SG Mart- Can it successfully create a marketplace?

Stock Opportunities Untested - but worth a good look
106

The headline and the limited content visible without subscription caught my eye. hence putting it here as it belongs to similar line of industry

Both OfBusiness and infra.market are rumored to be preparing of IPO. So interesting times ahead for the industry.

1 Like
108

I totally second with Raj but even if the discussion is about the steel/Metal trading part of their business, I’d like to clarify what I meant by regulatory oversight in my prev response. Look, It’s true that basic trading in steel (e.g., buying and selling steel products) does not require any special industry-specific government approval in most cases. Any business can trade in steel as long as it is registered under GST, and follows regular business compliance procedures. But at the same time it’s important to have clear distinction between general trading and trading at scale in regulated commodities like steel.

Your statement is only true for someone who’s trading on a small scale or when the trading does not involve import, export, or large-scale infrastructure projects where regulatory frameworks come into play.

The scenario changes drastically when steel trading reaches a large scale or is linked to key infrastructure projects (such as Bharatmala, Sagarmala, Smart cities to name a few like I also mentioned above), export-import, or strategic sectors. In such cases, the steel used must meet the specifications set by relevant ministries, such as the Ministry of Road Transport and Highways or Ministry of Shipping. So for a large-scale supplier like SG Mart, they’ll certainly face additional regulatory oversight.

Also recommend reading about quality certifications like BIS registration, IEC, DGFT etc. Hope you too take the help of GPT to understand these concepts better :slight_smile:

https://www.dgft.gov.in/CP/
https://www.bis.gov.in/

1 Like
109

SG Mart is not manufacturing - The manufacturer (Tata/JSW/NMDC/Jindal) will provide all required certificates as per grade of Steel.
They are only facilitating large scale “buying/selling - Trading of Steel, Logistical and warehousing”, may be in future other Construction material, once they scale Steel business.
An example of this can be seen in the zinc trading business where the company has already become the largest player _ Refer Concall.

They identified one key service missing in the steel (Construction) infra space and setting up building blocks - Similar services/companies in large scale exists in other parts of the world, as shared above in one of the post.
Execution and commodity price are the major risks here.

5 Likes
110

super thread till now, I wrote down a thesis on this, nothing new apart from whatever has been mentioned here. I think it is a 4X opportunity from here, just plainly going by guidance on the call. I also feel, there is no Margin of Safety to buy at the current prices. A lot depends on the Promoter`s intent and execution skill

https://open.substack.com/pub/prathameshadhikari/p/sg-mart?r=267vgk&utm_campaign=post&utm_medium=web

4 Likes
111

Management guidance is to reach Rs. 18,000 Crs revenue by FY27, against that of around 3,000 Crs in FY24 (their 1st year of operation). A CAGR of 80%+.
With a 2.5% PAT margin, forward PE for FY27 at CMP (430) is ~ 7.

In FDs, interests are earned on the base we keep with the bank. No bank is going to double it up for us to earn extra bucks.

But with business it is not like that, profits can grow and when equity remain constant (as they have already raised enough money for their need), ROE will grow in future.

5 Likes
113

regarding promoter holding being down, based on previous comments on this post itself, some of the promoter holding has shifted to the public where these public shareholders are somewhat related to the promoters itself like family members

4 Likes
114
6 Likes
115

Shankara can be their customer, they are into retail while SG Mart is more like a wholesaler. This is mentioned in the concall

2 Likes
116

but Sahil Gupta used to own ~18% till Sep2023 accroding to screener

117

management has guided ~2-2.5% on steel trading, and ~4% margin on service centres. So margin will stay in this ballpark. But the play is on high volumes

2 Likes
118

very well summarized post on the opportunity.

2 Likes
119

Also, in the concall someone raised the point about JSW1, which management said is not a competition, but I do feel it’s not all as rosy as they say. Other among competition can be mjunction, Ofbusiness which is already mentioned in the thread

2 Likes
120
4 Likes
121

But this is just all the JSW offerings through a single window, isn’t it?

122

Not able to understand there buisness model. Ebitda of only 0.8 percent. Can there be a buisness model here? Why can’t they pass increased cost to customer.

123

Concall notes. Concall happened from 5:30 pm to 6:30 pm.

  1. Monthly volume of 120 M ton this month and for the rest of the year, next year 150 and next to that 250
    2.18000 cr revenue with 2-2.5% by fy27 guidance is maintained
  2. 330 Mton volume in Q1FY25 (yes Q1)
  3. Now comes the margin part:

Inventory loss was there in Q2 due to volatile steel price. Inventory day was around 8 days. Steel price there was a very sharp fall of 15% in 3 months… It has eroded 1% margin. There were 6 time price corrections happened in 3 months. This type of sharp fall is a once in a decade situation. Last time this much steel price fall seen was in 2007-8 period. Inspite of having 8 days of inventory days their margins suffered. Any other inefficient player would have reported loss.
6. 6500 cr guidance for fy25. This is reduced due to steel price going down. So based on steel price they give guidance. It was 7-8000 cr in earlier concall based on steel price at that time. Volume guidance is maintained.
7. In Bharat conference call was done 28th September they mentioned they will maintain margin 2-2.5 % margin for full year. no quarterly margin guidance was given
8. No transaction with sg finserv as of now.

13 Likes
124

A gentleman named Raj pointed out how guidance might be missed for the year in the concall. He was thorough and had sharp line of questions. If anyone has that transcript please paste here. How can the management continue with guidance of 2% for the year when margins collapsed to 0.8% this quarter.

Disc: Invested

5 Likes
125

An analyst, Vivek Patel, asked a question regarding the risks involved in the business.

  1. The question was
    First is, would there be any broad guidance that you’ll be sharing at this time for FY25? what would be your key assumptions to this guidance and the key risks of not meeting them?.
    Management said
    if you look at FY25, we are looking at around INR7000 to INR8,000 crores of revenue, right, which will translate into like 1.3 million ton of steel business put together. And margin should be around 2.5%, The risk to this guidance, I think now that we are in the fifth month of the year already, we don’t see any challenge as of now to achieve this number.

Another question asked by Alisha Mahawla

  1. The question was
    what is the kind of inventory risk that we carry? Because these are commodities at the end of the day, and while you have highlighted the working capital cycle, is it an inventory gain, inventory loss kind of situation that we have to keep making adjustments for every quarter?.
    Management said
    So, because our margins are low, around 2.5%, right? So, we have to ensure that that 2.5% is protected, okay? There is no threat, there is no risk to that margin, to that thin margin. Then the inventory write-off. Now, steel is a volatile commodity. It carries a lot of risk and with such a low margin, our risk management has to be very strong, which it is. So again, all the three verticals, Alisha, the first vertical, which is metal trading, here we are doing back-to-back sale, like purchase and sale. So, the risk what we carry is from 0 to 10 days. Which is very limited. Steel prices in India normally are reviewed like once in a month. On the first day of every month, all the steel producers come out with a new revised pricing policy. So, if you are doing business within 10 days, there is no risk as such to carry to your balance sheet.

Management said they purchase in bulk, so they get a discount and maintain inventory days of 10 days. They mentioned that the volatile steel price won’t affect the margin. I think management is too optimistic about the business. If they can’t pass the increased cost to the customer, that won’t benefit the business.

Disc: Invested

2 Likes
126

SG Mart Concall Notes:

Volume:

  • Done 330k Ton in Q2 - around 110k Ton/month
  • Now doing 120k Ton/month Sales and guidance 1.2 Million Ton per FY25
  • Guidance of 150k Ton/month in FY26 and 250k Ton/month in FY27

Service Centers:

  • 3 (Gaziabad, bangalore & Pune ??) operating now and another 2 (Raipur & Dubai) by this year
  • Working on Solar Profile Structures (40k Ton/month ??) and PEB Segment (Pre Engineered Buildings ) - Purlins & Deck Sheeting
  • 10 New centers planned next year across India, Will deploy cash.

Steel Prices:

  • Sharp decline in steel prices in Q2, around 15% per month, unprecedented situation, once in a decade, Still came out EBIDTA positive in the Quarter.
  • Inventory Loss of around 1% sales (18Cr??), Have to protect customers also
  • Steel Prices Stable now.
  • Inventory days around 8 to 10 days

Margin Guidance:

  • 2% is for the year, Not for quarter, will stick to 2%

Business Segment Sales:

  • Now Trading 65%, Service Centers 20% and B2C 15%
  • In Future with new Service centers it should reach 40 to 50%
  • Inventory days will increase to around 20 days with new service centers and around 20 times inventory turn around
  • Cash and carry - No credit given

Disc: Invested

4 Likes
127

In conference call, in reply to query, management said that there 3 segments (B2B metal trading, Service centers and Distribution of steel products) have same margin, the margins are “similar for each one of them”.

Is this so? I assumed they have better margin for service center business.

Dis: Invested and views are biased.

1 Like