Introduction:
Sarthak Metals Limited (NSE: SMLT), a prominent player in the metallurgical industry, recently conducted its Q3 2024 earnings conference call, shedding light on its financial performance, strategic initiatives, and future outlook. Led by Sagar Shah, Vice President and part of the Promoter Group, the call provided valuable insights into the company’s operations and its vision for sustainable growth.
Financial Performance:
In Q3 FY24, SMLT experienced a mixed performance across its business segments. While the Cored Wire segment generated a revenue of INR 28 crores and the Aluminium Flipping Coil segment contributed INR 36 crores to the total revenue, the company witnessed a 19% decrease in total revenue, amounting to INR 75 crores, compared to the same period last year. This decline was primarily attributed to lower price realizations and volume offtake in the Cored Wire segment, coupled with challenges in the Aluminium segment due to the commodity pricing cycle. Despite these challenges, the company’s EBITDA margins remained resilient, albeit impacted by an increase in finance costs.
New Initiatives and Future Prospects:
Amidst the short-term challenges, SMLT remains optimistic about its long-term growth prospects. The company has made significant strides in its Flux Cored Wire segment, conducting successful trial runs and securing the BIS certificate. Moreover, SMLT is actively pursuing approvals for the railway sector, a move expected to drive further growth in this segment.
In addition to its traditional business lines, SMLT has ventured into the promising field of biotechnology with the launch of its industrial biotechnology division. By leveraging its expertise and resources, the company aims to establish a global manufacturing hub for industrial bio-enzymes and healthcare nutrition products. Collaborations with renowned institutions and investments in talent acquisition underscore SMLT’s commitment to this new venture. Furthermore, the company’s active participation in exhibitions and government initiatives reaffirms its strategic focus on biotechnology.
Market Opportunity and Growth Strategy:
The global market for enzymes and healthcare nutrition products presents significant growth opportunities for SMLT. With an estimated market size exceeding INR 75,000 crores and a projected CAGR of over 10% for industrial enzymes, the company is well-positioned to capitalize on this upward trajectory. By targeting applications such as 2G ethanol, breweries, distilleries, textiles, and healthcare nutrition, SMLT aims to harness its technological prowess to drive sales and margins in the foreseeable future.
Investment and Revenue Forecast:
To support its growth initiatives, SMLT plans to invest approximately INR 100 crores, with expected sales of around INR 350 crores and a gross margin of approximately 30%. These strategic investments are anticipated to yield initial revenues of around INR 10 crores, laying the foundation for sustained growth in subsequent years.
Conclusion:
Despite encountering short-term headwinds in certain business segments, SMLT remains steadfast in its pursuit of long-term growth and value creation for its stakeholders. With strategic investments, innovative initiatives, and a resilient growth strategy, the company is well-positioned to navigate challenges and unlock new opportunities in the metallurgical and biotechnology sectors.
Q&A Session Summary: SMLT Q3 2024 Earnings Conference Call
The Q&A session during SMLT’s Q3 2024 earnings conference call provided additional insights into the company’s operations, challenges, and strategic direction. Here’s a summary of the key points discussed:
1. Competitive Edge in Flux Cored Wire Segment: SMLT highlighted its technological adaptation and strategic location as key factors contributing to its competitive advantage in the Flux Cored Wire segment.
2. Current Order Book in Flux Cored Wire Segment: While specific details about the current order book were not disclosed, the company indicated its intention to provide this information in the near future as rapid approvals progress.
3. Diversification into Other Metal Sectors: SMLT clarified that it currently has no plans to diversify into other metal sectors, as it remains focused on its existing ventures.
4. Exploration of Opportunities in Biotechnology: The management emphasized its strong focus on the biotechnology field, particularly in applications such as 2G ethanol production, underscoring its commitment to sustainable initiatives.
5. Revenue Guidance Deviation Explanation: SMLT attributed the substantial deviation from earlier revenue guidance to challenges in product realizations, particularly in the aluminium segment, influenced by global tensions and supply chain disruptions.
6. Gross Margin and Revenue Outlook: The company expects improvements in gross margins as it reduces aluminium inventory and anticipates a rebound in aluminium prices. Sales trajectory for Q4 appears flattish, with a need for realization improvement in commodities like aluminium.
7. Capacity Utilization and Revenue Projection: SMLT disclosed current capacity utilization rates for its core business segments and projected peak revenues at current prices, expressing confidence in scaling up the Flux Cored Wire segment.
8. Barriers to Entry in Enzyme Business: While acknowledging entry barriers in the enzyme business, SMLT highlighted its technical collaborations and credibility-building initiatives, particularly through the 2G ethanol program, as strategies to overcome these barriers.
9. Revenue Expectations for FY ’25: The company expressed confidence in maintaining or increasing market share during upcycles in the steel industry, potentially leading to revenue growth in FY ’25.
10. Pricing Power in Products: SMLT claimed pricing power in technical products like Cored Wires due to its expertise and service quality, though pricing power is limited in commoditized products like aluminium.