SG Mart- Can it successfully create a marketplace?

An analyst, Vivek Patel, asked a question regarding the risks involved in the business.

1. The question was
   First is, would there be any broad guidance that you’ll be sharing at this time for FY25? what would be your key assumptions to this guidance and the key risks of not meeting them?.
   Management said
   if you look at FY25, we are looking at around INR7000 to INR8,000 crores of revenue, right, which will translate into like 1.3 million ton of steel business put together. And margin should be around 2.5%, The risk to this guidance, I think now that we are in the fifth month of the year already, we don’t see any challenge as of now to achieve this number.

Another question asked by Alisha Mahawla

2. The question was
   what is the kind of inventory risk that we carry? Because these are commodities at the end of the day, and while you have highlighted the working capital cycle, is it an inventory gain, inventory loss kind of situation that we have to keep making adjustments for every quarter?.
   Management said
   So, because our margins are low, around 2.5%, right? So, we have to ensure that that 2.5% is protected, okay? There is no threat, there is no risk to that margin, to that thin margin. 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 the 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.

Management said they purchase in bulk, so they get a discount and maintain inventory days of 10 days. They mentioned that the volatile steel price won’t affect the margin. I think management is too optimistic about the business. If they can’t pass the increased cost to the customer, that won’t benefit the business.

Disc: Invested