Q1 FY25- First Concall
OPM will be – 2.5 – 3%
What we have to look is keeping our working capital requirement low, churns 15-20 times in a year, zero creditors, zero debtors, and make 35% ROC, maybe higher. If we are able to do that, then my business model will be very, very sustainable. And then we will replicate this in the other industries once we are able to create this full model.
We have enough money to take this revenue to INR20,000 crores in next two to three years. So, a lot of funds are lying in the fixed deposit, which gives us the interest income. So, that’s why my PAT may appear higher than the EBITDA. But as we start investing into service centers, as my volume ramps up from INR7,000-INR8,000 crores to INR12,000-INR13,000 crores this year and next year, and then eventually INR17,000-INR18,000 crores in FY27, and then INR50,000 crores by FY30.
So just to mention that, the basic concept of this company is trading. Connecting the manufacturer with the distributor. So, we act like an intermediary between the manufacturer and a wholesaler.
And once we establish this business for steel, we create a proof of concept for the steel sector, then we are confident that the other industries will also come to support, to take support from SG Mart. By that time, we will be able to move to other sectors.
But if you look at the countries outside India like China, South Korea, Japan, which are actually the manufacturing hubs in the world, they have very large trading giants who are lifting material in bulk from the manufacturers and then distributing those products, whether in the same countries or at the global platform . This is what we always miss as manufacturers, whether it’s in steel tubes or plumbing pipes.
Then the idea came that how do we start? How do we create India’s largest trading company? Which product we should start with? Whether it should be metals, non-metals, construction materials, agri-commodities, cement, etc. So, then we realized that our strength has been steel. We have spent four decades of manufacturing and buying and selling of steel, upstream, downstream products. So, let’s start with steel as the product and then we fully establish ourselves in steel trading, and then we move to other products into whether it could be agricommodities or other construction material products.
when India is going to see massive increase in the upstream steel capacity because last five years, we have not seen any new capacity addition in steel. What has happened is the consolidation of the steel sector. But if you see from December 2023 till December 2025, India’s steel capacity is going to go up by 50%. So, it’s the right time to start a venture which is into steel trading to take material from steel companies and then distribute for them and create a business model out of it.
I mean you will be surprised to know that we have become India’s largest zinc trader as we speak today
And then we will distribute the product in the downstream sector. So today we are doing business with JSW Steel, NMDC Steel, Jindal Steel and Power, Steel Authority as well, and some imports which we are doing in SG Mart.
Second business in B2B is service centers. Now here if you look at the industry like auto sector, consumer durables, construction industry, they don’t buy raw steel like in coil form or long steel form. They need processed steel, which acts as an input to their factories and then they make washing machines, refrigerators. It is used in automobile bodies, in construction, in bridges, etc.
So here the business model is that in metro cities as we are talking, two of our service centers are operational, doing business of 10,000-12,000 ton a month. Two new service centers in India will be starting in next two to three months. The construction work is underway and we will be starting those service centers in the next two to three months.
And then we have identified 15 new locations, which we will start operations over the next 12 months. So, the vision here is that by 2030 we should be having 101 service centers, maybe 102 outside India and 99 in India.
So, the idea is that every year we keep on adding 10, 20 service centers and by 2030 we should have a network of 101 service centers. Here the capex per service center should be like INR20-25 crores and the working capital requirement would be another INR10-15 crores at gross level. At net level it will be like INR5 crores. So doing 5,000-ton average volumes should give us ROC of again 30-35% with the capex and working capital combined under capital employment.
Now if you look at our group dealers who are doing business in steel pipes, steel pipes are 28% of their total business. Rest 80% they do rebars, angle channels, welding rod, mesh, wires. This is massive consumption but almost like INR3-4 trillion for non-tube products which these distributors buy from small manufacturers.
Steel Tubes as an industry became formalized. Apollo played a pioneer role in formalizing the steel tube industry but for other products like angle channels, rebars, welding rods, this industry is still highly unorganized. There are multiple, n number of small manufacturers who manufacture these products in an inefficient way and then they sell to the distributors in downstream sector.
So, family has given rights to SG Mart to use APL Apollo brand for non-steel pipe products at free of charge.
So, we are not going to spend extra money on creating more warehouses. My service centers will act like warehouses plus the processing unit. So, my capex is limited, which is like say INR25 crores per service center.
We are reaching directly to the contractors and real estate developers and we are doing the B2B business. That segment is small, but it is ramping up pretty quickly.
So, other competitions like O-Business. I would say our nearest competitor is unorganized sector.
So, after FY27, we will speed up the process of entering into other industries, other sectors. But till FY27, we have a laser-sharp focus that all the energy, all the resources must be put to build the steel franchise first and then, we will move to other sectors.
So, then the steel mill will say, okay, I will stop servicing 5,000-ton dealer on my own, why doesn’t that small dealer buy from SG Mart? Okay, so that’s the segment in metal trading.
Plus, what happens is that, a factory in Ludhiana, Ludhiana is a big manufacturing hub, they need processed steel. Now they have to buy from Ghaziabad, for which you have to pay INR1,000 per ton freight. Now the steel which comes, HR coil which comes, whether it comes in Ghaziabad railway siding or Ludhiana railway siding, the freight is the same, the handling cost is the same. But from Ghaziabad to Ludhiana, the processed steel will carry freight of INR1,000 a ton. If I open a center in Ludhiana, my raw metal cost will be the same and my customer will be able to save Rs.1000 per ton freight from Ghaziabad. So that’s how we will acquire customers in service centers.
And thirdly, on distribution side, the B2C business, there the customers are same. What I will do is I will replace a small inefficient manufacturer with a more capable manufacturer who has tie-up with me, and I will push his product under my brand to my dealer.
Then the risk comes on the debtor write-off or inventory write-off. So, we are going to do cashand-carry. We are talking with banks for providing channel financing services to our SG Mart’s customers. We have all the national banks with us. We have our own group in NBFC with us. So, I will not be having debtors more than 3-4 days. So, my risk on debtor write-off is also taken care of by having channel financing services for my clients.
Then the inventory write-off. Now, steel is a volatile commodity. It carries a lot of risk and with such a low margin, our risk management has to be very strong, which it is.
So again, all the three verticals, Alisha, the first vertical, which is metal trading, here we are doing back-to-back sale, like purchase and sale. So, the risk what we carry is from 0 to 10 days. Which is very limited. Steel prices in India normally are reviewed like once in a month. On first day of every month, all the steel producers come out with a new revised pricing policy. So, if you are doing business within 10 days, there is no risk as such to carry to your balance sheet.
Second is service centers. Now, service centers, yes, here the inventory days will be 20-25 days, but then here the margin is high. So even if there are some write-offs, you have to take some write-off, but your high margin does take care of that.
Then third is distribution business. Distribution business, B2C, is mainly secondary steel, right? Whether it is rebars, secondary, angles and channels, welding rod, which is not a very volatile product anyways . They are sold more as product. And here also, like the inventory days in the system will not be more than 20. So, the fluctuation is manageable easily.
Just to give one example, you can look at the financials of Shankara. Shankara is a retailer. They carry more inventory than what we will be having on our books at any given day. Now, if you look at their quarterly EBITDA margin, you can look at 20 quarters, like 5 years, you see. Their EBITDA margin has always remained stable between 2.5% to 3.5%, right? The swing is not like they will erode the profitability and they will close the balance sheet with zero profit or at a loss.
So Shankara can be our customer, right? Because Shankara is a retailer. We are like wholesalers.
And this is a concept which is not unique in the world. You look at Japan, South Korea, China, there are players like Marubeni, Mitsubishi Trading Corporation, Sumitomo Trading Corporation, ITOCHU, Hanwha, JFE Shoji all these players are there who buy raw material from steel producers or other metal producers in bulk and then they distribute further.
We are hiring right people at right place. We are already a team of 100 people which will increase to say not more than 200-250 when we touch INR18,000 crores top line by FY27
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