2023 was the year of new business decisions at Sarthak Metals

The management of Sarthak Metals announced two new areas for expansion in 2023. The backdrop to this is: the management was evaluating options for expansion for some time. In its main business of making two key consumables for manufacture of steel – cored wire and aluminium flipping coils –   the company has ample capacity to cater to growth. The company therefore was throwing up free cash flow, and the management was keen to put it to use.

The management’s first preference to look for opportunities within metal business: not in manufacturing of primary metal, but in more value-added areas like packaging or consumables.

The first new move announced by Sarthak Metals was in the first half of 2023, when it announced an entry to ‘flux cored wires’. These are consumables that go into welding. This is a new technology, India currently imports over 10,000 tons per annum of these consumables from China. In value terms, the market for flux cored wires could be Rs 150-200 crore in India currently, and could grow in double digits as this technology replaces some other forms of welding.

For Sarthak, this was a related diversification, in terms of the manufacturing process, which is similar to its existing product ‘cored wires’, but with some more complexity. The user segment is of course entirely different. While Sarthak sells cored wires to big steel makers like Tata Steel, SAIL, JSW etc, etc, buyers for flux cored wires are fabrication units that need do welding.

Then towards the close to Dec’23, Sarthak Metals surprised the markets with an announcement of entry into Industrial Bio-Enzymes business. This appears an unrelated diversification, in terms of type of products, production process and user segments. The company has announced that it has

has entered into Memorandum of Understanding (MoU) with the Council of Scientific & Industrial Research (CSIR) under Ministry of Science and Technology, Government of India, for technology transfer and continuous research and development in this area. The company has said it will release further details soon.

There are two ways to look at this announcement: it is unrelated, therefore increases risk; at the same time, this is an exciting area which can give a new long-term growth driver for the company. The management has clearly taken the later view.

Of the two new areas announced in 2023, flux cored wires is an incremental bet, it does suggest, yet, a full scale entry to welding consumables. The second announcement appears to signal bolder intentions.

In sum, 2024 will be a very interesting year for company watchers and investors, as progress on both new initiatives unfolds. We do not expect any further announcements of new business intentions from the company for some time. It is likely that these two areas will ensure the company has its hands full for the medium term.


(Wisdomsmith assists Sarthak Metals on Investor Relations)

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