This is from 3QFY 25 transcript spoken by Anubhav Gupta , “And our revenue guidance of Rs. 18,000 crores in FY ’27, that remains stable, except the fact
that depending on like how the steel prices will behave, the exact value will vary on that. But
the volume which we had in mind which was like 2.5 million to 3 million tonnes, this is what
we are going to achieve by FY ’27 with the desired EBITDA margin of 2.5% and 15 to 20 days
of net working capital cycle, which will keep our ROCE in upward of 30% range.”
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Management has projected a business volume of 3 million tonnes for FY27 (likely based on an assumed price of ₹60,000 per tonne, forecasted revenue of ₹18,000 crore). However, since the EBITDA margin percentage is inversely proportional to steel prices, achieving 2.5% EBITDA at this price level seems unlikely.
Assuming a EBIDTA range of ₹1,200–1,300 per tonne, the estimated EBIDTA would be ₹360–390 crore for 3MT.
By FY27, 10 service centers are expected to be fully operational, with an additional 5 partially operational. Taking a conservative outlook, we may estimate a total volume of 2.6 million tonnes for the year.
Due to working capital requirements, interest income is expected to be approximately equal to interest expenses.
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Didn’t understand the concept of EBITDA % being inversely proportional. From where is this correlation coming from?
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Chirag: Why because sir, because you always speak in terms of margin, then that’s why I was curious. Internally you look at per tonne basis or you look at margin.
Anubhav Gupta: No, business model is we look at per tonne basis. But yes, I mean, because there are multiple verticals, right, so that’s why investors and analysts we are talking about margin. See, I mean, but whatever steel prices behave, right, say like from Rs. 60,000 a tonne right now the selling price is Rs. 50,000 a tonne. From here on the volatility won’t be that much, right. Obviously, there would be some blue moon scenarios, but we should be in that range, plus/minus 5%, 10%. So, even if you look at optically, the margins will be between 2% to 2.5%.
Chirag: So, if steel prices are on the higher side your margins would be at the lower end, and if steel prices are on the lower side our margin should get the higher end once the volatility subsidies. That is the way to look at it?
Anubhav Gupta: That is right
Vikash Mistri: Sorry to interrupt, Anubhav, inventory gain is a one-time exercise, so we do not look at that.
Anubhav Gupta: That’s what, no. So, when we are looking at our business model on per tonne basis, right, then percentage margin of 2.1%, 2.5% does not make sense, right. Plus, when you have lot more value-added products, right, like in service center business I make Rs. 2,000 per tonne which is like 4% margin today, right, I will have 30, 40 service centers up and running by FY ‘27, right. A lot of my revenue will be highly profitable. Then solar mounted structures, again it’s highly profitable product which we are adding to our portfolio. So, I think what I can tell you is that no
matter steel prices are Rs. 50,000 or Rs. 60,000 a tonne, our focus is that from Rs. 1,000 per tonne we take it to around Rs. 1,200, Rs. 1,300 per tonne based on the product mix.
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They are talking a range between 2.1 - 2.5% at any scenario. Max lower margin being 2%.
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This business is subject to inventory losses as witnessed in Q2FY25. So chances are there can be 1 or 2 quarters in a span of two years where this occurs i guess. Also, this business is new for the promoters as well. Hence they will learn lessons as the business progresses. Since business does not have a long history, promoters aggressive guidance should be taken with a pinch of salt. Already they have been proven wrong with regards to 4 things they promised - 1) stable margins (Q2 FY25 proved its not correct, 2) aggressive sales guidance ( they have cut down on it massively. I think its matter of time when they cut FY27 guidance of Rs18000 cr.) 3) giving guidance in INR cr instead of volumes. They have tried to correct this in Q3FY25 call. 4) Talking in percentage margins - they should always talk in terms of EBITDA/t not % margin. They have even tried to correct this in latest con-call.
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Let us consider all baseline numbers:
FY 27 Revenue of 12000 crs (considering conservative growth compared to 18000 crs guidance by management)
FY 27 EBITDA of 2% (instead of 2.1-2.5% management guidance) translates to EBITDA of 240 crs, PAT of 210 crs and EPS of roughly 18-20)
Once again, considering baseline PE multiple of 20, the FY 27 forward valuation comes to around 400.
This is very conservative in my opinion and if there is improvement in any of the above fronts (e.g. Revenue OR EBITDA Margin OR PE Multiple that market allocates to this stock) then there could be substantial upside on top of this baseline valuation.
Disc: Invested small portion of PF and considering buying more at this valuation
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Trump is expected to announce tariffs on Steel and Aluminium soon. This may lead to excess Chinese capacity being dumped in India.
Expecting some more pain in the short term due to this.
While going through the concall, Q3 revenue was affected due to less import. If China plans to dump more to India, being an organised player I feel SG Mart will be benefited.
SG Mart being a Steel Buyer (e.g., Construction, Manufacturing, Retailer of Steel Products) has the following benefits:
Lower input costs: If China dumps steel in India, SG Mart can source raw materials at a cheaper price, boosting its profit margins.
Better pricing for consumers: If SG Mart sells steel-based products, lower costs could allow it to offer competitive prices.
Unstable supply chain risks: If India imposes anti-dumping duties later, steel prices might shoot up suddenly.
Am I missing smthng?
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Interesting point. While increasing imports will benefit SGMart’s top-line, volatility in prices might cause its margins to fall, which happened in the last quarter. Prices may remain uncertain due to mass dumping and possible retaliation in the form of anti-dumping duty.
Its hard to predict what would be the overall effect.
Increased imports leading to top-line expansion would benefit them in the long run. However short term outlook remains uncertain IMO.
disc: Invested for long term, adding more, biased.
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How you calcuated PAT 210 from EBITDA 240?
Also such low OPM business gets extremly low PE, 20 PE will be too high. Check redington, current PE is 16 and median is 11. - This is my opinion.
Said so such stable business gives moderate and stable return in long term.
Disc: Stock is down 48% from pick, Need help as was considering investment. Thanks
I guess he may be considering a large part of other income because company has 800 crores in fixed deposits
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Low Ebitda margin is inherent characteristic for trading business hence can be deceptive as a standalone parameter.
In case of SG you may wanna look at their WC requirement, cash conversion cycle and in-turn intrinsic ROCE once they will reach the scale.
Just a simplified illustration…
Their (Asset+WC) turn could be ~8-10x, with avg ebitda of ~2.5%, ROCE would be in the range of 20-25%. Further, given that it is expected to stay debt free/ low debt company, steady state ROE could be in high teens or so…4-5 yrs out.
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Commodity Trading will never be +ve EBITDA business …
To reduce impact back to back ordering is critical and focus only on value addition and not making money through inventory appreciation
This business is a long haul business betting on unorganised players exiting this trade esp next generation who don’t want to do this dirty job …
This is business needs to trade between 0.1 to 0.3 times sales like Redington in long run
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- well, redington is comparatively old company with almost 96,000 crore revenue and PAT margin hovering around 1.2% to 1.8% with around 15-16% kind of growth in last 3-5 years.
while SG Mart is a newbie with 5000 crore revenue and assuming it might deliver 1.5% PAT margin and the growth like 30% in topline for few years as per mgt guidance (something like 18000cr by FY27).
So the valuation game has to factor in growth. - Interesting thing to look is redington’s past, did it have similar multiples in past when it was growth company, if it was ever a growth company!!!
and if the SG Mart becomes a mature business in lets say 5-7 years, then we should think of applying that P/S multiple on approximate revenue of the future and maybe back calculate to arrive at a fair price. - can we see/search any similar company which is in steel trading B2B in any other part of the world and can we see how that has performed? surely US, China or Japan should have some similar business model, maybe traditional steel trading. I am unable to find one. That might add some context.
Would love to understand more!!!
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In the very first concall held by the company, they mentioned the international companies which followed similar model that SG Mart is trying to execute in India. Some of them are also listed.
The full transcripts can be accessed on the link
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Isn’t that the definition of a shift from an unorganised sector to an organised one?
What will be the Trump effect on SG Mart?
TMT prices dropped by Rs.10 from the highest I’ve heard last year right now it’s around Rs. 56.4. Would be an nice opportunity to stock up those at lower price.