, which is way lower than earlier guidance.
6 Likes
IMHO - Mkt values it highly because it can multiply its bottomline at a rapid pace. Rapid or relatively slower expansion in topline should not be such a big deal
Disc : holding, biased
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I dont see bottomline growing as well. Am I missing something?
Disc: significant part of my personal picks and one of the top three investment
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I think there has been significant reduction in QoQ volumes. While the management try to downplay revenue slowdown citing fall in steel prices, the issue lies in the falling volumes.
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I tracked since 3 quarters, in my prospective this business being cyclical in nature even at low base,
Whenever it’s volume increase it’s revenue very much depended upon still price !
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Instead of Q to Q comparison we need to compare full year figures. In commodity business, tracking company performance Q to Q will not help for long term investors.
Long term investors shall track - company’s long term vision, promoters intention for growth without compromising balance sheet, no doubtful related party transaction, growing bottom line better than topline, etc.
Promoters are focused on future high margin and growing demand products, they have long experience in dealing with steel products, etc.
I hope future is better than present…but need patience!
If you like company based on your investing process / theses - correction in stock price is good for you! Listen warren - https://www.youtube.com/shorts/XeHJ3x43GRA
https://www.youtube.com/shorts/X0p1LmGX0N4
Disc - Invested and good position
9 Likes
Few positives:1> Last qtr no of regt customer 1270>2126. suppliers 145>223.
2> solar businesss will start contributing rev from feb itself and it is high margin business.
3>no of service center will be more than tripled in next fy.(operational)
4>3900cr mcap with 800+cr cash on bs.
5>govt capex at its lowest level in last six month still 4300cr rev for 9 month 200% increse now capex has already started peaking up.
So to me worst is over ( confused!) ? Any thought will be appreciated.
9 Likes
they opened in ghaziabad and bengaluru
Why should the stock be trading at 450? Isn’t everyone here in notional loss on this scrip
Disc: invested
Q3FY25 Concall summary
Financial Highlights:
- Revenue: ₹13.5 billion, reflecting a strong YoY increase but a sequential decline due to the absence of steel imports in B2B metal trading.
- Sales Volume: 290,000 tonnes, slightly below 300,000 tonnes.
- Segment Revenue Breakdown:
- B2B Metal Trading: ₹700 crore (down from ₹1,200 crore in Q2 due to lower imports).
- Service Centers: 100,000 tonnes processed.
- B2C (Distribution): 50,000 tonnes sold, with 5% QoQ growth.
- EBITDA: ₹28 crore, with an operating margin of 2.1%, rebounding from inventory losses in Q2.
- Net Profit: ₹28 crore, growing on both QoQ and YoY basis.
- Working Capital Cycle: 10 days, higher than March FY24 due to reduced creditor days from increased domestic procurement. Expected to stabilize at 15-20 days.
- ROCE: 32% (adjusted for fixed deposits).
- ROE: 8%, which would exceed 20% if adjusted for fixed deposits.
- Forex Gains: ₹6.2 crore classified under “other income” due to accounting standards; management clarified all forex transactions are hedged, mitigating risk.
Operational & Strategic Updates:
- Customer & Vendor Growth:
- Registered customers: 2,126 (up from 1,270 in Q2).
- Vendor count: 223 (up from 145 in Q2).
- Capital Expenditure (CAPEX): ₹142 crore spent in the first nine months to expand service centers and new projects.
- Service Center Expansion:
- Existing: Ghaziabad & Bangalore, operating at 40,000 tonnes/month.
- New: Pune (operating in a rented facility), Raipur & Dubai to be fully operational by February 2025.
- Five additional locations identified for expansion, CAPEX to begin soon.
- Solar Structure Business:
- Machinery ordered, first sales expected in February 2025.
- Seen as a major revenue growth driver within the high-growth renewables sector.
Segment Performance:
- B2B Metal Trading:
- Sales volume: 150,000 tonnes in Q3.
- Decline in revenue due to lack of imports; domestic steel supply arrangements secured for Q4.
- Service Center Business:
- EBITDA margins: 3-4%, higher than B2B trading (1-1.5%).
- Business expected to grow significantly as new centers come online.
- B2C (Distribution):
- Sales increased 5% QoQ, driven by improved TMT demand from rising construction activity.
- Further growth anticipated in Q4 as infrastructure projects accelerate.
Guidance & Outlook:
- Revenue Projections:
- FY25: ₹6,000 crore (revised downward from ₹7,000-₹8,000 crore due to steel price decline).
- FY26: ₹9,000-₹10,000 crore (~40% YoY growth expected).
- FY27: ₹18,000 crore target, with 2.5-3 million tonnes of sales volume.
- EBITDA Margin Targets:
- FY26: Expected to reach 2.5%, supported by service center growth and solar business expansion.
- FY27: Further margin improvement through value-added products & service center scaling.
- Service Center Expansion:
- Goal: 15-20 centers by FY27.
- Larger centers expected to handle 15,000-20,000 tonnes/month.
- B2B Trading Outlook:
- Increased domestic procurement as imports become unviable due to safeguard duties.
- Stronger steel supply expected from domestic mills, stabilizing B2B volumes.
- Business Model Focus:
- SG Mart acts as a large reseller, not replacing distributors but enabling them to source steel from multiple mills efficiently.
- Competitive edge: Bulk purchasing & just-in-time inventory create cost advantages for distributors.
Margin & Profitability Expansion:
- Current EBITDA per tonne: ~₹1,000.
- Target by FY27: ~₹1,200-₹1,300 per tonne, driven by:
- Expansion of high-margin service centers.
- Increased sales from solar structures.
- Growth in white-label TMT & structural steel products.
Risk Factors & Market Challenges:
- Steel Price Volatility: Business model operates on per-tonne basis, with margin fluctuations based on steel price movements.
- Import Challenges: Import volumes expected to remain low due to price parity with domestic steel and potential government safeguard duties.
- Service Center Delays: Extended monsoons impacted construction timelines, but full operations expected by March 2026.
- Working Capital Management:
- Creditor days reduced due to shift to domestic procurement.
- Interest expense managed through strategic working capital usage (₹7.1% borrowing cost vs. ₹7% deposit rate).
- Company does not expect to raise debt for expansion.
Conclusion:
SG Mart remains on track for long-term revenue and margin expansion, driven by service center growth, solar structure sales, and an increasing customer base. Despite short-term revenue declines due to lower imports, the company expects strong growth in domestic steel supply, service center ramp-up, and value-added product expansion to drive sustained profitability.
Key Investment Takeaways:
- FY25 revenue guidance revised to ₹6,000 crore, with 40% YoY growth expected in FY26.
- B2B trading rebounding as domestic steel supply improves.
- Service centers to drive future margin expansion, targeting 2.5% EBITDA by FY27.
- Significant runway for growth in solar structures and white-label products.
- No external debt required for expansion; strong cash flow position.
Generated using ChatGPT
D:Invested
8 Likes
I think they have made several mistakes in guidance. They should never have given guidance in absolute numbers. Only volume guidance should have been given. I don’t know why they realized this quarter that steel prices can fall .
Secondly, their FY26 guidance of 40% growth means they expect sales at 8600 cr . However , they still maintain FY27 guidance of 18000 cr. So they expect sales to more than double??? So optimistic. Also again same mistake of not taking into account steel price volatility.
I called up the IR to grill on the same points and he had no logical answers
I hope they learn how to give guidance and how to handle calls sooner than later.
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In latest concall they clarified that FY27 guidance should be considered based on volume (& not revenue). Volume of 2.8-3 mn tons is what they are holding to for FY27.
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FY25 is revised to 14k cr from 18kcr due to 20% price decrease. However maintaing on volume side
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I completely agree with this point. Their guidance seems a bit aggressive.
They stated that FY26 revenue is expected to jump 40% to over ₹6,000 Cr. However, in the same statement, they projected ₹9,000-10,000 Cr in revenue for FY26, which is inconsistent. A 40% increase on ₹6,000 Cr would be ₹8,400 Cr. If they had met their FY25 target of ₹7,000-8,000 Cr, the statement would have made more sense.
Despite this being a low-margin trading business, I still have hope. However, I seriously doubt the FY27 revenue guidance of ₹18,000 Cr. From the current standpoint, a more realistic estimate seems to be around ₹12,000-13,000 Cr unless they significantly accelerate the expansion of new service centers.
At current levels it seems a good buy to me. Might not get this opportunity later.
Disc: Invested, ~2% of my PF, adding more
4 Likes