I am tracking this business for some time.I have started building position in the counter now. In the Q4 few things happened which was a bit of positive according to me:
The no of service centres that they were planning to open per year is now reduced by half( from 10-5).The volumes that one service centre can handle is higher than they expected.This reduces the requirement of capital expenditure needed by them.This is a new area for them and theya are learning and evolving.
They highlighted that all the capex that they plan to do for next few years will be from internal accruals + the cash already on balance sheet.
There was a business of TMT, which they have moved to royalty based model ( decreases revenue but keeps the bottom line same, leading to better OPM).This is a small business but the intent of management to structure business in such a way which gives a better OPM.Maket values a business with 2.5% margin and 4-5 % margin differently.
They are investing in marketing and said it will come down post 2-3 years.Again a lever of margin improvement
I sense a basic level of POC for the business model is done, now they are on a strong footing to accelerate smoothly for next 2-3 years( with ROCE threshold of 25%).Guided for 400 cr EBITDA by FY27
In the guidance they have not include the contribution of the business of solar that they have entered into recently
The guidance part is also improving as they understand that revenue guidance shouldnât be given in such businesses and now they are talking about volumes and EBITDA.
The TAM is very large here and only hindrance is execution .The management to me looks like they can execute.The direction is important to me than velocity
9)the inframarket IPO ( which is being planned at 3-5 billion dollars) can rearate this.
If this business will grow with high pace YOY, this wonât be valued cheaply inspite of the margin profile ( Because of TAM + Management profile).
Risks are pretty obvious:
Also valuation wise of Business in unlisted has achieved good valuations funded by rounds by tiger global, SoftBank, Zodiac Capital. Comparing it with SG mart makes sense coz they are also positioning themselves at an earlier growth stage. This could lead to appreciation given the current valuations and confidence here about ebitda and other pieces.
Indiaâs steel capacity is projected to increase by 70-80% between 2023 & 2027, providing a robust supply for SG Martâs operations.
The Indian real estate sector is poised for significant expansion, expected to reach US 1 Trillion in 2030.
The relatively low penetration of B2B marketplaces in India (~1% vs. 20% in China/USA) & the digital transformation aspirations of over 70% of 40Mn registered MSMEs present a monumental growth opportunity for SG Mart.
I do not think the question is about growth. The opportunity for growth is huge. The question is, is it already priced in? What is the execution risk? Multiple deep-pocketed players have come in now, as listed in the thread earlier.
My thought process to understand the demand/market opportunity:
What are these players trying to achieve:
a. capture the market share from dealerships/distributors
b. capture the gross margin leakage from manufactures to end users ~10-15%
c. with tech, economies of scale & optimized logistics improve net margins
Market size: (pls note this data is using AI prompts)
a. Total Finished Steel Consumption : 136.25 m.t as on 2024 reports
b. We have to reduce consumptions by large OEMs which are primarily auto industry who might be procuring directly from manufactures - 7.8 m.t
c. Total steel consumption through dealers/distributors : 128.45 MT (derived estimates)
d. At current average steel price of âš47,880 per ton = INR 6,15,000 Crs / USD 73 b
If the above data is correct or even partially correct!!, there is enough room for multiple players to exist at the same time.
Happy to be corrected & learn!
I am unable to add a link to this paywalled article because for some strict (though maybe flawed) filtering, our forum platform is not allowing any posts with a substring such as t dot co or bit dot ly.
Will be interesting to hear the views of the management on these developments as some or all of them could be their vendor partners.
You are under the assumption that Birla Pivot and JSW One MSME donât have offline presence. Their offline presence will be even greater than SG mart.
JSW One is doing ~10k CR GMV while Birla has started with 1k CR in 1st year. The competition is heating up and will surely eat into the margins if steel prices go down again and might also impact working capital cycle.
Again, coming back to the same old point of there being no moat in this business aside from capital which is easily dwarfed by larger corporates.
Still the opportunity size is huge and there should be growth for the next 4-5 years.
In my opinion, future margin expansion and earning growth will be from Service centers (value addition centers) success by SG Mart. Hence, better to keep eye on success of this line of business.
Disc- Invested and added @ 300 level
