Detailed Narrative
Robust Steel Business Performance
Shankara Building Products delivered a strong Q1 FY26, achieving a significant milestone of 2.38 lakh tons in steel volume, marking a 35% year-on-year growth. This performance, coupled with a 27% year-on-year value growth, set a strong tone for FY26, despite a subdued market and early monsoon. The company remains confident in achieving its FY26 target of 1 million tons in steel volume, with an expectation of 40-45% of this volume in H1.
Margin Expansion and Profitability
The company reported improved EBITDA margins of 3.58% in Q1 FY26, up from 3.20% in Q4 FY25 and Q1 FY25, leading to a 43% year-on-year growth in EBITDA to Rs. 59 crores. Net profit for the quarter surged by 102% year-on-year to Rs. 32 crores, partly aided by approximately Rs. 5 crores in inventory gains. Management believes enterprise margins, currently around 2-2.5%, are sustainable and aims to move marketplace EBITDA margins closer to 4% in the next couple of years.
Working Capital Efficiency and Retail Growth
Shankara maintained strict control over working capital, averaging 29 days in Q1 FY26, an improvement from 30 days in FY25. Retail growth was healthy, with sales-to-store sales growth (SSSG) reaching 22% in Q1 FY26, up from 14% in FY25. The company plans to add around four new stores in FY26, primarily in H2, to support continued SSSG, acknowledging that sustaining high SSSG is difficult without new outlets.
Segmental Performance and Challenges
The steel segment saw strong growth across flat products (65% YoY), roofing (35% YoY), and pipes and tubes (32% YoY). However, the non-steel business faced headwinds, recording only a 5% year-on-year growth, although plumbing products grew by 15%. The ceramics segment also experienced a slowdown in the last six months, though management is confident in its Fotia brand and growth plans.
Demerger Process Update
The demerger process is progressing, with all NCLT requirements met. The matter is currently before the Honourable Tribunal, with the next hearing scheduled for end-August 2025. The company now anticipates concluding the demerger in Q3 FY26, a slight delay from previous expectations. This restructuring is expected to improve manufacturing EBITDA margins from the current 2.5%.
Debt Structure and Allocation
The company's current debt stands at approximately Rs. 550 crores, including acceptances. This debt is bifurcated, with Rs. 125 crores allocated to manufacturing and Rs. 425 crores to the marketplace segment. Quarterly interest costs total Rs. 12 crores (Rs. 9 crores for marketplace, Rs. 3 crores for manufacturing), and depreciation is Rs. 4 crores (Rs. 2 crores each for marketplace and manufacturing). The total debt level is expected to be around Rs. 500 crores.