SG MART –
Q1 FY 25 concall and results highlights –
It’s an APL Apollo group company – started operations in June 24. APL Apollo group already runs 2 big companies – APL Apollo steel tubes and Apollo Pipes
In India ( before SG Mart ), there were no trading / distribution giants who could pick up material ( in big / bulk quantities ) from manufacturers and Distribute them across the country ( mostly to MSMEs + smaller Retailers / Distributors ) in the Steel + Other Building materials space. Existence of such nation wide distributors is a norm in US/EU/China. This was one obvious gap in the Industry that the company intends to fill
SG MART is a premier B2B one stop shop ( basically a B2B marketplace ) providing a wide range of construction related solutions from top brands ( like – APL Apollo, Premium Structural Sections, Jindal Steel, JSW Steel, Hindustan Zinc, SAIL, NMDC Steel, Kajaria Tiles, Havells Electricals etc ) under one roof
At present – company has 90+ registered suppliers of building materials and 800+ registered customers
Company’s current product portfolio includes – TMT bars, Wire Mesh, Binding Wire, HR Sheet, Checkered Sheets, Welding Rods, Tapping screws, Bath fittings, Tiles, Cement, Laminates, Paints
Q1 FY 25 financial outcomes –
Revenues – 1137 vs 151 cr
EBITDA – 24 vs 2 cr
PAT – 27 vs 1 cr
Cash on books @ 1125 cr
India’s steel manufacturing ( in various forms ) capacities are slated to go up by 50 pc by Dec 25 vs Dec 23. That’s a huge jump and is also a natural Industry tailwind for the company
Before SG Mart, the biggest distributor in India was selling aprox 25k Tons/month – that’s peanuts if u look at the current size of the Industry – ie 120 million tons / yr and likely to go upto 300 million tons by 2030
Company has already started doing a monthly volume a 60k tons – inside 1 yr of operations. Inventory days in this business are low at 0-10 days. Company makes a margin of 1.5-2 pc when it trades in these products. If it can turnover its inventory 20-25 times / yr, return on capital can be 30 – 40 pc !!!
There is another Industry Gap – there are various Industries like – automobile, consumer durable makers ( making Fridges, Washing Machines etc ) who don’t buy raw steel. They get their raw steel processed by small local players and then buy it from them. Here – the company intends to set up nation wide service centers to process steel to meet the demands of these user Industries and this will also give them much better margins vs pure trading. Company has already operationalised 2 of its service centers – processing 10-12k tons / month each. Aim to start 2 more service centers in Q2 this FY. Company will set up its 5th service center in Dubai. In this business, the margins are better @ 4-5 pc, but Inventory days are also higher @ 25-30 days
Company intends to set up > 100 service centers across India by 2030. Company Intends to cater to towns ( that have small Industrial hubs ) like – Patna, Ludhiana, Jalandhar, Jammu, Kochi, Raipur etc and sell the processed steel to the MSME buys in these cities
Cost of setting up + Working capital + Inventory requirement per service center should be around 40-50 cr. Company has the cash ( > 1000 cr ) and the RM ( since its already buying steel from the big players ) – this is their right to win in this space
By 2030, company intends to clock a topline of 50,000 cr with an EBITDA in the range of 1500 cr
For FY 25, company is looking to clock a revenue of 7-8k cr, doing 1.3 million tons of steel business with a blended margin of 2.5 pc ( EBITDA ). That should mean an EBITDA of around 170-190 cr for FY 25
Company aims to ramp up revenues to 13-14k cr in FY 26 and 18-19k cr by FY 27 ( basically – there should be clean runway of high growth looking into next 2-3 yrs !!! )
As the company is already into 5th month ( as on date of concall ) – they don’t see any risk on the horizon which may hinder them to achieve this yr’s guidance
Aprox Break up of Q1’s revenues –
Metals trading – 600 cr
Service centers business – 400 cr
Distribution of building materials – 140 cr
At present, company’s focus is largely on the steel segment. Once they achieve 500 cr EBITDA ( say by FY 27 ), they ll start diverting some energies towards other products as well. Company intends and is focussed to be the biggest tech enabled B2B platform in the steel segment in India
Some of India’s largest – region wise distributors have already become company’s clients
Company is light on debt and heavy on Equity funding. Also, their capital intensity is light – hence won’t ever have high depreciation rates. Most of the EBITDA is likely to flow to PBT level
Also, since company’s Inventory days are limited to 10-30 days, the Inventory risk that the company carries is also minimal
Even if one looks at EBITDA margisn of Shankara buildcon ( which has higher inventory days ) for last 20 Qtrs, they have been stable despite a lot of fluctuations in the Steel prices
Since Shankara is a big organised retailer, it can eventually end up being company’s customer. Company has already started started doing some amount of business with Shankara Buildcon
There are companies across the globe which have a very successful business and a model similar to SG Mart. These include – Sumitomo Trading company, Mitsubishi trading company, ITOCHU, HANWHA, MARUBENI etc
Disc: initiated a tracking position, business looks promising, growth guidance ( if achieved ) can create a lot of value, not SEBI registered, not a buy sell recommendation, biased
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