SG Mart Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Imports vanished, revenue halved in B2B: B2B metal trading dropped from ~₹1,200 crore to ₹700 crore QoQ because imported steel became unviable; domestic supply tie-ups are now in place but took one to two months to secure.
• EBITDA snapped back as inventory loss reversed: Business EBITDA recovered to ₹28 crore after Q2 absorbed a once-in-a-decade 15% steel price crash; the underlying model was unharmed and per-tonne economics held steady at ₹1,000.
• Service center build-out is the growth engine: Three new centers (Pune, Raipur, Dubai) go live in February, five more sites identified with CAPEX starting next month, and existing centers can handle 70-80% more volume on current infrastructure.
• FY '27 volume target intact, revenue depends on steel prices: Management reaffirmed 0.25-0.3 crore tonnes volume and 2.5% EBITDA margin by FY '27, but the ₹18,000 crore revenue figure will vary with steel price realizations.
• What to watch next quarter: Whether Q4 revenue hits the ₹1,500-1,700 crore guided range, the pace of TMT and solar structure ramp-up as construction activity picks up, and the first solar structure sale in February.

The Import Shock and Domestic Pivot

• Why imports stopped: The gap between landed cost of imported steel and domestic prices narrowed to the point of unviability, compounded by risk of safeguard duty. Domestic steel prices have now come off to parity.
• Domestic supply catching up: After a five-year capacity gap, NMDC, JSPL and JSW have brought new blast furnaces online in the last 11-12 months, though only 30-40% of that capacity is operational with the rest still ramping up. Supply is improving month on month. [11-12]
• Tie-ups secured: SG Mart now buys from four of the top five domestic steel producers, with Q4 supply locked in across all mills. The two-month pause in expansion to secure these relationships has ended and growth has restarted. [11-12]
• Import is no longer core: Management stated plainly that if safeguard duty arrives, import becomes 100% unviable and is not part of the business model going forward.

Gupta: "Last quarter there was very sharp decline in the steel prices of almost 15%, right, so this does not happen often. It's a once in a decade scenario when prices fall that sharp."

Service Center Rollout

• Three centers imminent: Ghaziabad and Bangalore are already operational; Pune (rented facility, moving to own center next month), Raipur and Dubai will all be operational in February after a three-to-four-month monsoon-driven construction delay.
• Next wave identified: Five new locations have been selected, land identification has started, and CAPEX begins next month. These are larger sites targeting 15,000-20,000 tonnes per month each, with a December 2025 to March 2026 completion window.
• Existing capacity underutilized: Current service centers can handle 70-80% more volume from existing infrastructure, meaning near-term growth does not require new centers to be fully built to deliver.
• Long-term footprint: Management believes India can support at least 15-20 large service centers; in the next 15-20 months, 15 will be operational and 10 under construction. If domestic steel supply hits 1 crore tonnes by Q4/Q1, the company may pursue 10-15 sites in a single shot next calendar year.

Gupta: "The service centers can do minimum like 70%, 80% more business from what it is... from existing set up we can easily sell 70%, 80% more if there is demand."

Margin Mechanics

• Per-tonne model, not percentage: Management evaluates the business on EBITDA per tonne (₹1,000 currently), not percentage margin. Steel price moves do not change per-tonne economics: when prices rise, percentage margin optically compresses; when prices fall and volatility subsides, percentage margin expands.
• Q2 inventory loss was exceptional: The 15% steel price crash that drove Q2 losses is a once-in-a-decade event. Normal ₹1,000-2,000 per tonne movements do not affect the business model or margins. Removing that one-off, nine-month EBITDA margin is already above 2%.
• Three margin levers stacking: Service centers boost margins through value-added processing, solar mounted ground structures (machinery ordered, trials underway, first sale expected February) add a higher-margin product line, and white label TMT and light structural products will contribute as construction demand recovers.
• Target path: From the current ₹1,000 per tonne, management aims for ₹1,200-1,300 per tonne through product mix improvement, taking EBITDA margin from ~2.1-2.25% toward the guided 2.5% as these levers mature.

Gupta: "For margins, as service center even boosts my margins, solar structure will boost my margin, white label product will boost my margin, we have enough levers, enough new products, enough ramp up which will keep on boosting my margins."

Working Capital and Balance Sheet

• Working capital days rose to 10: The increase versus FY '24 March levels came entirely from reduced creditor days, because domestic steel sourcing requires advances to mills. Inventory and debtor days are flat.
• Deliberate debt strategy: Management borrows from HDFC Bank at ~7.1% rather than using cash earning 7% on fixed deposits, explicitly to create collection discipline: the sales team treats it as interest-bearing debt and keeps receivables tight. Using equity cash, management fears, would let the receivable cycle deteriorate.
• Interest income and cost will net out: As the business scales and working capital expands toward a 20-25 day cycle (once 20-25 service centers are operational), other income and interest expense will remain roughly equal. Total capital employed is sufficient for a ₹30,000-35,000 crore business.
• FOREX is fully hedged: The ₹6.2 crore gain classified as FOREX income reflects gains on sale of imported steel, not derivative activity. No contracts are naked; there is no risk or gain from currency volatility.[14-15]

Gupta: "If I tell him that this is equity company's net worth of company's cash on the books, right, so the receivable cycle may deteriorate, which I do not want to. So, just to put pressure on our sales team that this is like interest bearing loan and you have to ensure that the working capital remains pretty low."

Product and Customer Base Expansion

• B2C distribution growing: TMT sales gained 5% QoQ as construction activity picked up in Q3; Q4 is expected to see further acceleration. White label products (TMT bars/rebars and light structural) are positioned for faster growth once the construction environment improves in coming months.
• Solar structure entry imminent: Machinery is ordered, trials are running at the supplier's end, and the first sale is expected in February. This is a new, higher-margin vertical adjacent to the core steel distribution business.
• Customer and vendor base deepening: Registered customers jumped from 1,270 to 2,126 and registered vendors from 145 to 223, reflecting the domestic supply pivot and broadening distribution reach.
• Zinc is opportunistic and small: The zinc trading business is not a material revenue driver; at peak it generated ₹5-10 crore per month, and Q3 revenue was low due to zinc price volatility.

Guidance & Commitments

Key Metrics