Shankara Building Products Limited (SHANKARA) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Shankara Building Products Limited Q2 and H1 FY 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sayam Pokharna from TIL Advisors. Thank you, and over to you, sir.

Thank you, Ashlok. Good evening, everyone, and thank you for taking out the time to join us today in this Q2 and H1 FY '26 Earnings Conference Call of Shankara Building Products Limited. The investor presentation and press release has already been uploaded on the stock exchange and on the company website. If you wish to be added to our mailing list, please feel free to write to us. Just one important clarification before we proceed further. For the purpose of today's call, we will take a review of our group level consolidated performance. That is for both Shankara Building Products Limited and Shankara Buildpro Limited. Individual financial performance for both the companies have been made available in our Q2 investor presentation. To take us through today's results, we have with us from the management team, Mr. Sukumar Srinivas, Managing Director; Mr. C. Ravikumar, Non-Executive Director; Mr. Dhananjay Mirlay Srinivas, Non-Executive Director; Mr. Alex Varghese, Chief Financial Officer of Shankara Buildpro; Mr. Satyanarayana J. W., Chief Financial Officer of Shankara Building Products. We will begin with a brief overview of the quarter and half year from Mr. Dhananjay Mirlay Srinivas, followed by a Q&A session. Please note that any forward-looking statement made during this call should be considered in conjunction with the risks and uncertainties that we face. These risks and uncertainties have been detailed in our annual report. With that, I would now like to hand over the call to Mr. Srinivas. Over to you, sir.

Thank you for joining us today for the Q2 and H1 FY '26 Earnings Call of Shankara Building Products Limited. I am pleased to present an overview of our recent performance and highlight the key developments of the quarter. We are happy to report that we have continued our robust volume growth in the steel business. This quarter, we achieved a significant milestone by delivering 2.52 lakh tonnes in steel volume and 4.90 lakh tonnes for H1. This stands as our highest ever Q2 volume, representing a 31% year-on-year growth and a 33% year-on-year growth for H1 FY '26. We are on track to achieve our 1 million tonnes target for the financial year. In Q2, our non-steel business recorded a 10% growth year-on-year. Consolidated revenues stood at INR 1,681 crores in Q2 FY '26 and INR 3,325 crores in H1 FY '26, registering a strong growth of 26% and 27%, respectively. EBITDA margins stood at 3.03% in Q2 FY '26 and 3.31% for H1 FY '26. Q2 EBITDA stood at INR 51 crores, a 36% growth year-on-year. And for H1, EBITDA rose to INR 110 crores, reflecting a 39% year-on-year growth. The net profit for the quarter stood at INR 25 crores and INR 58 crores for H1, marking a 66% and 84%, respective year-on-year increase. Despite our expanding scale, we maintained strict control over working capital, which averaged to 30 days this quarter. This working capital discipline also allowed us to keep our finance costs in check while maintaining our robust growth. We remain the clear market leaders in South India across both retail and non-retail verticals. Retail growth was healthy, and our same-store sales growth reached 22% in Q2 FY '26. Shankara has continued its robust growth momentum throughout the quarter and H1 of FY '26 despite sectoral and macro headwinds. Our steel division continues to be the backbone of our growth story. Our notable volume growth has been delivered during tepid demand in the construction and infrastructure sector, coupled with a prolonged monsoon season. Shankara's strength is our strong presence in Tier 2 and Tier 3 markets and our spread of customers across multiple segments. Our non-steel portfolio has seen a moderate growth compared to the previous year. For Q2 FY '26, non-steel sales stood at INR 155 crores, translating to a year-on-year growth of 10% H1 FY '26 non-steel sales reached INR 299 crores, up 8% over the previous year. We have faced strong headwinds in the non-steel segment, largely due to the slowdown in construction activities in Karnataka, Kerala and Telangana. This slowdown can be attributed to delays in government approvals, longer monsoons and slower money rotation. We have seen this impact across various segments, including sanitary ware, tiles and plumbing. Through these tough conditions, our plumbing and sanitary ware verticals have grown by 14% and 7%, respectively, year-on-year. We are cautiously optimistic about the improved demand and the industry environment for the segments in the second half of the year. This quarter, our results posted reflects the business conducted in our manufacturing business, Shankara Building Products Limited, which has units spread across our 3 subsidiaries, Vishal Precision, Century Wells Roofing and Taurus Value. The revenue stood at INR 280 crores in Q2 and INR 603 crores in H1 FY '26. The EBITDA stood at INR 5.8 crores, translating to 1% in H1. We incurred a one-time expense of INR 6 crores in Q2. Without this expense, our EBITDA would have been INR 11.80 crores, translating to 2% in H1. Going forward, we hope to sustain a 2% to 2.5% EBITDA for H2 FY '26. We have begun work towards improving our manufacturing business with the following steps: a revamped team with an experienced head to solely focus on this business, working on better capacity utilization and evaluating niche and value-added products for this portfolio, a dedicated sales team to go direct to market with these products, further reducing the dependence on the marketplace business. Upgradation of machinery to cater to market needs. We believe the above steps should result in better revenues and margins in the subsequent quarter and year. From October onwards, the manufacturing business will collect rentals for its properties leased to the Marketplace business. Our online store and e-commerce business has seen significant traction in H1. The revenue stood at INR 10 crores in H1, an increase of 250% year-on-year and an EBITDA positive in this business. We are optimistic of scaling up e-com in the coming quarters and are working towards adding more verticals to our platform and exploring new avenues for growth. In September, we inaugurated a new non-steel store in Vijayawada, strengthening our non-steel presence in Andhra Pradesh. We have added 2 new fulfillment centers in Kochi and Thrissur, strengthening our Kerala presence. In the past 2 quarters, we have increased our network from 124 to 130 stores and fulfillment centers. We are pleased to announce that as on 12th November 2025, we have received the in-principle approval from both stock exchanges, the NSE and the BSE for the listing of our marketplace business, Shankara Buildpro Limited. We are optimistic and confident that the company will be listed by end of November. Shankara continues to be a unique marketplace in the building material industry with a strong presence in steel and a growing non-steel business. Shankara is proud to be the largest steel tube and pipe distributor and retailer in India. We have 130 fulfillment centers, which include 94 operational stores spread across 1.3 million square feet in 10 states of India and 1 union territory. Shankara has strong logistics network, ensuring seamless access for our customers. Our operations are penetrated at the grassroot level with strong presence in Tier 2 and Tier 3 towns and cities apart from key metros and capitals in our geography. We are truly an omnichannel marketplace, representing multi-brands across multiple verticals, giving our customer last mile service. Shankara is a trusted leader in the building materials sector, committed to quality, affordability and customer satisfaction. With these remarks, I would now like to open the floor to questions. Thank you.

[Operator Instructions] First question comes from the line of Veer [indiscernible] from [indiscernible].

Am I audible?

Yes, we can hear you.

Okay. So my first question was that post merger, how will our strategic focus and sales approach differ between the 2 entities? And what would be the key drivers to capture greater market share?

So as I mentioned in the speech, for the manufacturing business, we have a clear idea on how we're going to take it forward with an experienced person to head operations. Upgradation of machinery, sales team focused solely for tier sales as well as focusing on niche and value-added products. So that's what we're looking at in the manufacturing business. When you talk about the marketplace, it is going to be continued as business as usual. We already have our strength and our strong team focusing on our fulfillment centers and our stores. We have our presence in retail and non-retail and steel and non-steel. So that's how we are looking at taking it forward into the 2 businesses.

Okay. And how many new stores are planned over the next year? And are there any new product categories that we are planning to add?

So currently, in the H1, we've already opened around 6 fulfillment centers and stores. Maybe in H2, we may be looking at 2 to 3 as of now, which are in the pipeline. We may have an update, more update, we'll get back to you if we have more in the pipeline. And the second half of your question was new products. Really, as of now, we do have a complete range of products with us. We are looking at how we can get out more sales from this existing product category which we do have because currently, we do have verticals competing with a complete range of building material life cycle.

The next question is from the line of Rahul Kumar from Vaikarya Investment Management.

Just 2 data questions actually. One, was there any inventory loss in this quarter and for the retail business? And two, I think you mentioned something about lease rental, which has to be paid to the manufacturing business for the retail business. Can you just elaborate more on that?

So there's been no significant inventory loss in Q2. So nothing to really report.

Actually to balance out the first month of the Q2, there was an upward trend. Second 2 months, it has started coming down. So I think that sort of balanced it off.

And for the second half, there is -- so as we mentioned, the manufacturing business has leased out the properties to the marketplace business. So there will be a rental charged from October onwards to the marketplace business from the manufacturing.

Okay. And what would be the quantum of that?

So that will be approximately around INR 5 crores for the 6 months period.

Understood. Third question which I have is, I think your -- the non-steel business has done reasonably well even in this tough kind of environment, which you mentioned about Karnataka. Can you elaborate a bit more on what is driving this 10% kind of a growth for the...

So if you see in Q1, we were at 5%, and we did guide towards a growth of at least achieving 10% for Q2, which we were able to deliver. We were able to do this because we have, I think, mature stores in the state, and I think our retail presence really helped us cater to the customer segments, even though there was a big slowdown when it came to new construction and new activity going on. And I also think the mix of products did help us manage this. And I think our focus in Andhra and Tamil Nadu helped us balance out the market conditions which hit us in Kerala, Karnataka and Telangana.

Okay. Okay. And do we have plans to expand this non-steel business to our newer geographies like Maharashtra and Gujarat, where you are doing some steel business?

Yes, we are. We do have a plan to do that. We actually do have a presence in Gujarat with an experience center in Morbi for our tiles, but we are looking at how we can expand our stores in Maharashtra in the coming quarters or years.

[Operator Instructions] The next question comes from the line of Naitik from NV Alpha Fund.

My first question is, I just wanted some clarity that the retail business would sit in the Buildpro, right, the entity which is getting demerged.

Yes. So all the retail and all the stores would remain in the -- we will move to the new business, which is Buildpro Limited.

So now for the first half, can you give me the split between retail and non-retail revenue?

Just one second.

So the retail revenue for 6 months is -- I mean INR 1,700 crores and it is contributing around 51% of the total revenue, whereas non-retail is INR 1,624 crores, which is coming around 49%.

Sorry, I didn't get the...

Retail is around 51% of the growth of the revenue and non-retail is 49%.

Got it. So no, this is a split of INR 3,200-odd crores that we have done in Buildpro.

Yes. That's right.

Got it. Got it. Okay. And sir, my second question is what sort of shares would be outstanding post demerger for the Buildpro entity?

There shouldn't be any outstanding shares. I think everything is 1:1.

No, no. Okay. So same amount

The next question comes from the line of Keshav from RakSan Investors.

Sir, what's the reason for the sequential reduction in margins for the Marketplace business despite us doing higher volumes on a Q-on-Q basis?

Actually, there was a one-time write-off which we have taken in the Buildpro -- I mean, the Building Products Limited. So when it is consolidated, if you see the first quarter, it has been consolidated. So if we add that INR 6 crores or INR 5 crores approximately, which is a one-time expense, we are back to the same more or less there would be a substantial fall between Q1 and Q2 in the EBITDA margins.

The next question comes from the line of Naman Maheshwari from Singularity AMC.

Just wanted to know that what is the volume in steel business in our Buildpro business?

In the non-steel, there is no steel at all as a volume. So we have...

One thing in the marketplace business, what is the volume of steel in Q1...

Just one second. It would be close to 90%, boss.

90%.

Yes, yes. around -- we are talking close to about 1 lakh tonnes a month.

Got it. Got it. And you mentioned that there was some one-time expense of INR 6 crores in the manufacturing business, right?

Yes, yes.

No. That will be -- yes. Yes.

What was the nature of this one-time expense? And was it some -- I mean, bad debt or something of that nature?

Yes. There are 2 things that have incurred over here. One was the demerger expenses substantially have been accounted into the Building Products Limited. That is number one. And secondly, there was a one-time write-off on some legal cases, et cetera, because of the demerger. So I think these 2 added up to this INR 6 crores.

The next question comes from the line of Jatin Damania from SVAN Investments.

Sir, just wanted to understand the marketplace opportunity, what was the working capital cycle in the marketplace? And how do we see a growth of retail and non-retail segment over the next 2 to 3 years?

The working capital cycle in the marketplace business is approximately around 27 days. And -- and the growth, I think we will sustain at that 15% to 20% top line growth as we guided even earlier.

Sir, in terms of the operating leverage, I mean, definitely, we'll be doing a growth. But in terms of the margin improvement from 3.3% or 3.2% that we've already reported in the first half, what sort of scale of the cost lever that we have we can probably see an improvement in margin from here?

See, of course, steel is still 90% of the business. So there's always a little bit of a worry when it comes to steel because there's always an up and down on the pricing, which we are trying large to control. However, as the non-steel business keeps growing, that's a trigger for improving -- a substantial improvement of the margins, number one. Number two, as even in the steel business, we've added more and more -- I mean, when you look into detailing, we have substantially grown in the flat products, which also helps us improve our margin at the retail level. So I think this will broadly be the triggers to take forward the margin improvement.

So for next 2 years down the line from 49% of non-steel, which is in the first half, what can we assume 2 years down the line, whether it will be at 50-50 or it will be 55% to the non-steel and then the steel will be 45%, retail will be 45%?

No, sorry. Just to make a correction, you said around 40% -- 50-50 is steel and non-steel, no. The steel is around 90%, 89% to 90% and non-steel is in that 10% to 11%. So when it comes to retail, yes, we are at that 50%, 52% retail and the balance is non-retail. So just to clarify the figures. And definitely, the aim is that as we march forward, the non-steel should take over from -- to be moving closer to the 20% over the next 2 to 3 years.

The next question is from the line of Parasurama Praveen from Celesta Capital.

So my question is, so are we the lowest cost reseller, if yes, do we have data on it?

Sorry, are we the lowest cost...

We couldn't...

Seller for the marketplace.

Reseller?

Retailers.

No, no, we are not the lowest cost.

Got it. And my next question is -- so in 2023, you had mentioned that the non-steel business could move up to 20% in FY '25. So what is the reason that we did not achieve that and what's the outlook?

Sorry, we have talked about it as FY '30, not in FY '25, number one. Number two, the proportionate increase in steel, we've also been growing very fast in steel. If you see the last couple of years, the growth in volumes as well as revenue is -- revenue is around 20% and volume growth is upwards of 25%. So I think we are still -- I mean, keeping the FY '30 target very much in place.

[Operator Instructions] And the next question is from the line of [ Manish ], an individual investor.

Sir, with respect to the listed entity, which is Shankara Building Products, the EBITDA margins are pretty less, and we know the reason behind the same. So what are the plans as to how we think we can achieve an increase in the EBITDA margin going forward?

Yes. I think as we've explained in the opening talk, the whole purpose of this demerger was to get better focus, of course, to create better value in the marketplace business. Secondly, to also get better focus on the steel -- I mean, the manufacturing part of the business. So now there's an experienced team, which will be fully focused, and we have revamped from our side at the manufacturing site, the setup and so on. That's number one. Number two is, obviously, with that, we are hoping to achieve much better capacity utilizations and a separate marketing team, which will be focusing on niche products and focused only on the manufacturing part, that is Shankara Building Products Limited. And thirdly, there is some urgent need to upgrade some machinery, et cetera, which we'll be taking on this CapEx in the next year. So I think with these 3, already we are guiding for around 2% EBITDA from this quarter. I'm very confident that in the next year, that should further improve.

The next question is from the line of Krunal Shah from Enam AMC.

My question is regarding the Shankara Buildpro business. So we've been doing impressive growth in terms of volumes. I wanted to understand if this growth was just purely demand driven or if there is some market share gain? And if yes, what is driving this market share gain?

I think it's a mix of both. See, as far as steel goes, there has been an undercurrent, maybe not very much at a retail, retail level because there have been local issues in -- like we had earlier mentioned in the opening speech, where there have been local issues in some states, which are centric more to the building industry, the retail industry, housing industry. However, there has been a fairly strong demand as far as the infrastructure and what is central government driven, if I might use those words. So I think that has been pulling through the steel demand, which has been sustained, and in fact, it is growing. In our case, it's grown by almost 28% to 30% in terms of volume. So that, I think the way we look at it, should probably sustain. The -- so I think this is primarily where we see the demand and the growth that's coming up. Definitely, as we become very aggressive in the marketplace, there will be some amount of share that we would have taken from the markets. But broadly, I see that overall, the steel industry, when I look at many other manufacturers and talk to many people -- other people in the industry, many of them have been growing.

And in terms of the products in terms of our steel volume of close to 5 lakh tonnes, what would be the mix between flat, long -- and in that also, is there any different product category which is doing better to manage...

Yes. Just to give you a quick -- steel pipes and tubes is approximately about 30% of our total volume of the steel part. Then if we look at the -- Sorry, it's about 60%. Sorry, I'm just -- it's about -- 60% is our pipe part of the business. And flat products is about -- approximately, it is about 20%, 22%. Then we have the roofing products there, which is also around 15% and the balance in longs, et cetera, is about 5%.

And what would be the growth rate across these categories for us?

See, we have grown about 30% in tubes. We have grown about 60% in the flat products and about 30-odd percent in the roofing products. In the longs, particularly the construction steel that is TMT and other angle channels, we've just had a very muted growth of around 5%.

And long will also be same as under the Shankara brand?