Detailed Narrative
Q2 FY26 Performance Overview and Macro Headwinds
SG Mart experienced a challenging Q2 FY26, marked by a slowdown in macro activity due to heavy monsoons and global trade uncertainty. This environment led to a significant decline in steel prices, falling by INR3,000 per ton. Despite these headwinds, the company reported a robust revenue exceeding INR1,700 crores, representing an almost 50% quarter-on-quarter increase. However, H1 FY26 revenue remained flat year-on-year, and the Q2 EBITDA margin stood at 1.6%, below expectations.
Impact of One-off Expenses on Profitability
Q2 profitability was significantly impacted by two main factors: inventory losses resulting from the sharp decline in steel prices, and the strategic decision to pre-book all branding expenses. Previously amortized over 24 months, these branding costs were fully recognized in Q2, with further booking expected in Q3. Additionally, upfront marketing and manufacturing costs for new profiling businesses also contributed to the depressed EBITDA. Management anticipates Q3 performance to be similar to Q2 due to these ongoing one-off📎 expenses, aiming for a 'clean slate' by Q4 FY26.
Strategic Shift Towards Value-Added Businesses
SG Mart is actively transitioning its business mix towards higher-margin, value-added segments to mitigate the impact of steel price volatility. The service center business, which involves processing and selling metal products, contributed 50% to Q2 revenue and saw a 35% QoQ volume increase. The new renewable structures vertical contributed 4% to revenue and boasts an order book of INR260 crores, with its contribution expected to double in Q3 FY26. These segments offer significantly higher EBITDA per ton (INR1,500-2,000 for service centers, INR2,000-3,000 for renewables) compared to B2B metal trading (INR500-1,000).
Service Center Network Expansion and Utilization
The company currently operates 7 service centers (5 owned, 2 leased) and plans to add 4-6 new centers annually, with one new center in Jaipur slated for Q4 FY26. The strategy involves leveraging existing service center infrastructure to set up profiling machines for new product lines like cable trays and solar struts, thereby maximizing asset utilization without substantial additional capex. Management noted that some existing service centers are already exceeding volume expectations, processing over 12,000 tons per month against an initial target of 5,000 tons.
Revised FY26 Outlook and Long-term Confidence
Management acknowledged that the initial FY26 EBITDA target of INR200 crores is now difficult to achieve due to Q2 underperformance and the impact of one-off📎 expenses. However, they reiterated confidence in achieving their long-term ROCE target of 20-25%. They expect the true profitability and strength of the new business models to become evident from Q4 FY26, driven by anticipated steel price stabilization and the full contribution of the value-added segments after the short-term impacts subside.
Working Capital Management and Inventory
As of September 30, 2025, SG Mart's working capital days stood at 22, a slight increase from Q1, attributed to initial inventory for the new profiling business and international trading. Inventory days were 27. Management aims to maintain working capital days within a range of 15-25 going forward⏳. The company faced inventory losses in Q2 due to the unexpected sharp decline in steel prices, which impacted the service center business where raw material inventory is held.