How SG Mart’s Q3 Numbers Reveal a Reset Phase After Steel Price Volatility?
SG Mart’s Q3 concall needs to be read with a lens that separates accounting noise from business reality. At first glance, the reported EBITDA of ₹17 crore may appear underwhelming. However, management was quick to contextualise the quarter, highlighting that underlying business EBITDA stood closer to ₹40 crore once one-off inventory losses and new business ramp-up costs are adjusted for. This distinction is critical for investors attempting to assess the company’s true operating trajectory.
The quarter was marked by a sharp correction in steel prices, an external factor that directly impacted inventory valuation. Such phases often create temporary distortions in reported profitability, especially for companies operating in commodity-linked trading and distribution models. What matters more is how SG Mart navigated this volatility operationally and whether its balance sheet strength provides enough resilience to absorb short-term shocks.
Reported vs Underlying EBITDA: Reading Between the Lines
For Q3, SG Mart reported EBITDA of ₹17 crore. However, management clarified that after adjusting for inventory losses and initial costs related to new business initiatives, the underlying business EBITDA was closer to ₹40 crore.
This adjustment framework suggests that the core operating engine remains intact despite adverse commodity price movements.
Such divergences between reported and underlying numbers are not uncommon in commodity-facing businesses. The key is whether these adjustments are genuinely non-recurring. In SG Mart’s case, the inventory loss was explicitly linked to a sharp steel price correction, not to operational inefficiencies or demand destruction. This distinction supports the argument that profitability can normalise once price stability returns.
Inventory Loss: A Commodity Cycle Reality Check
The company incurred an inventory loss of approximately ₹20 crore during the quarter, driven by a sharp correction in steel prices.
Management positioned this as a timing issue rather than a structural weakness in the business model.
Inventory valuation risk is inherent in steel-linked distribution models. Periods of rapid price decline compress margins temporarily, but they also tend to reset the cost base for future volumes. Historically, companies that manage working capital tightly and maintain liquidity during such phases emerge stronger when volumes stabilise.
SG Mart’s commentary suggests that inventory discipline remains a focus area, and the company is not carrying excessive speculative positions. This reduces the probability of repeated large inventory write-downs in subsequent quarters.
Volume Growth Signals Demand Resilience
Volumes grew 9% QoQ during Q3, indicating that demand traction remained healthy despite price volatility.
Absolute EBITDA improved by 35–40% compared to FY25 levels, reinforcing the underlying growth trend.
Volume growth during a period of falling prices is an important signal. It implies that end-user demand has not materially weakened and that channel partners continue to engage with the platform. For SG Mart, this suggests that its distribution reach and customer relationships remain robust.
From a medium-term perspective, sustained volume growth often acts as a leading indicator for margin recovery once pricing stabilises. Investors should therefore track volume trends more closely than single-quarter margin swings.
👉 Traders often align such inflection points with broader market behaviour using Nifty Trading View to judge whether cyclical stocks are entering accumulation phases.
Balance Sheet Strength: Cash as a Strategic Asset
SG Mart ended the quarter with a cash balance of around ₹800 crore.
Working capital stood at a disciplined 27 days, reflecting tight control over receivables and inventory.
The cash balance is arguably the most underappreciated aspect of SG Mart’s story. In commodity-linked businesses, liquidity is not just a safety net but a strategic lever. Adequate cash allows the company to absorb volatility, negotiate better sourcing terms, and selectively scale volumes when competitors may be constrained.
A 27-day working capital cycle is efficient for a business of this nature. It suggests that growth is not being funded through aggressive credit extension or balance sheet stretching, which lowers financial risk during downcycles.
New Business Costs: Short-Term Pain, Long-Term Optionality
Management also highlighted that part of the EBITDA gap was due to initial costs associated with new business initiatives. While these costs suppress near-term profitability, they often represent investments in future revenue streams. The critical question is whether these initiatives scale efficiently.
Given SG Mart’s strong cash position, the company has the flexibility to experiment and iterate without compromising financial stability. Over time, successful scaling of these initiatives could diversify revenue sources and reduce dependence on pure steel price cycles.
Valuation & Investment View
The market is currently weighing near-term earnings volatility against strong balance sheet metrics and volume growth.
If steel prices stabilise, reported EBITDA could converge closer to underlying operating performance over the coming quarters.
Participants tracking sector rotation often cross-check such setups using BankNifty Trading View to assess whether risk appetite is improving for cyclicals.
Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, believes that SG Mart’s Q3 performance should be interpreted as a transition phase rather than a deterioration in fundamentals. Inventory losses linked to steel price correction are cyclical, while volume growth, strong cash reserves, and disciplined working capital point to operational resilience. Investors should focus on underlying EBITDA trends and balance sheet strength as indicators of medium-term recovery potential. Deeper market insights and structured analysis are available at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
