Detailed Narrative
Q3 FY25 Financial Performance and Profitability Recovery
SG Mart reported a Q3 FY25 revenue of ₹1,350 crores, which, while a sequential decline, marked a significant year-on-year jump. The company achieved a sharp recovery in profitability, with EBITDA and Net Profit both at ₹28 crores, translating to an operating EBITDA margin of 2.1% and a net margin of 2.1%. This recovery follows inventory losses incurred in the previous quarter. The total sales volume for Q3 stood at approximately 290,000 tonnes.
Strategic Shift from Imports to Domestic Steel Sourcing
The B2B metal trading segment experienced a sequential decline, with revenue falling from ₹1,200 crores in Q2 to ₹700 crores in Q3, and volume at 150,000 tonnes. This was primarily due to imports becoming unviable, driven by safeguard duty risks and domestic steel prices achieving parity with imported steel. Management confirmed that imports are no longer part of their business model, and they have successfully established tie-ups with top four out of five domestic steel producers to ensure supply for Q4 and beyond.
Accelerated Service Center Network Expansion
The service center business is rapidly expanding, contributing 100,000 tonnes in Q3. While Ghaziabad and Bangalore centers are operational, Pune, Raipur, and Dubai are expected to be fully operational by February/March, contributing to Q1 FY26. SG Mart has identified five new locations for service centers, with CAPEX of ₹142 crores already spent in 9M FY25, and aims to have 15 service centers operational and 10 under construction within the next 15-20 months, targeting 15-20 large centers in India.
Entry into Solar Structure Manufacturing and White Label Products
SG Mart is diversifying into the high-growth renewable sector with solar structure manufacturing, having ordered machinery and expecting the first sale in February. This new segment, along with white label products like light structural and TMT bars, is anticipated to significantly boost both revenue and profitability. While TMT sales have been impacted by slow construction demand, management expects growth to accelerate as market conditions improve in the coming months.
Revised Revenue Guidance and Stable Volume Targets
The company revised its FY25 revenue guidance downwards to approximately ₹6,000 crores (from an earlier ₹7,000-8,000 crores) due to a 15-20% decline in steel prices over the last 12 months, emphasizing that volume targets remain stable at over 1.2 million tonnes for FY25. For FY26, revenue is projected at ₹9,000-10,000 crores, representing a 40-50% jump. The long-term FY27 revenue guidance remains ₹18,000 crores, with volume targets of 2.5-3 million tonnes and a desired EBITDA margin of 2.5%.
Profitability Enhancement and Unique Working Capital Strategy
SG Mart aims to increase its EBITDA per tonne from the current ₹1,000 to ₹1,200-1,300, driven by a richer product mix from higher-margin service center and solar structure businesses. The company maintains tight working capital days at 10 and employs a unique strategy of taking short-term debt (even with cash on books) to pressure sales teams for efficient collections. This approach ensures that interest income and expense largely offset each other, contributing to a targeted ROCE of over 30% by FY27.