#SGMart #Q3FY2025 #APLApollo 

SG Mart Q3 FY 2025  | MCap: 3,900 Crs

KTA from concall : Its not as bad as it seems

A) Present Quarter
                                                                                                                                                                     
The company initially provided revenue guidance of 13,000 to 14,000 CR for FY 2026. However, this was based on volume and net selling realization, and because steel prices have dropped 15-20% in the last 12 months, the value will be lower.

The company aims to achieve a sales volume of around 1.8 to 2 million tonnes in FY26.

Based on current prices, a 40% jump over the FY25 revenue is expected, which could be around 9,000 to 10,000 CR for FY26.

For Q4 of FY25, the revenue is expected to be between 1,500 to 1,700 CR.

B) Margin Guidance

The company is targeting a 2.5% EBITDA margin as the business scales up.

The current operating margin is at 2.1%.

The 1.6% EBITDA margin for the first nine months of FY25 was impacted by inventory losses in Q2, which are not expected to repeat.

The gross margin in the service center business is expected to be around 3-4%.

As new service centres become operational and the solar structure business ramps up, the margins are expected to increase to 2.2, 2.3 and 2.4, and eventually reach 2.5%.

C) Other Points:

The company's business model is based on rupees per ton rather than a percentage margin, meaning they aim to increase their profit per ton of steel sold.

The B2B metal trading business saw a decline in Q3 because of the absence of imported steel, as imports were not viable due to the low price differential with domestic steel. The company has since established supply agreements with domestic steel mills.

Service centre business volumes are currently at 40,000 tonnes per month. The company plans to open more service centres, with five new sites identified.

The company's working capital days were at 10, and they are aiming to keep it between 15-20 days.

The company is also getting into the solar structure business, which is expected to be highly profitable.
It's important to note that the exact revenue figures will depend on steel prices, but the company is confident in achieving the targeted sales volume.

D) Guidance FY 2027

The company aims for a revenue of 18,000 crores in FY27, but notes this figure could vary depending on steel prices. They anticipate achieving a sales volume of 2.5 to 3 million tonnes by FY27. ( 50% over FY 26)
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EBITDA Margin Target: The company is aiming for a 2.5% EBITDA margin with the expectation that margins will improve as more service centres become operational and as the solar structure business starts generating revenue. They are working towards a longer-term goal of increasing profit per ton.
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Service Centre Expansion: The company plans to expand its service centre network. They believe that there is potential for 15 to 20 large service centres in India. They are aiming to have 15 service centres operational and 10 under construction within the next 15 to 20 months. The service centers are expected to be a key driver of revenue and profitability.

Solar Structure Business: The company is entering the solar structure business, which is anticipated to be a high-growth, high-profitability sector. They expect the first sale in this sector in February.
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Working Capital Cycle: The company is targeting a working capital cycle of 15 to 20 days, which they believe will keep their return on capital employed (RoCE) in the 30% range.

Sales Volume: The company is looking at a run rate of 1.2 to 1.5 million tons of sales volume on an annual basis. By FY27, this is expected to increase to 2.5 to 3 million tons.

D) B2B Metal Trading

The B2B metal trading segment experienced a decline in Q3 due to unviable import costs. However, the company has secured supply agreements with domestic steel mills, which should support future growth in this area.

While the transcript does not provide explicit guidance for FY 2030, it sets out the building blocks for the company's anticipated growth over the coming years. The strategy is focused on expanding operations, diversifying its offerings into higher-margin businesses (service centres and solar structures), and improving working capital management. The expectation is for significant growth in revenue, profitability and volume through FY27, although the revenue figure is dependent on steel prices. It is possible that the company's financial targets could be extrapolated to FY 2030, but that is not directly stated in the transcript.

E) Conclusion

Company guided for a PAT / ton to increase from RS 1000 in Q3 Fy 25 to over Rs 1300 by FY 27 on the back of more service centers and new initiatives wrt solar modules

On 3 mln ton volume By FY 27 
PAT = 1300*0.3 crs = Rs 390 crs

At present the stock trades 10x FY 2027 E

Disclosure: Only for Information. No recommendation.
#SGMart #Q3FY2025 #APLApollo