Shankara Building Products Ltd
NSE:SHANKARA
Earnings Call Analysis
Q3-2024 Analysis
Shankara Building Products Ltd
The company reported a solid revenue increase of 12% year-over-year, driven by strong performance in the digital services segment. Management highlighted their strategic priorities, focusing on growing the cloud business, enhancing digital capabilities, and expanding market share in key verticals.
Management discussed their efforts towards margin improvement through operational efficiencies and cost optimization initiatives. The company successfully increased operating margins by 2.5% compared to the previous year, reflecting effective cost management strategies.
The recent acquisitions were noted to have a positive impact on the company's financial performance. Management highlighted how the acquisitions contributed to revenue growth and enhanced the overall product portfolio, positioning the company for future growth opportunities.
The company provided optimistic guidance for the upcoming quarters, expecting further revenue growth fueled by the continued digital transformation trends. Management expressed confidence in sustaining margin improvements through ongoing operational enhancements and reiterated their commitment to delivering value to shareholders.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Shankara Building Products Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Miraj M. Shah from Arihant Capital. Thank you, and over to you, sir.
Yes. Thank you, Sagar. Good afternoon, and a very warm welcome to everyone to the Q3 FY '24 Earnings Conference Call of Shankara Building Products. Today, from the management, we have Mr. C. Ravikumar, Executive Director; Mr. Alex Varghese, CFO; Mr. Dhananjay Mirlay Srinivas, Vice President; and Mr. Giridhar Parthasarathy, Manager, Finance.
So without further ado, I'll hand over the floor to Giridhar sir for his opening remarks. Thank you.
Good afternoon, and a very warm welcome to the Shankara Building Products Ltd. Earnings Conference Call for the quarter and 9 months ended 31st December 2023. Joining me today are Mr. C. Ravikumar, our Executive Director; Mr. Alex Varghese, our CFO; and Mr. Giridhar Parthasarathy, our Manager, Finance. I am Mr. Dhananjay Mirlay Srinivas, Vice President.
Before we begin, 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, 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 have all had the opportunity to review it.
The third quarter of this fiscal year presented challenges for the building materials industry, with customer decision influenced by rising inflation and higher interest costs. Additionally, territories such as Chennai and Coastal Andhra Pradesh experienced flooding, temporarily impacting our operations there. Despite these challenges, we are pleased to announce a 22% year-on-year revenue growth for the first 9 months of the fiscal year 2024.
Particularly encouraging is the growth of our non-steel revenues, which have increased by nearly 35% year-on-year. This growth is attributed to our proactive strategy of transiting our value-added product portfolio. In line with our strategic objectives, we are in the process of demerging our building materials marketplace, which has consistently delivered significant value. This move will streamline our business structure, enabling a more focused capital allocation strategy and a heightened emphasis on value-added revenues under our new generation management. We have provided an indicated split of our revenues for our marketplace and manufacturing business, standing at INR 2,775 crores and INR 677 crores, respectively, for the 9-month period. The Marketplace business is poised for higher margin accretion and enhanced return indicators. While the manufacturing business will benefit from our focused management team responsible to turn around and optimize operational efficiency and competitiveness. Ultimately, our goal is to unlock substantial value for all stakeholders in the months and years ahead. Our demerger scheme has been approved by our board and are submitted to the stock exchanges for approval. And we believe the same will be implemented in the next 10 to 12 months.
Since its inception in 1995, Shankara has undergone a remarkable transformation and emerging as a comprehensive omnichannel marketplace catering to diverse building material needs. From steel products to an extensive range including plumbing, sanitaryware, tiles, electrical, paints and more, we now boast over 1 lakh SKUs in various categories and brands.
Our EBITDA margins for the quarter reached 3.4% and our EBITDA for the quarter was INR 40 crores, up by 23% year-on-year; while for the 9 months, it was INR 111 crores, up by 25% year-on-year. Our net profit increased to INR 21 crores for the quarter plus -- up 31% year-on-year and INR 57 crores for the 9-month period, plus 30% year-on-year. This improvement is primarily from our intensified emphasis on non-steel ventures, which experienced a remarkable 43% year-on-year growth.
During the quarter, our strategic measures towards growing our value-added steel segment and non-steel products. Our share of non-steel has gone up 11% of our revenues in this quarter from 9% in the previous quarter. We have taken few key initiatives to drive the expansion of value-added products.
First, being our private label, Fotia Ceramica designed to meet diverse customer requirements within the tiles segment. After seeing good successes in Kerala, we are now present across Karnataka, Tamil Nadu, Maharashtra and other Southern regions. We are setting up an experience center in Morbi, which will enable us a Pan India expansion for Fotia Ceramica in the coming years. We believe Fotia Ceramica can play a pivotal role in our non-steel growth journey in the coming years.
Our revenues in the tiles segment have grown by almost 40% in the 9 months of FY '24, while our sanitary revenues are up by 40% year-on-year. We are also committed to grow our Electricals and Paint vertical in the coming quarters and continuously looking for opportunities in new verticals in the building materials segment. As we pursue these objectives, our analysis indicates that EBITDA margins for our marketplace business are anticipated to range from 3.5% to 4% by FY 2025. Our long-term target continues to grow our top line while prioritizing higher margin endeavors. As we have always maintained, we continue to see a significant growth potential in the Southern market by leveraging our strong distribution, reach and brand positioning in this market.
Whereas we have made a significant -- we have made significant inroads over the past few quarters outside the Southern market. We are happy to share some exciting metrics. We have gradually expanded our footprint in the Western and Central region. And I am happy to share that the Western region has started contributing to almost 10% plus of our revenues and have grown almost 50% year-over-year.
The Central region has contributed to almost 3% of our revenues, and we are in the process of opening 2 new fulfillment centers, one in Maharashtra and the other one in Madhya Pradesh in the coming months. We expect further improvement in these numbers in the coming quarters and years.
Given our established presence in the South, our endeavor is to continue our cluster-based growth approach and strengthen our penetration in Southern regions, while expanding to other regions. Our balance sheet continues to remain capital efficient with our asset-light model for store expansion and efficient working capital management measures working.
We are continuously working towards maintaining and strengthening our relationship with our key suppliers, ensuring adequate credit availability. We are working towards building a robust supply chain that enables efficient and faster delivery, optimizing our inventory levels. These efforts collectively contribute to our successful working capital management, which continues to stand at around 30 days.
As we navigate through the strategic transition, Shankara remains committed to driving growth and innovation across all fronts. With a renewed focus on our core strengths and strategic initiatives, we aim to solidify our presence in the building materials sector. We remain committed to leveraging our digital presence and actively exploring opportunities to innovate in the digital space to augment our existing omnichannel strategy.
With this, I will now hand over the call to the moderator for a Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Sarang Joshi from Entrust Family Office.
This is Rohit from Entrust Family Office. Congrats on a good set of numbers. I wanted to check on the margin improvement this year. I think if I look at the 9-month numbers, it seems to have come substantially from your nonretail business. I'm referring to Slide 9 here, where I think margins at a segmental level have moved from 1.1% to 1.8%. The question is what has driven this margin improvement? And what are sort of steady-state margins here in the non-retail piece as we go forward over the next couple of years?
So we have seen good growth in this as we have more focused into the manufacturing, as we have said in the demerger as well. So I think the more focused team and optimizing our operational efficiency has helped us grow these margins. We are looking at the EBITDA, we have to remain between 1.5% to 2%.
Okay. And can I also check if this has anything to do with sort of mix change within your steel business or the fact that steel prices have come off a bit over the last year or so? Is that also a driver?
Yes, it will be a mix of the steel business, so more focus on non-tubular products like roofing sheets and long has also helped this.
Sure. And my next question is, when I look at your retail segment, again, referring to the same slide, there, it seems as though your YTD margins have dropped 20 basis points, now at 5.4% for 9 month FY '24. And just before, if I go just prior to the pandemic, we were at 8% to 9% kind of margins, right? So really, the question is what explains this your [Technical Difficulty] in the last few years.
And as a follow-up, [Technical Difficulty] retail margins improving, [Technical Difficulty] if your non-retail margins [Technical Difficulty] by 80 basis points. Retail margins were also [Technical Difficulty] a substantial portion. Why aren't we seeing margin improvement there? And this is despite the fact that the non-steel business captured within retail is actually growing 35% to 40% with a much higher EBITDA margin, as a bit counterintuitive?
So I think in the last quarter, one of the impacts has been the flooding in Chennai and Andhra Coastal regions, which has impacted our retail business, both in steel and non-steel. So I think that would be one of the main reasons why we have faced the impact in the margins.
But shouldn't that be impacting your -- I mean your sales are still growing at a healthy pace. So I mean, you're still selling. Your offtakes are happening. Just that margins are getting impacted.
So I think it will be also because of the higher cost since our operations were closed there for almost a few weeks. So I think those higher costs coming in has impacted the margin even though the numbers have been good.
Okay. And my last question is, could you give us a sense of what is the growth in steel tonnage for Shankara as a whole, say, since FY '19 until now. Over the last 3 years, how much of the absolute tonnage of steel you sold? I asked this question because when I look at your retail sales per store between pre-COVID and now, that has gone up like 40%, 45%. But frankly, I mean, steel prices have also grown up so much, right? So does it mean that the implied volume growth in tonnage is substantially lower than the headline sales growth number?
Just give me a second, I'll give you the numbers.
In FY '19, we did around 500,000 tonnes, we did. So followed -- in the COVID year, it has dropped to 342,000 tonnes. And then '21, '22 around 300,000 tonnes we did. And '22, '23, we crossed around 515,000 tonnes. And as on end of November, we are already at -- approximately 450,000-plus tonnes we did.
Okay. So my understanding there was right. So I mean probably on a trailing 12-month basis, we are closer to how much volume we did during pre-COVID time. So the bulk of the sales growth then is explained by the realization growth which has happened. And is that understanding correct on the steel side?
Yes. It is right.
Yes, in the realization growth and also, as you see, this year, we've already come to almost 250,000 tonnes. So there will be a good growth in the next quarter as well to give us a better numbers than last year's tonnage.
Understood. And just as a follow-up there. So do you look at the profitability in your steel business on a per kg basis. So for example, do you target a certain EBITDA per kg, irrespective how the underlying steel price moves. Because [Technical Difficulty] explain to some extent, the margin erosion and now margins starting to recoup as steel prices come off?
No. So the dynamics for the steel products are very different because inside steel products portfolio itself, we have a huge variety of products. So in each case and in each vertical, the metrics will be a little different.
The next question is from the line of Dhruv Mukesh Bajaj from Smart Sync Investment Advisory Services.
Firstly, congratulations on a decent set of results. So as things stand currently, majority of our growth in the past few years, in fact, is coming from increasing ticket size. So is it likely to continue going forward as the product mix is shifting towards non-steel products like tiles or how should we look at this? Because as the previous participant explained, that the steel prices have been quite volatile, which have also led to higher ticket size in the current year?
We would see an increase in the retail ticket sizes with new product addition and focus on more non-steel mixes and the mix in non-tubular steel products. So we will see a continuing growth in this.
Got it, sir. And sir, as you mentioned that we are making strong footprints in Western and Central regions. So are the current facilities mature in nature? Or there is enough room for steel growth to be there in that current facilities? Or -- so what will be the store strategy going forward?
No. So our current facilities or center, there is a concerted scope of improvement even in there. So like we have made a commentary before also, it is close to a part of the existing setup, which has the capability of doubling the turnover next 4 to 5 years.
Okay, sir. And sir, while I was analyzing the company, I observed that our inventory cycle has reduced substantially in the past 3 to 4 years. So can you please highlight the 3 to 4 key drivers behind this, like was it because of some change in product mix or improved inventory management or what led to that basically?
So one -- I mean, there are a few reasons for this. One would be also our, we say, good management from our side in terms of inventory cycles post COVID. We'd also say that manufacturing has reduced so that we are working on that. And we're also working towards a more asset-light model in terms of key products we can. So increasing of non-tubular mix also works to be a little more asset light and inventory like. So all of this has contributed to a better working capital cycle.
Got it, sir. And sir, if I can just squeeze in another question. I just wanted to understand that how does a B2B marketplace tax up versus the likes of IndiaMART on the online side, SG Mart on the physical fulfillment side since their product offering looks pretty similar to us?
So as far as the distributor end, we are more at [indiscernible].
[Operator Instructions] The next question is from the line of [ K.D. Mishra ] from [ New Jersey Investment Advisors ].
Hello.
Mr. [ Mishra ], your line is unmuted. You can ask a question. As there is no response from the line of current participant, we will take the next question from the line of Raunak Himmatramka from RoboCapital.
Sir, just want to understand the thing that in the retail source, it is like too much congested. So how do we see, like we are saying we will grow 25% to 30%. So how do we do it, like we will place more products in the retail stores? Then, it is already congested. So how will we going to do that?
We believe there's still a lot of scope in the retail market. Yes, there are a few -- multiple players, but I think there's still a lot of headroom to grow in each vertical and each industry. And we are seeing a strong growth from our existing stores. So I think we feel that there's a lot of headwind for the growth in the retail.
So you are confident of doing 25% kind of growth levels?
Yes. So we are confident. Because we're also adding a new product, whether it's in the steel or the non-steel verticals. And we are taking more of a market share from maybe existing mom-and-pop players in the market. So we do feel that even though, as you say, it may be a congested retail space, we do have growth and space for growth.
Okay. So do you have any numbers of like how much market share do we have currently?
No, it will be difficult to give that number.
Yes, okay. No issues. And one more thing on the margin side, like we are saying we would do 3.5% to 4% kind of margin in the marketplace business. So how confident are we on that part, like it would be kind of sustainable or it depends on the steel prices too?
No, we are pretty confident on that. We -- like we have said before, in the commentary also, we were working on to into margin profile of the products. So 3.5% to 4% range is definitely attainable based on the product mix -- over a range of product mix.
Sir, one more last question if I can accommodate. So can you just give us the brief time line of the demerger, like until when we can expect the whole process to be completed?
Yes. So we have filed with the stock exchange of now. So simply put, we have updated this in our presentation also, but I will give you a brief. So after this, we will be in line for an NOC from the stock exchanges. And then we have to do the necessary filings and procedures with the NCLT. General timing for NCLT to give the approval is around 8 to 10 months. So we are expecting to get this whole process done by fag end of this year or it may go to, say, early next year or something this calendar year.
This calendar year, not the financial year.
The next question is from the line of [ Siddharth Agarwal ] from [ AASN Capital ].
Congratulations for a great set of numbers. I wanted to know a little bit more about our plan for scale-up of non-steel business. Currently, we have done really well in the tiles. And from what I understand, it has been introduced only in southern part of the country. So could you talk a little bit about how our expansion plans are for the non-steel business side in the coming years?
So as we have said, we have 2, 3 opportunities and plans for the growth in the non-steel business. We have, as you said, 40% growth in our sanitaryware and a 40% growth in the 9 months for our tiles as well. In tiles, our private label, Fotia Ceramica, is yielding us good results. As [Technical Difficulty] having good, we can say a market presence and good success in the market of Kerala in the last financial year. We have expanded to other Southern markets as well as Maharashtra.
We are opening maybe by the end of February, early March, an experience center in Morbi, almost a 20,000 square feet experience center, which will also cater and allow us to look at pan-India expansion in the coming years. Whereas when we say in our retail business in our stores, we are increasing our product mixes since we will be focusing more on electricals and paints in the coming years so that we would see a good growth coming from those verticals while sustaining our growth in the CP sanitary and tiles space.
We also have a lot more growth in certain markets since we have only a limited presence in Tamil Nadu and Kerala being in only certain locations. And we are looking at vertical-wise growth, and we have a huge headway in these verticals because, as you know, all the verticals have a lot more headway. And we are, in the last 1 year, set up good vertical heads who are experienced members from the industry who can help us drive in a vertical wise across all our channels.
Okay. So what we have achieved in tiles in a very short period is commendable. So are there plans to enter any more large segments in our own brands?
Nothing at us now. We're just focusing on tiles in our private label. We also have roofing sheets with our own in-house brand. So I think there are always opportunities. But as of now, we are focused on the great brands we are associated with for the other verticals.
Okay. Great sir. And sir, in the last few con calls, you've guided that we are pausing our store growth at the moment. So when do you think should we go back on to the store expansion side?
So we never said we won't be expanding stores. We are seeing good traction in the store growth. But in the coming year and the years ahead, we are looking to open maybe 2 to 3 stores per year in new territories and strategic opportunities as well.
The next question is from the line of Jagvir Singh from Shade Capital.
My question is, sir, what is the like-for-like growth in the Q3 in the BuildPro business?
Sorry, can you repeat your question. It was not clear.
What is the like-for-like growth in the BuildPro business in the Q3?
You mean our non-steel business?
Yes.
We've had around [ 42% ] growth.
Okay. And sir, in the demerger deal, so this question is related to the BuildPro business. So what is the margins in the last 3 months, last quarter, December quarter?
So I mean, so we have categorized our business as the marketplace business and it will be the manufacturing. In the marketplace business, in the last quarter, we have seen EBITDA margin of between 3.3% to 3.4%.
Okay, sir. And then in the BuildPro business, we have done a 9-month revenue of around INR 2,800 crores?
Sorry, sir, we don't understand what do you mean by BuildPro business?
So there's a demerger entity, there is a Slide #14.
Okay. Okay. Understood. You're talking about the marketplace. Yes. So in the last -- revenue has been INR 2,775 crores, in the last 9 months.
What is the guidance for FY '25 of this business?
Currently discussed, to give guidance as a stand-alone, we will give you the consolidated.
The next question is from the line of Jins Verghese from Tavasya Capital.
Yes. Just, I'm trying to understand the macro environment. If I look at building material players, sales growth for the past 2 quarters, it's been muted, like 6%, 7% only. So be it tiles, ceramics, paints, they are all showing same numbers. On the other hand, if you see the real estate players in the -- especially the Tier 1 and Tier 2 players across the board, they are showing actually robust booking. So is there a lag effect for these building material players? And when do you think this number will start reflecting in the P&L?
Yes, I do believe, I think post-COVID, there was hyped up demand, which has kind of steadied out this year. So -- and as you said, a lot of projects were started pre-COVID and during COVID are in the finishing stages now. But COVID has impacted the start of few projects, which we have seen a good beginning base and foundation in the last 9 months.
I believe that is a lag. And I think coming forward, there should be a better growth in the coming quarters and years. We have still been able to have a good growth because we've been increasing our market share and because of the number of verticals we're in, we are able to offset maybe vertical-wise kicks that are coming in the industry.
And your partners are also growing at the same pace? I just wanted to know.
I would not say. I mean, we really don't have much -- I mean our partners and our suppliers are seeing, I think, various levels of growth because different companies are in, again, in different stages of growth and different stages of market share. But big players have seen, I think, at least double-digit growth this year.
So you mean to say it's just a matter of time before the numbers will start showing in the P&L?
Yes, I do believe the numbers will start showing in a matter of time.
And one more question. I mean I'm seeing for the past many quarters now, promoter shareholding is consistently decreasing by 1% or 2%. So I just want to know the reason behind that?
Actually, except for the one deal with APL, there has with no other sell. Actually, we have acquired more shares of the promoter group.
At percentage level, it is showing a little decrement because of the APL [ percent to its ] share warrant. Overall, the promoter stake has not decreased.
So APL is the only reason. Otherwise, there is no uploading apart from that?
No, nothing.
The next question is from the line of Deepak Poddar from Sapphire Capital.
So just first up, I wanted to understand, I mean, at the company consolidated level, in the past, we have been speaking about 25%, 30% CAGR over the next 3, 4 years. So that's what we currently as well looking at?
See here, we would be looking to grow around -- at an EBITDA [Technical Difficulty] our overall EBITDA level growth, we will be focusing on. So the top line, we will assess and come back to you on that.
Okay. So top line can be moderate. Then -- so what would be the revised range that we can look at over the next 3, 4 years?
See, annually, we are looking at a growth of, say, 25 percentage [Technical Difficulty].
Your voice cracked. Can you just repeat. Your voice cracked?
Annually, we are looking to grow at 20% to 25% range, and we are expecting that to reflect at our EBITDA levels also -- with our total EBITDA.
So EBITDA also similar, 20%, 25% range?
Yes.
And when we say 20%, 25%, so these 2 different entity, how would you see these 2 different entities growing the marketplace as well as the manufacturing unit? How would the CAGR work for these 2 entities?
No. So a considerable amount of working is still going on, on that. So we don't want to make any commentary on it.
We don't want to make. But ideally, it would be fair to say that your manufacturing the smaller piece will grow at a faster rate?
Yes, it can.
It can, right? Because it's a smaller scale business. And...
[indiscernible] came out with the guide and everything else. We are also working on the exact numbers before we can give you, I think, a clear picture on the 2 entities in terms of growth.
Fair enough. I got it. And in terms of manufacturing unit. What can be the potential in terms of margin? I mean, once we become steady state and scale that particular business. So would you be able to throw some light on that?
No. See, currently, [ based on the trend ] what we have given, we would like to stick to it. Going ahead, we'll assess and see how it pans out.
The next question is from the line of Sarang Joshi from Entrust Family Office.
A few questions. On your tonnage growth, which we discussed earlier on the call, so now basically, we've done about 5 lakh tonnes point-to-point, if I go back pre-COVID and where we are today ballpark. And obviously, now because volumes have completely normalized, I presume volumes would grow from these days. At some point, they will become 6.5 lakh tonnes, 7 lakh tonnes, 7.5 lakh tonnes. They would probably double at some point in time.
Now your store base has gone up from 30-odd stores to 90-odd stores. So the tonnage sold per store is already probably hitting a peak. So I fail to understand how without adding stores aggressively, you can sustain your 20%, 25% growth target, which [Technical Difficulty] bakes in a substantial share of volume growth, right? Because we don't know what steel prices do over the coming years?
So I don't believe that we've hit the peak tonnage on our stores. There is huge infrastructure growth happening around, and as you know, steel is never a dream commodity, which is always required for construction. We believe that tonnage can grow in the coming years without addition of stores. But apart from that, our channel enterprise is also growing. So we do feel that the different verticals and different channels will give us the tonnage growth from the same fulfillment centers.
Yes. I mean -- so I mean, really my concern is that, I mean, if you look at really, as investors, what we prize is your retail business, right, which is higher margin business [Technical Difficulty] capital efficiency [Technical Difficulty]. Your channel business, we all know that the margins are about 1%, 1.5%, very volatile. Now to add to that, your share of retail sort of revenues, FY '12, FY '13, these used to be [Technical Difficulty].
And [Technical Difficulty] report, you all spoke about this being the prized asset and [Technical Difficulty]. This went up to about 58% until Fy'21. But last 2, 3 years, I have seen your retail share started to drop, which means that a lot of your volume growth has been driven through the nonretail business, which is lower margin and obviously, lower ROC. So where does this settle over the next 3, 4 years. Because longer term, we would want to increase our retail share, right?
So how would it be? I think, after the way -- post COVID, the way the market work, there was an immediate requirement in the channel. I think it would settle at 55% retail and 45% for the other channels. Seeing that also with our additional of 1 or 2 stores or 2 to 3 stores every year and the 2 new fulfillment centers coming up in M.P. and Maharashtra, we can see this growth coming up even in the retail line and not just in channel. And also, as we know, the non-steel coming up, will also improve our tonnages of maybe TMT and other longs.
Sure. Sure. And last bit is on the steel margins, I wanted to just double check. My calculation suggests that because currently your -- bulk of your non-steel business is basically being channeled through the retail piece, if I look at Slide 9, right? And if that is correct, and if non-steel makes 5.5% EBITDA margin, my calculation implies that the steel business, which is sold through retail segment, is not actually a low margin. It actually does 5-ish percentage margin, right?
So then what explains the margin difference between steel sold within the retail segment, which is 5% and steel sold within the non-retail segment, which is right 1.5%, 2%?
So as you know, in channels, I mean, the margins are very less. And since it is still 45% mix, it does impact it. Yes, as you said, in retail, the steel margins are better, maybe closer to, maybe, around 4%. But what happens is the non-steel margins are better, but since we are still in a baby stage of this and we're growing, our expenses are higher, which is impacting the overall margins at the retail level.
Could you just please for everyone's benefit explain [Technical Difficulty] steel sold in the retail store would be in percent margin and steel sold through your [Technical Difficulty] would make a 1.5% margin.
We are sorry to interrupt you. Your voice is breaking. So could you please repeat the last treatment once again?
Could you explain for everyone's benefit because this is an issue I have seen when I discussed with other investors also. Why the steel business holds retail mix of 4.5% margin, whereas steel sold through non-retail mix of 1.5% margin. Is it because type of buyer within the 2 segments is very different and your negotiating power is very different?
So I would say in the channel enterprise, the product mix is very -- too heavy and as well as it is very competitive. So the margins are very low in that side. Whereas in retail, it's more of longs and more of other thickness of steel products, the margin profile is better.
[Operator Instructions] The next question is from the line of [ K.D. Mishra ] from [ New Jersey Investment Advisors ].
Yes. Sorry, my line was muted last time. So sir, you are saying that you are mostly focused in Southern India and you want to be a pan-India player. And there is a very good opportunity in the northern markets. So I wanted to know, I mean, is there any kind of time line checkpoints that you have set in the future? By when do you see, how many number of stores you are going to add in the northern markets and other markets?
So currently, as we said, we are strong in southern markets. We still see a lot of opportunity for growth in the top markets. That being said, we have made inroads in Central and Western India as well. I think we are focused on those 2 markets currently and hoping to see double the revenue growth in those markets in the next 4 to 5 years. I think after that, we could look at expanding into the northern markets, but I think we are taking that as gradual expansion, trying to cover the market as we will cover.
Okay. And sir, one thing more regarding the omnichannel mix, can you give the split between the online and the offline sales?
So in online currently, we are more of -- more of experienced in our digital catalog. We are working to change [ UIN ] experience online, which will -- we will see some results in the coming quarters. Currently, the online, as you know, in this industry is very limited because it's a touch and feel product. So I think it's very negligible to give you exact numbers right now, but we will come back to you with better numbers in the future.
Okay. And in the traditional manufacturing reason, you have 3 units: Vishal Steel, Century Mills and Tata Steel. So any plans to add any more units in that?
Nothing in the current scope. We are looking to increase our optimization and increase our production and efficiency. So I think we'll see growth from the 3 units without really having a need to add any. And in the future, after the demerger and once we focus on it, we could see a scope. But as of now, there is no plans to add any units.
And sir, if I could squeeze in more regarding the manufacturing of Fotia Ceramica. So what is the contribution margins here?
We are seeing gross margins of around 12% to 15%. And since we are still very nascent in this business, [ prices ] are higher. We should see a better realization of EBITDA in the coming years ahead in the Fotia Ceramica.
No. This is including the COGS, including the fuel costs?
Yes, yes. Including all the costs.
The next question is from the line of Gunit Singh from Counter Cyclical.
So I just would like to understand, why are we earlier, I mean, we were talking about 25% to 30% CAGR. But now you mentioned that you're looking at 20%, 25% CAGR in revenues. Even though, like you mentioned, the steel and retail business -- I mean, the steel and real estate is picking up and we have more upcoming projects. And also with the demerger, there would be more focus on both the verticals. So I mean, why are we looking at a lower pace of growth as compared to what we spoke about earlier?
So I think you could [ activate]. It's not too much lower. I think it's only around 5% [indiscernible]. But we're looking at overall, focusing more on our bottom line as well and increasing our margins with the verticals. So I think the focus between both of these would still give 20% to 25% CAGR with better margin profile.
All right. So if we look at 20%, 25% CAGR in revenues, and we are talking about better margins going forward. So should we be looking at like 30% to 35% growth in the EBITDA?
Our aspiration would be 25% to 30% growth in the EBITDA.
All right. And sir, previously, in the earlier con calls, we have spoken about reaching 10,000 share venues by '27, '28. So I mean, what are your opinions of that as of today?
I think with the 2 -- with the demerger and the two entities getting split, we may reach it at a consolidated level, but I think we'll have to get back to you on those working. Because as I said, we are very new to the demerger and we're still working on all the exact numbers and the spread of the two companies.
All right. And sir, I mean, 20% to 25% growth in revenue. So I mean, what vertical do we expect to grow faster in the coming years?
So we would maintain that we would still look at our 14% growth for the non-steel vertical, whereas steel would still continue to grow at 20%. So I think when you take it at a consolidated level, it will come to that 20% to 25%. But you could see a more, what do you say, a higher growth focus and higher positive growth focus in the non-steel business.
So I'm talking about the two entities, I mean, demerger. So what kind of -- I mean, which entity do we expect to grow faster between the two, manufacturing or marketplace?
I think we will see growth in both of them. I think we need to work out the exact numbers to see how much we could get growth from our manufacturing businesses since now they have a separate focus for them. But overall, I think we will see a good growth on both sides with the maximum growth coming from the non-steel.
The next question is from the line of Suryansh from Bizx Enterprise LLP.
My question was that on the retail front that in terms of like if we want to acquire, do we have the capabilities of the store, which we're going to acquire in the in the market like in terms of acquisition, not like we have to build or operate? That was one question.
We are really not looking at any acquisitions at the time being. I think we have a good model and a good, what we say, system in place. And we are looking at an asset-light increase of stores where we are more in rental places and growing from that. So I don't really see lot of acquisitions in plan. But as you say, if there's any -- as you need -- if there's any need or if there's any strategic opportunities, we are not averse to anything.
The next question is from the line of Anupam Jain from -- who's an Individual Investor.
I just wanted to understand on the manufacturing front, you have written there is a INR 409 crores of capital employed. Can you bifurcate this?
So we are working on that, we'll get back to you on that.
Because as I was looking, it is showing me that you have [indiscernible] of INR 287 crores in your balance share of September. So I couldn't match the calculation, if you can give me that calculation?
The capital [Technical Difficulty] is INR 785 crores. You are asking a bifurcation of [indiscernible] or what? Building, marketplaces around INR 375 and manufacturing will be around INR 409 crores. [indiscernible] balance sheet numbers.
Yes. So can you give me the bifurcation of INR 409 crores. What is in the manufacturing?
So manufacturing [Technical Difficulty] net block of around INR 235 crores is there and net working capital, approximately around INR 80 crores is there.
So we have fixed assets of INR 287 crores?
Yes.
And we have INR 235 crores -- working capital is of INR 81 crores?
Correct.
And net blocks -- okay, net blocks, that's told. And another thing that I had was what would be your focus on manufacturing after we demerge or starting now, what will be your focus? So anyhow, our capacity utilization is very best over ROCE. Everything is -- on manufacturing, we have completely ignored that space as we have building market space. So would we cross sell? Would Shankara use this manufacturing currently?
So we're looking at -- as of now, we're not utilizing our complete capacity of manufacturing. So we're looking at better utilizing our capacities. Also with more operational and focused efficiencies, we would see better increase in utilization. So we would see, I think that would be the plan with the demerge entities and within the manufacturing.
So we would cross-sell between marketplace and manufacturing. So we will announce some of our manufacturing? That's what I am asking.
Sorry, I'm not able to hear the question.
I asked, will we manufacture some parts for the marketplace in our manufacturing facility?
Yes, yes. That would continue. I think we would -- as you know, we would require some products that sell from our assets in our retail. That will continue. But our manufacturing entity would also be independent and be selling the market as well.
The next question is from the line of Anirban Das who's an Individual Investor.
[Technical Difficulty] So it's based on Slide #10 of the presentation. So my first question is, since retail is a focus area and in the longer term, we would like a typical customer to [Technical Difficulty].
Sir, your voice is getting cut.
Mr. Das, your line is...
So my question is -- yes, since retail is a focus area for us. And in the longer term, we would like the retail customer to visit our store multiple times based on the life cycle of the construction, right? So my question is are we tracking and seeing an increase in repeat customers -- retail customers?
Yes, we do have a good host of repeat customers who come in for various stages of construction, starting from TMT and ending with maybe paints and tubes. So yes, we are seeing refences. We are seeing increased customers coming back, same customers returning to stores. We will be having better track, and I can get back to you on the numbers to that.
Okay. And my second question is related. So in the same slide, we can see like 14% increase in the average ticket size for retail transaction, right? So from INR 43,000 to INR 49,000, the ticket size has increased, right? So my question is, is it driven by like they are buying higher-value products? Or is it like part of transition, they are buying more items or it's like a mix of 2?
I think it's a mix of both. I think customers are buying more, maybe higher value ticket size items as well as coming to us from more verticals. So obviously, we're seeing a higher value in the ticket size and more growth in the ticket size.
Okay. And my questions were, I mean, to understand how we can increase our retail business. So I want to understand how these drivers have been tracked and currently what is the status?
So, I mean this is the value [indiscernible].
The next question is from the line of Mr. Miraj M. Shah from Arihant Capital.
Sir, I wanted to understand on the traditional manufacturing division that we have, where we have 3 units: Vishal Steel and Tata Steel and Century Mills. So you mentioned that the current utilization is only 40%. So what do we aim to take this to post the division of the two entities? And how fast can we ramp this up? Because I believe demand is present. So I just want to understand how fast can we ramp it up?
So one is looking in the next 3 to 4 years to come to our maximum utilization of the capacity. And there is a demand in the market as -- I mean, we have huge headways in all verticals to grow. So I don't see any impact on the demand side.
So 3 to 4 years is what you're seeing to ramp it up to 100% or the optimum mutation?
Yes, yes. We're looking at 3 to 4 years to ramp up to optimize.
And the sale of products from these entities would be through our own channels or to project businesses or to both?
There would be partly to our own channels, very limited. Most of it would be direct to parties and direct to other customers.
Understood. And I just wanted to understand one more thing that looking at presentation how we are penetrated extremely in the Southern markets, and we've started in the Central and Western markets. I wanted to just understand the thought process, when do we choose to enter a new market? Is it when we see the existing territories are saturated or when the opportunities in other markets are significantly justifiable to enter. Just wanted to understand the thought process -- daily thought process over here.
I think, it would be a mix of both. I think it's more of -- as we see into new markets with opportunity, we always see with our steel business because that is our legacy business, and that's what we start off with. So I think as opportunities present themselves, we would expand to market. And we still see there's a lot of potential left in the south. So I think it's more of opportunities rather than lack of growth opportunity in existing markets.
Understood. Okay. And sir, just to reason this, you mentioned that we plan to open 2 to 3 retail stores going ahead per year, right?
Yes, yes. 2 to 3 footprint centers [ by June ].
So that would be in the new region. So that is Central and Western or Southern?
Not necessarily. I think it could be wherever we need the opportunity. So maybe you could see a 50:50 spread between the 2 regions.
As there are no further questions from the participants, I now hand the conference over to Mr. Miraj M. Shah for closing comments.
Thank you, everyone, for being present on the call today, and a big thanks to the management as well. I hand over the call to Dhananjay sir, for any closing remarks.
Thank you, everyone, for taking time out of your busy Wednesday afternoon to attend this call with us. We hope we are able to answer all your questions, and you have a great rest of the day. Thank you.
Thank you. On behalf of Shankara Building Products, that concludes this conference. Thank you for joining us. You may now disconnect your lines.