Sarthak Metals Limited — Q2 FY26 earnings call

Call held 13 Nov 2025

Management summary

Sarthak Metals Limited reported a challenging Q2 FY26 for its core cored wire business, with volumes declining 14% YoY due to low steel prices, imports, and competition. However, the company's strategic diversification is showing promise, with the welding division emerging as a star performer and the biotechnology division nearing revenue generation. Management emphasized a strong, debt-free balance sheet and a commitment to sustainable growth through new ventures.

Highlights

  • Welding division became a 'star performer' with average monthly volumes exceeding 100 tons in Q2 FY26 (6:04, 6:08).

  • Welding division secured key BIS and RDSO approvals, considered 'gold standard for quality in the railway sector' (6:26, 6:33).

  • Biotechnology division is actively gaining traction with 'lucrative meetings' and 'positive response' from distillery companies, with revenue expected 'very soon' (7:11, 16:03, 16:15).

  • Company maintains a 'strong' and 'virtually debt free' balance sheet, providing financial flexibility for growth (9:23, 9:29).

  • Strategic diversification into welding and biotechnology is 'derisking' the business model against core sector cyclicity (9:10).

Concerns

  • Core cored wire business Q2 volumes declined by 14% year-on-year (4:59).

  • The steel sector faces a 'surge of low cost imports' and 'global steel prices... near a 5-year low', putting 'immense pressure on domestic manufacturers' (3:49, 3:58, 4:15).

  • CapEx cycles in the steel sector have 'slowed down', and the 'urge to finish them as soon as possible' is not evident (12:34, 12:49).

  • The core business is affected by 'persistent varied unethical competition' and 'bad practices' (5:36, 17:03).

Key financials

  1. Core Business Volume Growth -14% -14%YoY

What they filed

Q1 FY27: revenue up 19.5%, net profit up 25.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue46 44 48 46 36 −21%48 +8%62 +29%55 +19%
EBITDA2 2 1 2 2 −15%2 +2%3 +83%2 −11%
Net profit1 1 1 1 1 −8%1 +7%1 +122%1 +25%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

low confidence
While SMLT's own order book was not quantified, management noted that order books at their customers (fabrication and construction houses) are filled, indicating robust demand in the end-user industries for their welding products.

Source: Inferred

Capital allocation

medium confidence
  • Capex Capex disclosed
    • 400 kilowatt solar power plant
    Our use of recycled aluminium scrap and our 400 kilowatt solar power plant are early steps.
  • Debt Debt disclosed
    As we shared last year, our balance sheet is strong and we are virtually debt free.

Guidance & targets

Sales

  • Welding Business Sales Revenue Sales · next two years · High confidence ₹25 crore
    So 25 crore sales revenue in two years by this growth trajectory that we've seen in the last one year, we're very confident of achieving that sales figure.

    — Sagar Shah

Product Portfolio

  • Number of SKUs in Welding Business Product Portfolio · next 12 to 24 months · High confidence 10

    From approximately 5 today

    We are currently working in approximately 5 SKU's currently and we have a plan to take it up to 10.

    — Sagar Shah

Profitability

  • Welding Business EBITDA Margin Profitability · once ₹25 crore sales target is met · Medium confidence high single digit or low double digit margins
    And once we reach a sale figure of around 25 crore or plus, I feel that we'll be an established player by then and we could see a an increase in our EBITDA margins approximately high single digit or low double digit margins.

    — Sagar Shah

  • Combined EBITDA contribution from all 3 businesses Profitability · FY28 · Medium confidence 10 to 15%
    I wouldn't say 25%, but 10 to 15 is highly possible.

    — Sagar Shah

Revenue

  • Biotechnology Division Revenue Start Revenue · very soon · Medium confidence very soon
    So the revenue should start very soon and we'll keep our investors informed about it.

    — Sagar Shah

What to watch in Q3 FY26

Biotechnology Division Revenue Start

next quarter
Current Not yet started, in advanced discussions
Target Revenue generation commenced

Why it matters

The commencement of revenue from the biotechnology division is a key indicator of the success of the company's diversification strategy and a new growth driver.

So the revenue should start very soon and we'll keep our investors informed about it.

Risks & concerns

  • Surge of low-cost steel imports and low global steel prices

    high

    Global steel prices are near a 5-year low, leading to a surge of low-cost imports into India, which is squeezing margins for domestic manufacturers and impacting SMLT's product demand.

    Management acknowledged

  • Slowdown in steel sector CapEx and project execution

    high

    While large steel plants have ongoing CapEx, the 'urge to finish them as soon as possible' has slowed, leading to uncertainty over future capital expenditure for the entire sector and subdued demand for SMLT's products.

    Management acknowledged

  • Unethical competition in the core cored wire business

    medium

    The core business experienced a 14% YoY volume decline in Q2 FY26 partly due to 'persistent varied unethical competition' and 'bad practices' in the market.

    Management acknowledged

Q&A highlights

8 direct
Impact of steel sector CapEx slowdown and low steel prices on SMLT orders Direct
So the steel sector had seen massive CapEx cycles and honestly, it has slowed down the big steel plants... But the urge to finish them as soon as possible, I can't see them. So that's one red flag. ... Definitely since the steel, steel prices are at, a five year low, the demand for steel and the urge to manufacture as much as they want to is not happening and which is why the demand for our product is also subdued.

Management directly linked the slowdown in steel sector CapEx and low global steel prices to subdued demand for SMLT's core products, highlighting a significant headwind.

Asked by Vikas Kumar

Conservatism of the ₹25 crore sales plan for the welding business Direct
So 25 crore sales revenue in two years by this growth trajectory that we've seen in the last one year, we're very confident of achieving that sales figure.

Management expressed high confidence in achieving the ₹25 crore sales target for the welding business within two years, reinforcing the growth outlook for this new segment.

Asked by Aman Baxi

Expected EBITDA margins for the welding business at ₹25 crore sales level Direct
So EBITDA in this current splurge of sales and us being aggressive to push our material in the environment and to establish our brand, the EBITDA margins are a little low. But once we are able to establish our brand in the market... we will be able to improve our EBITDA margins... approximately high single digit or low double digit margins.

Management clarified that initial EBITDA margins for the welding business are low due to market penetration efforts but are expected to improve to high single-digit or low double-digit once the ₹25 crore sales target is achieved and the brand is established.

Asked by Aman Baxi

Number of SKUs in the welding business and future expansion plans Direct
We are currently working in approximately 5 SKU's currently and we have a plan to take it up to 10.

The company outlined its strategy to double the number of SKUs in the welding business from 5 to 10 within 12-24 months, indicating product portfolio expansion.

Asked by Vikas Kumar

Timeline for revenue generation from the biotechnology division Direct
It should start very soon. ... In fact, we've been having very lucrative meetings with a lot of distillery companies and we're seeing a lot of positive response from there. ... So the revenue should start very soon and we'll keep our investors informed about it.

Management indicated that revenue from the biotechnology division, a key new growth engine, is expected to commence 'very soon' following positive discussions with potential clients.

Asked by Vikas Kumar

Strategy to regain market share in the cored wire business amidst competition Direct
The orders that we have in our hand, we, we try to execute them in a in a very ethical manner, in a very professional approach with, with the service oriented approach to have that trust regained with our customer... But as in when they, when they do get educated, they tend to come back to the stable players. So we're seeing a positive silver lining here.

Management detailed its strategy to counter 'unethical competition' in the core business by focusing on ethical execution and service, expecting customers to return to stable players once they recognize the value.

Revenue split between institutional clients and dealers for the welding business Direct
I would say we're selling directly to institutes might be only 10 percent, 90% comes from dealers. And that is the approach that should be because if we want to establish us ourselves as a brand in the industry, dealers are the way to go through.

Management clarified that 90% of welding business revenue comes from dealers, emphasizing the strategic importance of the dealer network for brand establishment in the industry.

Consideration of external partnerships or government incentives for the biotechnology division Direct
I wouldn't look at grants or government incentives as of now because our, our sole approach is to establish that, that pillar in our company as a, as a business model. So external partnerships, definitely Sarthak is actively looking at established players in that industry and who we can partner with to share technologies.

Management stated its focus on establishing the biotechnology division as a business model and actively seeking technology-sharing partnerships, rather than relying on government grants or incentives at this stage.

2 min read 5 chapters

Detailed narrative

Strategic Diversification and New Growth Engines

Sarthak Metals Limited is actively executing its strategy to diversify beyond its core business, aiming for resilience and future readiness. The company has established two new pillars: a high-growth welding consumables division and a high-margin biotechnology division. This diversified portfolio is intended to shield the company from the cyclicity of its core business, which is tied to investment-led economic cycles, by linking new ventures to consumption-driven trends, thereby strategically derisking its business model.

Challenges in the Core Steel Industry and Cored Wire Business

The Indian steel industry faces a paradox of strong demand fundamentals driven by infrastructure projects and 'Make in India' initiatives, yet it is challenged by a surge of low-cost imports and global steel prices near a 5-year low. This has put immense pressure on domestic manufacturers, squeezing margins and creating uncertainty for future capital expenditure. Consequently, SMLT's traditional cored wire business saw a 14% year-on-year volume decline in Q2 FY26, partly due to intensified and 'unethical competition' in the market.

Welding Division: A Star Performer with Expansion Plans

The welding division has emerged as a star performer, sustaining average monthly volumes of over 100 tons in the September quarter. This success is attributed to an aggressive push through its dealer network and robust demand from fabrication and construction industries. The company achieved a key milestone with BIS and RDSO approvals, which are gold standards for quality in the railway sector, opening new avenues for growth. SMLT plans to expand its SKUs from approximately 5 to 10 within the next 12-24 months and targets ₹25 crore in sales revenue from this division within two years, expecting high single-digit to low double-digit EBITDA margins once established.

Biotechnology Foray: A High-Margin Future Frontier

SMLT's foray into biotechnology is gaining traction, with advanced discussions underway with leading ethanol distilleries to integrate its technology solutions. The market opportunity is significant, with bio-consumables valued at approximately ₹1.00 per liter of ethanol produced, and a recent tender by OMCS for ₹1050 crore indicating a market size exceeding ₹1,000 crores. Management expects revenue from this division to start 'very soon' and is actively seeking partnerships with established players to share technologies, aiming for healthy double-digit margins.

Financial Discipline and Sustainability Initiatives

The company maintains a disciplined financial strategy, boasting a strong and 'virtually debt-free' balance sheet, providing the flexibility to invest in new growth areas without straining resources. SMLT is also committed to sustainability, utilizing recycled aluminum scrap and operating a 400-kilowatt solar power plant as early steps. This commitment to integrating green practices will deepen across all divisions as the company grows, aligning with global shifts towards sustainability and regulations like the EU's carbon border adjustment mechanism.

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