Shankara Building Products Ltd (NSE: SHANKARA) Q2 2025 Earnings Call dated Nov. 05, 2024
Corporate Participants:
Dhananjay Srinivas — Director
Sukumar Srinivas — Executive Director
Alex Varghese — Chief Financial Officer
C. Ravikumar — Executive Director
Analysts:
Varun Jain — Analyst
Ketan R. Chedda — Analyst
Yash — Analyst
Aman Soni — Analyst
Jatin Damania — Analyst
Madhur Rathi — Analyst
Ketan R. Chedda — Analyst
Neil Bahal — Analyst
Parikshit Gupta — Analyst
Varun Pinto — Analyst
Miraj — Analyst
Keshav Garg — Analyst
Keshav Garg — Analyst
Anuj Jain — Investor
Amit Mehendale — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Shankara Building Products Limited Q2 FY25 Earnings Conference Call hosted by Dolat Capital.
As a reminder all participant lines will be in listen-only mode. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Varun Jain from Dolat Capital. Thank you, and over to you, sir.
Varun Jain — Analyst
Thank you. Good morning, everyone. Today, we have been joined by the management team of Shankara Building Products. We have Mr. Sukumar Srinivas, Managing Director; Mr. C. Ravi Kumar, Director; Mr. Dhananjay Mirlay Srinivas, Vice President; and Mr. Alex Varghese, CFO. I would now hand over to Mr. Dhananjay for opening remarks, followed by the Q&A. Thank you. Over to you, sir.
Ketan R. Chedda — Analyst
Thank you. A very good morning and a very warm welcome to Shankara Building Products Limited earnings conference call for the quarter ended 30th September 2024. Joining me today are Mr. Sukumar Srinivas, Managing Director; Mr. C. Ravikumar, our Executive Director; and Mr. Alex Varghese, our CFO.
I would like to remind everyone that this call may contain forward-looking statements, which are predictions, projections and other estimates about future events. These statements are based on management’s current expectations and involve risks and uncertainties that could cause actual results to differ materially. Our presentation for this call has been uploaded to the exchange. I hope you’ve all had the opportunity to review it.
The first half of the fiscal year saw some micro weakness — micro weakness amid election-led slowdown in construction activity compounded by a severe rains in several parts of India and softening in steel prices. Despite this, we are pleased to report that Shankara Building Products has demonstrated a resilient performance.
We achieved a healthy steel volume growth of 25% year-on-year and a robust non-steel revenue growth of 35% year-on-year. Our overall revenues grew by 15% year-on-year, reaching INR2,620 crores for the half year. Our Q2 revenue was INR1,329 crores, a growth of 16% as compared to Q2 FY ’24. As India’s largest steel tube marketplace, Shankara continues its strong hold in the steel tube segment. We saw volume growth of 25% year-on-year, reaching 0.25 million tonnes in H1. Historically, steel tubes and pipes has been our key strength where we command our sizable market share. We have, over the last few years, started focusing on other steel segments such as flat, long, long products, roofing and TMT.
Our overall steel volumes were at 0.4 million tonnes in H1. We are confident of achieving 0.8 million tonnes in FY ’25 with an aspiration to grow to 1 million tonne volume by FY ’25-’26. We have a strong distribution network and tie-ups with leading brands, including APL Apollo, AM/NS and JSW, which will help us achieve these numbers.
Our non-steel portfolio also showed robust growth with 35% year-on-year growth in revenue in H1. A growth across all subsegments, including plumbing, sanitary ware, tiles, electricals, paints, hardware and accessories. Notably, our sanitary ware and tile segments grew by 33% and 46% respectively. The strength of our existing brands and expansion of our partnerships with marquee domestic and international brands continues to yield results.
Our private label, Fotia, particularly grew in excess of 30% year-on-year. We are also excited to announce the inauguration of our 18,000 square feet experience center in Morbi under our brand Fotia in September, which offers an extensive collection of innovative designs and sizes. This center was set up as a strategic hub to enhance visibility of our brands as well as help us to expand our presence Pan India in the coming years with the long-term intention to explore opportunities in exports.
In Q2, we launched new products such as Quartz sinks and adhesives under the Fotia brand. We continue to explore more opportunities as we move ahead. Overall, we are confident of the achieved — we are confident of achieving a sustained growth momentum with at least 30%, 35% CAGR growth in the segment for the coming years.
In order to sustain our growth momentum, our company has identified 10 strategic locations to set up fulfillment centers in this fiscal. We are happy to inform that we have successfully operationalized four new fulfillment centers in H1, which include our Fotia Experience Center in Morbi, a nonsteel center in Bangalore, a hybrid store in Kerala and a nonsteel center in Hyderabad.
In the first half, we have grown rapidly in the Western and Central regions, around 60% and 40% year-on-year respectively in H1, together contributing to 18% of our top line. In this quarter, we also upgraded our e-commerce platform, www.BuildPro.store. We added a number of products including steel to the platform. The team is continuously working to strengthen our digital presence and provide a comprehensive building material solutions platform.
Despite a tough macro environment, an approximate 10% downward correction in steel prices, we were able to maintain our operational profitability in H1. Our EBITDA for the half year was at INR79 crores, a growth of 11% year-on-year with an EBITDA margin at 3.01%. Our EBITDA margins in the nonsteel segment remained steady at 6%.
Q2 was a challenging quarter. The quarter witnessed a slowdown in the construction and infra segments. This was primarily due to heavy rains witnessed in most of our areas of operations. Steel prices softened substantially over the quarter. This was due to a subdued national and international demand, increased supply from China, which led to a steep fall in steel prices in the international market. This had an immediate impact in the domestic markets, too.
The falling prices impacted our profits for the quarter. EBITDA for Q2 FY ’25 stood at INR38 crores and PAT stood at INR15 crores. Our PAT for the half year FY ’25 was INR31 crores. Our profitability is impacted by the inventory loss due to falling steel prices and certain costs incurred in branding, advertisement and marketing towards long-term sustainable growth of our nonsteel business. The company continued its discipline in managing working capital. This is reflected in a reduction in our interest cost by INR2.5 crores over the previous quarter. Our cycle was sustained at approximately 30 days.
We are well on track to demerge our Building Materials marketplace business, which has consistently delivered significant value. To simplify our business structure and pursue our focused capital allocation strategy, the marketplace business generated INR2,417 crores in revenue, and the manufacturing business generated INR672 crores in revenue in H1. The Marketplace business continues to be a superior generator of returns with a ROCE of — for H1 at 28%. We are continuously working towards optimizing operational efficiencies and competitiveness in the manufacturing business, which has led to a 50% growth in capacity utilization in H1. The demerger scheme has been filed with NCLT and we have received the creditor consent. We expect the scheme to be implemented before the end of this fiscal.
Going forward, Shankara continues to remain bullish in our steel business. Historically, November to March is a positive demand season for building materials. In this environment, we are confident of sustaining our growth momentum for our steel as well as our nonsteel segments. We believe that steel prices are stabilizing. This will help us improve our margins and close the year on a better note.
Shankara remains a unique business model, being the only organized player as an integrated marketplace, combining retail and wholesale business in the building materials space. We have over 126 fulfillment centers, including 92 retail counters. We have over 1 lakh customers spanning 10 states. We have a strong physical presence in Tier 2 and Tier 3 cities apart from metros.
We represent all the leading brands from JSW, AM/NS, APL Apollo in Steel to Jaguar, Kohler, Kajaria, Simpolo, etc., in fitting sanitary ware and flooring. We represent Havells, Jaguar lighting in the Electrical segment as well as Nippon in Paints & Adhesives. We have recently added Norton Abrasives, a subsidiary of Saint-Gobain and many more. We probably represent the largest number of brands and are present in the most number of verticals in the building material industry. We have a dedicated sales force who are in the field, meeting and onboarding potential customers on a regular basis. Apart from this, our last physical presence, we have a comprehensive e-commerce platform. This hybrid model set us apart from the competition.
With this, I would now hand over the call to the moderator for Q&A. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question and answer session. [Operator Instructions] The first question is from the line of Yash from Stallion Asset. Please go ahead.
Yash
Hi, thank you for the opportunity. Sir, I just wanted to understand more about your marketplace business. So just to reiterate your guidance, do we believe that we can grow at 30%, 35% in FY ’26 and ’27? And our EBITDA margins can be north of 6% here?
Dhananjay Srinivas
So just to clarify, when we talk about EBITDA margins of 6%, that’s exactly in our non-steel segment, and we are looking at that 30% to 35% growth in the non-steel segment. Overall, we’re looking at the marketplace having a 20% to 25% CAGR in the coming years. And we’re hoping that EBITDA will be anywhere up of 3%.
Yash
Okay. And how many number of fulfillment centers do you intend to add in the next two years here?
Ketan R. Chedda
So currently, we have about 126. We will be adding about 6 this year further. We’ve already added 4. So in the next 2 years, we will certainly be adding another 10.
Sukumar Srinivas
So currently, we have about 126. We will be adding about six this year further. We’ve already added four. So in the next two years, we will certainly be adding another 10.
Yash
Okay. Okay, okay. Got it. So I’ll come back-in the queue, sir. Just maybe just one more question, sir. Sorry, if I can ask. You know, in your balance sheet, I’m just looking at the interest-bearing trade payables. So I think you pay some interest on your trade payables, right? Are there some trade payables which are interest-bearing in your balance sheet?
Sukumar Srinivas
Management generally from time to time keeps evaluating the options of debt financing versus creditors as a means of funding working capital, which is very good. So we do have acceptances largely in our trade payables, partially. So I think the — yes, to your question, the answer is yes — only.
Yash
Okay. So these are all acceptances, right. Right. But I mean, why have the margins gone higher if you pay them early, just for understand.
Sukumar Srinivas
Margins in terms of — is it gross? Is it EBITDA?
Yash
No, gross, gross level, I’m saying.
Dhananjay Srinivas
The gross margins, if you really see, we have maintained a steady pace. There has been some impact in the gross margins primarily because of the inventory valuation, some of the hits we have taken because of the steel price that has come down. So that is one area where we have seen some. Otherwise, the gross margins have remained quite steady if you compare H1 last year to H1 this year.
Yash
Okay. Okay. Okay. And what is — just last question. What is the number of trade acceptances in total trade payables, if you have that data?
Dhananjay Srinivas
Acceptance approximately around INR450 crores is there.
Yash
Okay. INR450 crores. Okay. Okay. Got it.
Operator
The next question is from the line of Aman Soni from Nvest Analytical Advisory.
Aman Soni
Am I audible?
Dhananjay Srinivas
Yes, we can hear you.
Aman Soni
My question is, what is the company demand outlook for the industry in Q3 and Q4 of FY ’25? And there any specific trends and external factors that you anticipate will significantly impact demand in this quarter?
Dhananjay Srinivas
No. In the coming 2 quarters, we anticipate that it should be good because there is an infra revival. I mean, generally, now if you look at it, as we have mentioned in the opening speech that generally the quarters 3 and 4 post the monsoons is generally a strong demand quarter. So I do see that there would be a strong demand revival in the coming two quarters vis-a-vis what we saw in the last 2 quarters.
Operator
The next question is from the line of Jatin Damania from SVAN Investments.
Jatin Damania
Sir, a broader question. I just want to understand. You indicated that the — on the non-steel, our margin is in the range of 6% to 6.5%. And in the previous call, you indicated a margin of near about 3% on the steel business. So just wanted to understand, if you look at the current quarter, despite the improvement in the operating leverage and the growth in the non-steel business, we have seen the sequential decline in the margin. I mean, did we have any one-off cost or inventory write-down during the quarter? Can you help us with that?
Dhananjay Srinivas
Yes. We did have a one-off write-off on the inventory cost in the last quarter.
Jatin Damania
Sir, can you quantify that?
Dhananjay Srinivas
Quantification is approximately around INR12 crores.
Jatin Damania
INR12 crores. Okay. And sir, when you look on the manufacturing operation, definitely INR617 crores of the revenue that we did in 1H. Can you help us understand what was the capacity utilization? And how shall one look in terms of the margin for the manufacturing business?
Dhananjay Srinivas
Yes, sure. So now if you really look at the manufacturing businesses, which are probably the most hit because of the — and the manufacturing largely in the line of steel. So now coming to the capacity utilization, we have improved the capacity utilization. So our primary focus in terms of the manufacturing is, a, first, we start improving the capacity utilization, which we have — it has been languishing at around 30%-odd over the last some years. So the first target was to take it up to at least 50%, which we have achieved in the first half, particularly in the last quarter. So that was number one is the strategy.
Number two, we do see that going forward, definitely — and the second strategy was to get it out of — if you look at the first quarter versus the second quarter, manufacturing is in the positive side, which is again very, very important. So I think that the two clear objectives the company had, we have achieved in quarter 2. So now going forward, we will sustain the manufacturing capacity at this level with maybe a marginal growth further, a; b, there will be greater focus on improving the margins, which is what we hope to achieve in the coming two quarters.
Jatin Damania
So what margins are one to assume for the manufacturing business?
Dhananjay Srinivas
I think at an EBITDA level, our immediate target would be to achieve 3%.
Jatin Damania
3%?
Dhananjay Srinivas
Yes.
Jatin Damania
Sir, last question definitely I mean if you can help us in give us the number in terms of the EBITDA in terms of the non-retail and what was the revenue contribution from the Ceramica and the traction of Ceramica in Karnataka, Maharashtra and Tamil Nadu?
Dhananjay Srinivas
See, the Ceramica, the tiles, there has been a growth of around 30% in Q2 compared to the earlier quarter. That is number one. Number two, as far as the traction in Tamil Nadu and Maharashtra, just a minute, we’ll just give you the numbers in a moment. Tamil Nadu was in line with the overall. It was at around 35%. Maharashtra was a tad lower. I think it was around 20%.
Jatin Damania
Sir, how should one look at it because our key focus was on these three states, Karnataka, Maharashtra and Tamil Nadu. So are we seeing any significant improvement? Because I mean, I agree that last two quarters was the election quarter and the slowdown in the overall building materials segment. But going ahead, also one look at the performance in terms of the states and the Ceramica going ahead.
Sukumar Srinivas
I think we will see good traction in the states that you mentioned. We are also now focusing on Telangana and Andhra Pradesh, which is also, again, a South-based state, so which is our geographical comfort always when we start any new product, we tend to focus more on the — our — the comfort zone geography and then we move forward. So yes, there would be continued renewed effort in the states that you have mentioned as well as we are adding Andhra and Telangana.
Jatin Damania
And sir, lastly, what was the APL volume in the last quarter?
Sukumar Srinivas
I’ll just give you the number. Just give me a moment. We did close to around 1 lakh tonnes with them in the last quarter.
Jatin Damania
That’s all from my side. Thank you and all the best.
Operator
The next question is from the line of Madhur Rathi from Counter Cyclical Investments Please go-ahead.
Madhur Rathi
Hi, sir, thank you for the opportunity. Sir, it seems that our steel business is growing quite well. And like we have mentioned 25% growth expectation for — in the volume terms for FY ’26. So when can we expect to achieve the upper end of the 2.5% to 3% guidance in the steel business? Because in H1, you have done around 2.5% of low margins so on that segment?
Sukumar Srinivas
Just to repeat on the last question, just speak a little louder because after ending the question as such, you talked about steel has been growing. Then what was the question, please?
Madhur Rathi
Yes, sir. So we have given a guidance of around 2.5% to 3% kind of margins we’ll achieve in this segment. So when can we expect — like can we expect the upper end of the 3% guidance for this year or the next year in this segment? Or what will drive us to the 3% kind of margin in this segment?
Sukumar Srinivas
Yeah. I think in steel, if you are looking at margins at an EBITDA level will be sustained going forward at that 3% to 3.5%. But we are very bullish about the growth. So growth will consistently keep happening.
Madhur Rathi
Okay. And sir, since we are guiding a 3%, 3.5% margin on steel and 6%, 6.5% on the non-steel. So can we — we have given a 3% upwards of 3% margin for our marketplace business. So is this on a conservative basis? Or do we need some kind of margin pressure due to inventory correction going forward? Or is there competition increasing from [Indecipherable] in our main marketplace business?
Sukumar Srinivas
Yes. No. I mean what is the connection with us to SG Mart, I didn’t really get that.
Madhur Rathi
Sir, I just want to understand like when we are saying that our margins, we are optimistic of more than 3% margin in the main businesses here. So why we are giving a margin of upwards of 3% when we are earlier giving for FY ’24 a margin of 3.5% to 4% in the marketplace business. So I’m trying to understand, are we lowering our margin estimates because of some kind of competition increasing? Or with this inventory losses coming in, we are making it on a conservative basis our margin estimates?
Sukumar Srinivas
Okay. If you see, the — one is the competition, of course, is extremely strong. There is no doubt that we do have an extensive competition from many new players as well as [Indecipherable], etc. However, I think the competition is slightly on a different scale. They are more on — only on wholesale, why we do have a blend. So that is number one. Number two, we are expecting the steady state. last quarter, if you really look at the steel part of the business, the EBITDA were really lower. It was not even at 3% and 3.5%. It was at 2% plus. So it was lower, so which was impacted, as I mentioned earlier, because of the steel prices softening over the last quarter, etc. So I think given the current market scenario, given the competitive intensity and what we expect in terms of the competition to, I mean, be there. So I think this would be a very steady state. And I think the clear strategy is to push for volume growth.
Madhur Rathi
Okay. Sir, my next question is, sir, when I look at our non-steel business, sir, for the past four quarters, the revenue, although we have shown a Y-o-Y growth. But when we look at on the past four quarter basis, sir, our revenue has been staggered on INR130 crores to INR140 crores range. So is this that like why does — can expect the growth to – guided [Indecipherable] in the past four quarters, it has been stagnant at a stagnant level, if could just help me understand this, sir.
Dhananjay Srinivas
So in the non-steel growth, we are seeing and from quarter 1 and quarter 2, we are having 35 percentage. So normally, second half will be on the higher turnover.So we are expecting that the second half, our turnover will grow up in nonsteel where the similar 30 percentage, 35 percentage will come.
Madhur Rathi
Okay. So the second half, sir, more than cover the third year, fourth year growth by year and year guidance?
Dhananjay Srinivas
Yeah.
Madhur Rathi
Sir, when I look at Fotia Ceramica, sir, we have given a gross margin guidance of around 12% to 15%. But sir, on a PBT level, is it profitable? And what kind of margin from a gross margin can you expect to flow to our operating profit level? That’s the final question.
Dhananjay Srinivas
So at PBT, we are profitable at Fotia and like we have guided, we are at 12% gross margin. We are aiming with experience center coming up and with more marketing and other avenues that we can increase the gross margins. Currently, we stand around 7% EBITDA at Fotia, and we are looking at increasing the EBITDA and the gross margin. And…
Madhur Rathi
Okay, just a final clarification, you guided that there was some kind of inventory loss and higher marketing expenses for this quarter. So what was the marketing expenses that were higher on a Q-on-Q or Y-o-Y basis for Q2 FY ’25?
Alex Varghese
Yes. The marketing expense was around — the marketing expense was approximately around INR3 crores to INR4 crores — INR3.5 crores to INR4 crores the total marketing expense we had in the first half.
Madhur Rathi
Okay. So this was higher by INR3 crores to INR4 crores or it was INR3 crores to INR4 crores H1 to H1?
Alex Varghese
Overall, around INR3.5 crores we spent for marketing in the first half.
Madhur Rathi
Was just H1 of — what was that?
Dhananjay Srinivas
Normally, we don’t spend much on marketing efforts. And so this time, we’ve had a fair amount of product launches across the country, particularly in Kerala and the South. And we’ve had certain other branding expenses, which we have incurred in this last 6 months. So I think there were a lot of influencer events. We had brand launches, so on. So I think normally in the same period, we have barely spent about maybe around INR50 lakh kind of a budget in the first half. So we have gone up by more than INR3 crores compared to the normal.
Sukumar Srinivas
And we also did this year sponsor part of the CREDAI National Conference that was held in Sydney. So we were part of that because we wanted to increase our presence with the builder community.
Operator
Thank you. The next question is from the line of Ketan R. Chedda from an Individual Investor. Please go-ahead.
Ketan R. Chedda
Hi, thank you for the opportunity. If I look at your marketplace revenue and EBITDA that you have shown, it comes to about 2.8% for the first half of this financial year — 2.8% EBITDA margins. Now I think if I heard correctly, you are saying that your non-steel margins would be around 6% or better and your steel would be 3% or better. So can you explain the — why are we so low in this first half of the financial year itself? Because based on what you’re saying, we should have achieved more better margins in this first half?
Sukumar Srinivas
Yes. So I think primarily, if you look at quarter 1, we were largely on track. Quarter 2, I think the price of steel is very critical. 90%, 88% of our business is steel based. So when you look at the averaging out, though in the non-steel, we’ve maintained steady at that 6-plus kind of an EBITDA, where it has not gone down. In steel, I think we took an impact in Q2, which we have mentioned in our opening remarks as well as we have talked about it over the last — I mean, a few questions. So steel price has softened. There has been a fair amount, a 10% to 12% kind of a decrease, which had approximately about a INR12 crore kind of an impact on our margins. So I think that is the reason why if you look at Q2, EBITDA per se was only around 2.73% — 2.83% was the EBITDA for Q2. So that explains the decline in Q2.
Ketan R. Chedda
So do we hope to recover the margins in the steel business in the upcoming quarters and upcoming years?
Dhananjay Srinivas
Yes. So I think we believe that the steel prices are bottoming out currently. We have seen a rollover in the month of October as well as November as we speak. So we are fairly confident that steel prices will remain flat over the next — at least this quarter. And there is a scope of a marginal increase going forward but that is something that we cannot really predict. But the only thing is we are reasonably confident that steel prices will remain relatively stable in the coming quarters.
Ketan R. Chedda
Okay. And with respect to the acceptances that you’ve had since Q1 and Q2 of this financial year, I just wanted to know in the previous years, ever did we have this kind of an acceptance-related costs in our finance cost item? Or it is only this financial year that we had this?
Dhananjay Srinivas
Yes. In the previous year also, we had interest-bearing acceptance were there.
Ketan R. Chedda
Okay. But then they are lower in quantum?
Dhananjay Srinivas
Yes, the quantum was lower.
Ketan R. Chedda
Okay, okay. And if you also could explain if I compare H1 of last year and H1 of this year, the employee expense has also increased by 16%, if I look at your Slide #13. So could you help understand, is this because of addition of manpower and staff? Or how much it would be because of the price hikes and appraisals that you have given to the staff?
Sukumar Srinivas
Yes. The thing is in this financial year, we added around 80 additional staff we have taken, so which has resulted into higher employee cost. Apart from that, the regular yearly increment we have given. So those things has affected in the increase in employee cost.
Dhananjay Srinivas
One of the key things we have done this year, particularly in the non-steel, we have added a few senior level people to handle our Fotia brands, etc., etc., at multiple levels. And we have opened up in Gujarat in a big way in Morbi, we have added a number of people. So these are all — and there’s been a substantial management bandwidth also addition. So I think these approximately have led to the about 16% that you mentioned, out of which about 9% was the increments that have come in and the balance is the addition of staff.
Ketan R. Chedda
Okay. Okay. And one question I had with respect to the Morbi experience center. If you could just help me understand how are we going to benefit by opening an experience centers in Morbi because I understand for the market, this business, I mean you would have a lot of your customers visiting your stores. So if you open an experience center in Morbi, which is, I understand it’s a tile hub of the India, the country, but how does it help us improve the sales because most of your customers would be visiting your stores which are spread across different states and different locations?
Sukumar Srinivas
Yes. So I think Morbi is where we also get all our manufacturing done, number one. Number two, there are lots and lots — Morbi straightaway reaches us all India. It gives an all India exposure, a; b, it also gives us an international exposure because Morbi being the hub, you have a number of buyers who come from all over the country to Morbi, particularly at a trade level, even at a builder level, and there are a lot of international buyers who come in. So I think this is the most compelling reason why we need to have a base at Morbi, where you have a much larger experience center. We’ve got 18,000 square feet over there vis-a-vis at our various retail stores, etc., which could be 2,000; 1,000; 1,500, etc. So the larger space attracts larger crowds. It is a sourcing hub. It is where a lot of visitors coming, larger space, more designs to show. So I think Morbi is very compelling for us to have an experience center.
Ketan R. Chedda
Okay. And if I may ask, how much of the cost we have incurred in setting up the experience center? And is this part of the capex? Or it has gone as the operational expenses?
Sukumar Srinivas
I think we have spent about INR3 crores in the setting up of the center and it has largely gone towards capex.
Ketan R. Chedda
Okay. Okay. Yeah. Thank you so much. Those are my questions. Thank you so much and wish you all the best.
Operator
Thank you. The next question is from the line of f Neil Bahal, an Individual Investor. Please go-ahead.
Neil Bahal
Hello. Hi, everyone. Just wanted to check — I’m a new investor here, so I’m like trying to get a better handle on everything. Just wanted to check on the interest cost. I saw till December, the interest cost was about INR8 crores to INR9 crores, which has suddenly spiked and I understand it is because of payables having interest outgo. You mentioned in the last call that it’s likely to revert to normal at some point. Do you have any better clarity as to when this interest cost could go back to INR7 crores to INR8 crores per quarter?
Dhananjay Srinivas
The first thing is the normal taking at INR7 crores, INR8 crores could be a challenge. However, if you look at the progress from Q1 to Q2, there has been a decrease of around INR2.5 crores between the two, quarter 1 and quarter 2 in the interest cost. So we are working very hard to see that can we bring it back to a much more controllable level, bringing it back to about INR8 crores, INR9 crores is a challenge. If you look at Q4 last year was around INR9 crores. So there is a strong about INR9.75 crores, almost INR10 crores. So I think there is a very, very concerted effort from our side. So if we can stabilize at least maybe around INR11crores, INR12 crores in that region.
Neil Bahal
So for the next financial year, FY ’26, can I assume that it could be in the region of INR11 crores per quarter?
Alex Varghese
That’s our objective. I mean any forward-looking statement from my side, we’ll always try to work towards the best. So that is a very, very serious attempt that we are trying.
Neil Bahal
All right. And from your presentation, post demerger, I see that most of the payables are going to the marketplace. That means most of the debt is also going towards the marketplace. Am I correct in my estimate that large part of this debt or interest costs are going to move to the marketplace business?
Alex Varghese
Yes, yes.
Neil Bahal
So it’s not clearly mentioned, but if you could — or the CFO could tell me what is going to be the exact debt post demerger in marketplace and in manufacturing?
Alex Varghese
So what is happening is the figure what we have given is as on H1 of this financial year. So going forward, in the Marketplace, we’ll be in the manufacturing place, we’ll be having the debt of approximately around INR100 crores. And including acceptance in the new company, we’ll be having around INR450 crores — INR450 crores will be there. Also around INR550 crores of the bank debt will be there.
Neil Bahal
Yes. And so this would be acceptance debt and plus the INR100 crores debt of normal term loans that you have?
Alex Varghese
No, no, we are saying about acceptance and debt together we are saying.
Neil Bahal
So the total debt is right now INR550 crores is what you’re saying?
Alex Varghese
Correct. Correct.
Neil Bahal
Okay. So INR450 crores there and INR100 crores there. And just again, I’m so sorry to ask a basic question. The marketplace is the business where there are no assets. It’s an asset-light business, right? But it will also be selling steel products or it will only be selling non-steel products?
Dhananjay Srinivas
It will sell steel products also.
Neil Bahal
Right. So the things that you produce at your manufacturing will be sold in the marketplace also? Is there some transfer pricing policy like cost plus something that you sell over here?
Sukumar Srinivas
Going forward, we would like to sell most of our products that we produce directly and we will bring it down to — for our marketplace, we will reduce the quantum of what we sell from our own production, A. B, yes, there is a very clear ambulant pricing when we do look at the transfer from our manufacturing to our marketplace. Let me add another point to your earlier question on interest costs going up. Also, we have to keep in mind and note that the basic rate of interest itself has been increasing. So about 0.5% of the increase in interest cost has come because of the sheer fact that interest cost itself have increased. So I think that itself adds, if I’m not mistaken, to around INR1.5 crores, INR2 crores over the half year compared to the previous year.
Neil Bahal
Got it. Got it. Also post demerger, now the whole point is efficient capital allocation. Let’s say this happens by Q4 or Q1 of next year, the complete demerger happens. We don’t expect the debt in the marketplace to increase, right? Because then it will be completely separated from the manufacturing. So if any growth in manufacturing that you wish to do, that debt would be only over there increasing. And if the ROCE and the cash generation in the marketplace is going to be strong, should I expect that the manufacturing — sorry, the marketplace side, the debt would keep reducing every year?
Sukumar Srinivas
That is the attempt, yes, definitely.
Neil Bahal
Could you — I know it’s forward-looking and you can’t really say, but a range or an estimate of what kind of debt can reduce every year?
Dhananjay Srinivas
Can we work that out and come back to you? I mean we’ll take your contact from the call. And probably — I mean, the attempt certainly is to go ahead with the reduction. But if I have to quantify it at this stage, we’ll revert to you on this.
Neil Bahal
Perfect. If anybody from the team could just send me an e-mail or just call me and would tell me would be great.
Dhananjay Srinivas
Definitely. Definitely. Can we just get your e-mail ID right now so that we don’t have to waste any time on getting it from the sources.
Neil Bahal
Yes, yes. It’s neil@negencapital.com. Perfect. Thank you so much. That’s all from my side. Thank you.
Operator
Thank you. The next question is from the line of Parikshit Gupta from Fair Value Capital. Please go-ahead.
Parikshit Gupta
Hello, am I audible? Thank you very much for the opportunity and for a good — Congratulations on a good set of numbers. I have a couple of questions on the non-steel segment of the business. My first question is on sanitary ware. So I understand that it contributes to about 44% of the non-steel revenue. However — and you reported around 35% of growth in this revenue number. However, when we look at the sanitary ware companies among the listed ones are showing a very mild growth in terms of their top line to the tune of, say, mid- to — mid-single-digit numbers. However, we understand that there are many private players that also exist in this space. So I just wanted to understand if this 30% plus growth is skewed to certain players?
Dhananjay Srinivas
You can — so our market share gains and the expansion of our product portfolio in other fulfillment centers, I think our increasing strength in Karnataka, Tamil Nadu, now we’re opening the center in Hyderabad and Kerala, I think all of these are contributing to growth for our sanitary ware. We still feel there’s a huge potential for our growth in sanitary ware. Mainly most of the growth has come from marquee brands like Jaguar, Kohler, Parryware. So you can sell with these brands, along with our additional centers and more marketing efforts, we are grabbing more of the market share, and we are able to post a high double-digit growth in this industry.
Parikshit Gupta
Okay. I mean, just so I understand this correct. So this is most from brands which are private, not publicly listed.
Dhananjay Srinivas
No, no. I mean, most of the growth has come from the largest players…
Sukumar Srinivas
They are private because Jaguar as well as Kohler are privately listed. They are not publicly listed companies. You’re right. Yes. So if we look at sanitary, the listed brands are like Cera, Hindware, Parryware. Even Parryware is a privately held company, yes. You’re right. I think we are with more of the privately listed companies, yes.
Parikshit Gupta
Understood. Very helpful. Can I also please understand the regional split of revenue in the sanitary ware segment. You did mention growth in West and I think North regions. However, can you just please articulate it again?
Dhananjay Srinivas
So just to clarify, the growth in Western and Central regions has been completely steel growth. It has been the growth of our core business of steel. When you ask for the breakup of sanitary ware, most of our growth of sanitary ware is between Karnataka and Tamil Nadu.
Parikshit Gupta
Understood. That’s helpful. Just a follow-up on this, if I may. So we understand that at least construction activity was experiencing a slowdown due to the heavy monsoon in South. However, building products are also used for remodeling and refurnishing of houses. Does the company cater more to those kind of demands? Just a fundamental question.
Dhananjay Srinivas
I think that is also shown in the way if you look at the growth. Steel is predominantly used in foundations and in structures, which do require applications where ground and activity of weather has to be good. But interior works like tiling and bathrooms and occupation renovation has what has also helped us contribute to our 35% growth in the non-steel. And we do focus on all segments. I think our retail centers and counter focus on end home users, small tank contractors and plumbers who are predominantly in renovation and basic construction business.
Parikshit Gupta
Understood. So the second question is on the Tiles business. Again, similarly, listed players showing very miniscule growth numbers. However, 31% the numbers that we see here are super high. So just some comments on that also, please?
Sukumar Srinivas
I think one is partly whatever we have already given you the reason. Second, I think our base is also lower. So I think both this has helped. Being a new kid of the block, I think the aggression, the kind of marketing effort the team has put in at a very micro level. We — as we have mentioned in some of our closing remarks in the opening speech, see, the biggest advantage Shankara has is we still are maybe a listed player of INR5,000 crore top line, but the company acts and behaves as an absolute grounded down to us at a shop level kind of an entity. I think this is what really sets us apart from many of the other larger companies. So I think this ground level kind of focus really helps us sustain our growth.
Parikshit Gupta
That is super helpful. Thank you very much for your detailed answers. I really appreciate it. That will be all from my end. Thank you again.
Operator
The next question is from the line of Varun Pinto from NEGEN Capital. Please go-ahead.
Varun Pinto
Hello, am I audible? I just actually wanted some guidance on like the growth prospects and the margin for the manufacturing business. Now that we are going to be like separating both of those businesses, what is like the management’s plan for the manufacturing business? I know you guys have said that you want to increase capacity utilization. But in terms of revenue and margin, if you could have some sort of guidance of what is going to happen with that business, that would be great?
Dhananjay Srinivas
See our target as far as revenue goals, we would be looking at in the next year, definitely, we have to keep growing in the manufacturing. Like I mentioned earlier, we are looking at around the 50%, 50% plus capacity utilization is the first target, number one. Number two, we are very clearly looking at that achievement of a 3% kind of an EBITDA in the manufacturing. I think these are the two very clear objectives and thoughts that we have as of now.
Varun Pinto
Right, sir. And sir, this interest-bearing debt payable that we take, is that something that we do for the manufacturing business as well? Or is that only for the marketplace business?
Alex Varghese
This is majorly for the marketplace business. And also some of the raw material suppliers, we are offering the acceptance and giving it. So it is a mix of both.
Varun Pinto
Okay. Sir, could you give me a bifurcation of how much of that goes to the Marketplace? And how much of that goes to the manufacturing, the acceptances?
Alex Varghese
So out of INR450 crores of acceptance, approximately around INR350 crores will be towards Marketplace and approximately around INR100 crores will be for manufacturing.
Varun Pinto
Understood sir. And sir, in the presentation, you have said that you have reduced INR100 crores of debt in this quarter, INR100 crores of debt. So is that the payables, the acceptances, which have been reduced?
Alex Varghese
Yes, both debt as well as acceptance. Together we reduced INR100 crores in this quarter.
Varun Pinto
Right. Last quarter, you said it was somewhere around INR620 crores and this quarter it is INR450 crores, right?
Alex Varghese
INR450 crores to INR540 crores, INR100 crore reduction is there.
Varun Pinto
Okay, okay, understood. That’s it from me. Thank you so much, sir and all the best.
Operator
Thank you. The next question is from the line of Miraj from Arihant Capital. Please go-ahead.
Miraj
Thank you for the opportunity and congratulations on a decent set sir. Actually, my question has been answered, but just wanted to dig a bit deeper in the non-steel segment where you have an amazing growth. Although you said it is on a lower base, but then to broadly, if I see all the players in tiles or sanitary ware, there is no growth. And I’m still trying to navigate through that what other reason is there that the trading growth is possible over here because all the other players have seen are not showing growth. Is there any other particular reason?
Dhananjay Srinivas
I think two or three reasons. I think one reason is, like we said that base is small, we are very aggressive. We are grounded as a team. We are running across our fieldwork and marketing efforts and the amount of centers we have, we have seen good growth in this. Second is we do have a large number of brands. So we are not a single brand company. So we’re able to cater to multiple diverse customer needs from luxury to premium to mid-segment to lower segment as well. So that obviously definitely helped us gain more market share and more customers as well. And I think thirdly is the territory expansion which we are doing. And I think the focus on sanitary ware, which we’ve always had has been one of our key drivers in non-steel. So I think this is kind of what has contributed and attributed to our growth for this segment.
Miraj
But sir, in tiles, we only have small share, right? We don’t sell any other tiles or do we?
Dhananjay Srinivas
No, no, no. We do a lot of tiles with other companies. We do a good numbers with Kajaria, Somany, NITCO, Simpolo, just to name a few. So we do have that tiles segment in Tamil Nadu, especially. So — and in Karnataka as well. So it’s not just Fotia. We do have a mix of brands there as well.
Miraj
Okay. And could you just specify how much the tile segment grew year-on-year?
Dhananjay Srinivas
Tile segment grew around 40% — 30% year-on-year.
Miraj
It grew 30%. Okay. And sanitary ware would be then somewhere close to 40%?
Dhananjay Srinivas
45%.
Miraj
Okay, perfect. Okay. Yeah, that’s it from my side, sir. All the best for the future. Thank you.
Operator
Thank you. The next question is from the line of Keshav Garg from Counter Cyclical PMS. Please go-ahead.
Keshav Garg
Sir, I’m trying to understand that you mentioned that we took a INR12 crore inventory loss on — in the second quarter. So our EBITDA was INR37 crores. So is it safe to assume that from the third quarter onwards, once this INR12 crore inventory is not there, we’ll do upwards of INR50 crores EBITDA per quarter?
Alex Varghese
So we are projecting approximately 3% to 3.5% of EBITDA only further.
Sukumar Srinivas
Yes, you can — I mean, broadly — I mean, that’s a very simple assumption that — yes, I mean, that’s always our attempt to keep that focus on, yes.
Keshav Garg
Sir, because I mean, since Q2 was even seasonally due to the monsoons, so the revenue should also be higher quarter-on-quarter. And if the inventory is not — and sir, one more thing, sir, the interest on acceptances that we are giving, sir, are we giving it primarily to APL Apollo?
Alex Varghese
So there are so many vendors are there.
Dhananjay Srinivas
No, it’s not primarily for APL Apollo. It’s a mix of both clients and all purchases.
Keshav Garg
Okay. Sir, actually, if we see then if you compare the first half year-on-year, our revenue is up by 15%. And sir, if we look at our core working capital, which is just adding inventory receivable and subtracting the payables. So basically, year-on-year, it has increased from INR576 crores to INR583 crores, which is almost flat only. There is not much increase in the working capital, core working capital. Sir, but the interest cost has actually gone up significantly. It has actually doubled year-on-year. So what that means is that for the same — basically working capital is not having gone still — so basically, the competitive — the terms of trade have deteriorated for the company, basically. So why is it that — I mean, it seems that…
Dhananjay Srinivas
Hello. Hello.
Operator
Sorry to interrupt, sir. The current participant has been disconnected. We will move on to the next question. It’s from the line of Anuj Jain, an Individual Investor. Please go-ahead.
Anuj Jain
Hi, sir. A couple of questions from my side. Can you throw some light on the point which you have mentioned in your presentation, distribution of JSW and AM/NS, like [Indecipherable], what kind of products we are distributing for these companies?
Sukumar Srinivas
JSW, it is both JSW and AM/NS. JSW is largely HR coils and HR sheets as well — and in the case of AM/NS, we are across the board. We do deal with the HR coil, sheets. We have the GP, we have the value-added color-coated products, GC, CR, etc.
Anuj Jain
And for which territory it is?
Sukumar Srinivas
I think AM/NS is across our areas of operation. JSW is only currently in Karnataka.
Anuj Jain
Okay. Got it. And can you — help me in understanding one thing, how these fulfillment centers are different from stores? I mean…
Sukumar Srinivas
Yes. The fulfillment center, we see the stores primarily cater to a retail kind of walk-ins, et cetera. While the fulfillment centers, we are catering to a much larger audience where it could be wholesale customers, it could be the end customers, project customers, et cetera. So I think it’s a mix of the entire thing. So if you look at fulfillment centers, the definition would be mix of the store plus the warehousing and processing units too.
Anuj Jain
Okay. Okay. So it’s kind of big format stores, kind of?
Dhananjay Srinivas
Clearly necessarily large format stores, so to speak. I would say it’s catering to a larger customer profile.
Anuj Jain
Got it. Got it. And one last question. I mean, how we are doing in this online marketplace business, I mean, kind of portal, which we have launched that online sales? Any numbers we are driving from there and any plans?
Dhananjay Srinivas
So around, you could say, INR1 crore a month kind of sales that is coming out of it is purely from sanitary and fittings. But we are now adding steel to the platform as well. We are adding a few more products as well. So we are looking to see how much more revenue we can generate out of this. We are also using our online store as a discovery platform as an experience center as well. So customers can see the various brands and products that are available at BuildPro. And we do get a lot of offline footfalls and walk-ins, thanks to our online presence as well.
Anuj Jain
Got it. Got it. Thank you. Thank you. That’s it from my side.
Operator
Thank you. The next question is from the line of Keshav Garg from Counter Cyclical PMS. Please go-ahead.
Keshav Garg
Sir, I was — I think I lost you last time. So what I was trying to make the point that, sir, even though our H1 revenues are up by 15% year-on-year, our interest cost has doubled. Even though our net working capital is flat from INR576 crores in H1 of FY ’24, it has increased to just INR583 crores. Sir, so what it seems is that we have started paying interest on acceptances of payables to parties that previously we were not paying. So can you just explain that — is that thinking correct? And sir, if so, then, sir, basically has our — basically terms of trade deteriorated for the company?
Dhananjay Srinivas
No, I don’t think that is so. If you look at first is in terms of trade, when you look at the raw material cost plus the interest cost, you will see that the margins have really not deteriorated at all. It’s more or less same. Whatever impact that in quarter 2 could have happened or in the first half could have happened, the slight deterioration will easily be attributable to the raw material kind of rates that we took in the first — the second quarter, particularly, number one.
Number two is whenever the management will always take calls when we see options of debt financing versus taking the creditors as a means to fund working capital largely. So last year, the call was more to take on with the creditors wherever possible. This year, we find that wherever sometimes the creditors withdraw certain terms, their cash discounts may not be lucrative enough — so where we do find debt financing is much better. So I think that is one of the key reasons why the debt to some extent in the acceptances area has gone up. And that is — broadly, I can — I mean that is the answer that I can give you.
Keshav Garg
So basically, we have not started paying interest to parties that earlier we were not paying?
Sukumar Srinivas
No, no, no, not at all.
Keshav Garg
Okay. Sir, also, sir, we are barely doing INR5,000 crores revenue, and I’m assuming most of it is coming from South India and South India contributing 40%, 50% of the GDP. So why is there a need to then expand into new territories? Why not saturate the area, which is our core? So possibly, there will be some synergy if we expand in South India itself, sir, because INR5,000 crores is hardly like it’s not that we have totally penetrated the southern market and now we need to go to new states. So what are your thoughts on that?
Sukumar Srinivas
See, we have always reiterated your point. Thank you for reconfirming our stand that has been so for the last many years. So one of the things that we — if you look at even our breakup of sales, largely our 80%-plus is in South India even today. We have grown in the steel area in the Western region. So if you look at, again, from a GDP perspective, if you add South and West, I’m looking at Maharashtra and Gujarat, I think — I mean, going on your statistic, probably 70% of India’s GDP then comes from these two states, though I believe it’s closer to 65%. So I think getting a little bit of a foothold in the Western region is very critical also because a lot of infra Maharashtra still remains the largest state in terms of GDP in the country. Gujarat is also very developed in a forward state in terms of contribution towards GDP. So I think it’s very, very important that we keep a foothold and more than a foothold in these kind of states, number one.
Number two is we’ve also moved into Central India, that is Madhya Pradesh. We also believe that going forward, these — some of these states, the central states like Madhya Pradesh, going northwards, maybe towards Uttar Pradesh, Rajasthan, we do see that there is going to be a lot of growth potential in the future. These are states which are starting at a low base. They have a lot of infra projects. There’s been a lot of focus from the central government in some of these states. So I think it is imperative even if we don’t have a very — we don’t — I mean, it’s not that we are growing in these states for the sacrifice in the south. We will continue to saturate and keep most of our new fulfillment centers, etc., etc. The plan is to grow in the South.
Keshav Garg
Sir, also, sir, since we are an organized retailer come wholesaler in the building material space, sir, now the organized, let’s say, tile manufacturers like, let’s say, Kajaria or for that material, pipes and steel in APL Apollo, sir, they are already well established. They have their own distribution network. They have their own brand pull. So if we are selling their material only from our stores, then sir, obviously, they will not give us good term. I mean if we are able to sell like, let’s say, sir, there’s a huge overcapacity in tile, so if we can basically sell unorganized sectors, the small players, which are unbranded, if we can sell their material from our store and we can do quality control, so that is where I think the real opportunity is, because then we can really get good margins also and we can extract good credit terms or working capital terms also from those suppliers. So basically, what are your thoughts on that, sir? So I mean, don’t — sir, should we not reduce our dependence on the established players and try to sell the material of basically small players?
Sukumar Srinivas
I think this answer has two parts to this. I think one would be regarding steel and one would be regarding non-steel because both industries work differently. Mr. Ravikumar will talk about steel. But for non-steel, I would say that Fotia is born out of this. I think there is a niche and opportunity in the tile industry where we could find a space, and that’s where we did come in.
I think when it comes to sanitary and fittings, since the brands are visible and all the marquee brands are spending huge in marketing, customers do come in for brands. I think there will still always be a pull for Jaguar compared to an unknown brand coming out of any other manufacturing. So I think a good mix going forward would be good for us in this — in the nonsteel segment. For steel, I’d ask Mr. Ravikumar to answer this.
C. Ravikumar
As regards to steel, most of the manufacturers who are established, they have to route their material through distributors like us. It is very important for them. And it is equally important for us also to have them in our portfolio. It helps in a very big way for both of us. The second, I mean, when you’re saying about brands, like why you only do Apollo and why not others. See, today, there is a brand pull from the end customer. See, India is a very peculiar country where most commodities are branded. So the customer — I mean, you look at it, India is probably the only country where steel is branded, cement is branded, plywood is branded. A lot of commodities are branded across the board.
And when we do talk to some of the even multinational manufacturers of glass or various things, they’re quite surprised and amazed that the way the branding has come — is being done in India right now to our TMT steel, so on and so forth. So one cannot really disregard the brand pull in this country. So I think we will have to find a balance between brands as well as nonbrands. And I think when it’s non-brands, like you rightly said, we’ll have to have quality monitoring. And it’s a phased step-by-step process.
Keshav Garg
Right, sir. And sir, lastly, sir, if we look at the competition, like sir, infra.market or SGMart, those people, their cost of equity is so low because they are able to raise capital at a multiple of sales. So then — sir, does that not — basically, sir, how do we compete with these people? I mean, since the cost of equity is so low and whereas for us, it’s not the same.
Dhananjay Srinivas
See, A, you yourself answered the first part is, fortunately or unfortunately, we are not a start-up. So A, we do not have money to burn. So every look, every way we look at it, we have to account for our expenditures and ultimately, the bottom line. That’s number one. Number two, these guys are looking at their whole business model very, very differently. They are at a much larger scale in terms of wholesaling and so on. We have the unique model where we’ve got retail, we have, I mean, a very vast number of end customers. We’ve got a huge, huge customer base. And I think our 40-year-old legacy is not going to waste over there. We are very grounded. We’ve got a strong presence in Tier 2, Tier 3 kind of cities. So I think our very, very expanded wide network is holding us in good state. So those guys will raise capital at a lower price. We will have to bear that cost. But I think in the long run, the kind of base, the kind of expansion of customer base, I think will hold us good in the long run.
Keshav Garg
Sir, and lastly, sir, you think that in the second quarter, sir, our performance has bottomed out on the, let’s say, profit after tax level after interest and everything. And going forward, sir, things should pick up from here, at least on a quarter-on-quarter basis?
C. Ravikumar
Definitely, yes. Back to your earlier question, you look at it only from an interest cost. But if you look at it even from an ROCE level, I think in this context, probably ROCE could be the final arbitrator. So when we look at — when we get into the marketplace model, which is very — is something we are driving towards, I think then our comparison should go to that maybe at that time.
Keshav Garg
Sure, sir. Thank you very much and best of luck.
Operator
Thank you. The next question is from the line of Neil Bahal, an Individual Investor. Please go-ahead.
Neil Bahal
Hi, sir. I just wanted to check on the manufacturing business. I had three questions for that. You said that your aspiration is to get to 50% plus in utilization level and something sort of a 3% EBITDA margin. Where do you stand currently in your utilization level? And by when do you think you can get to, let’s say, 75%, 80% utilization?
Dhananjay Srinivas
See, we have — currently, we have just about hit the 50% mark. That was our target number one. So as far as 70%, we like to sustain this 50-plus around 50%, 50% plus for the next — this coming two quarters. That is objective number one. Number two, after that, once we sustain at that level, and we are able to focus and get our EBITDA up. I think that then we will look at the 70%, 75% kind of capacity utilization probably after the demerger process.
Neil Bahal
Understood. Now I want to understand that this — when you said 3% EBITDA target, that’s at 50% utilization or that will happen later at 75%, 80% utilization? Because when does the operating leverage play out here?
Dhananjay Srinivas
I think the operating leverage to some extent has already started playing out. If you look at from the profitability of Q1 to Q2, we have actually crossed the — at least from a breakeven level, it’s slightly improved. I can’t say a substantial improvement because we were impacted because of the raw material prices, et cetera, in Q2. So I think we are nearing there as far as the leverages and the profitability should start kicking in. And certainly, in the 3%, 3.5%, we will see if we can get that going by around that 60%, 60% kind of capacity of leverage.
Neil Bahal
So 3% can come at 60% utilization?
Sukumar Srinivas
Yes, broadly.
Neil Bahal
And that is like mostly post the demerger sometime in FY ’25?
Sukumar Srinivas
Yes.
Neil Bahal
How — what is the maximum? What is the peak revenue here?
Operator
Can you please fall back in the question queue for further questions?
Neil Bahal
This is extremely important what I’m trying to ask. Can I ask one more question?
Dhananjay Srinivas
Sure. Please go ahead.
Neil Bahal
I want to understand what is the peak revenue of our manufacturing setup?
Dhananjay Srinivas
Our peak revenue should be in the region of around INR1,400 crores, INR1,500 crores.
Neil Bahal
INR1,500 crores. And the peak margin is also 3%? Or the peak margin can be more than 3%?
Dhananjay Srinivas
I mean, I — we will guide at this point of time to 3%. Always the aspiration is to build up.
Neil Bahal
Obviously, because if at 60%, we can get to 2.5%, 3%, then at peak, we should be at 4%, probably 4.5%. Is that doable in your estimate? Like just as a theoretically speaking?
Sukumar Srinivas
It is always there Mr. Neil.
Neil Bahal
Yeah. Got it. Got it. Thank you so much, sir. This helps a lot. Thank you.
Operator
Thank you. The next question is from the line of Amit Mehendale from RoboCapital. Please go-ahead.
Amit Mehendale
Hi, thanks. Thanks for the opportunity. I have a question on the growth of steel business. So currently, we have been growing pretty well. But how do you see the growth 2, 3 years out? And what are the key drivers there, growth drivers?
Dhananjay Srinivas
I think we do see a sustained growth of — I mean, our target is from a volume base, definitely at that 20%, 25% kind of a growth. We are very clear. We’ve already guided in our presentation itself that we would like to hit the 1 million mark in terms of the steel tonnages in the next year. So that is something that we have already given an indication for ’25 — sorry, ’25, ’26. So that is something we certainly aspire.
And coming to the drivers for growth, I think there is a huge infra spend overall in the country, which is led by railways, by roads, by ports, then there’s an enormous building and the construction boom that is happening in many pockets of the country. So I think it is a multifaceted growth push that is driving the demand for steel.
Amit Mehendale
I mean if you look at the number of stores or the fulfillment centers that we are adding, those numbers are fairly modest in terms of growth rate of where we are today. So what type of market share gain are we factoring in? Or can you talk a little bit about market share?
Dhananjay Srinivas
Market share of steel?
Amit Mehendale
Yes, on the steel revenue.
Dhananjay Srinivas
Steel business, honestly, if you look at the entire demand of steel in this country is upwards of 100-odd million tonnes comfortably in the country, and it’s only going forward. Looking at the kind of expansion that some of the big JSW, Tata Steel, etc., are going about. I think they are projecting — I mean, the government as well as the organized sector as well as the secondary sector in steel manufacturing, etc., want to take India to about 250 million tonnes kind of a consumption market. So I think if you look at the very big picture in India, I mean, we are still a dot on the form. So the runway is huge, huge, huge, huge.
Amit Mehendale
Great. That’s it from my side. Thank you.
Operator
Thank you. The next question is from the line of Varun Pinto from Negen Capital. Please go-ahead.
Varun Pinto
Hello, my sir, am I audible?
Dhananjay Srinivas
Yeah.
Varun Pinto
So sir, currently, we are giving our segmental revenue like steel and nonsteel, right? But post the demerger, how much is going to be the contribution of steel in the marketplace business?
Dhananjay Srinivas
In the — you’re asking about the immediate near future, I think our target is about 80% of steel will be in the immediate future in the marketplace business.
Varun Pinto
Okay. So when the demerger happens, 80% of the revenue will be coming from the steel business and 20% from the non-steel business and the non-steel business is going to keep increasing over the years, right?
Dhananjay Srinivas
Correct.
Operator
Thank you the next question is from the line of Ketan R. Chedda, an Individual Investor. Please go-ahead.
Ketan R. Chedda
So I just wanted to understand like for this year, what is the revenue expectation or guidance that you could give for the marketplace over FY ’24 and also the margins guidance, if you can give, please?
Alex Varghese
I think the broad growth this year, we can expect in the region of around 15% to 20% in the volume of steel and 30%, 35% in the non-steel. So I think blended growth will be in the region of around 20% or so in terms of the revenue uptake.
Ketan R. Chedda
Okay. And margins, sir, if you can give some indication?
Dhananjay Srinivas
I think we definitely will be in the region of upwards of 3% level.
Ketan R. Chedda
Okay. Thank you so much.
Dhananjay Srinivas
I think we’ve gone up to around 12:15, 12:20 now. So are we still having any questions in the queue?
Operator
No, sir, there are no further questions. You can go ahead with your closing comments.
Sukumar Srinivas
Yes. So thank you very much, and it’s been a real pleasure attending this investor call. Thanks to all the people who have attended here today. And I hope we at Shankara have been able to give you satisfactory answers. And we look forward to your continued participation with us. Thank you so much. Bye-bye.
Operator
[Operator Closing Remarks]