Sarthak Metals has battled volatile input and metal prices driven by weak Chinese and Global economy in the last 2-3 quarters. Revenues were down 19% y-o-y in Q3 ‘24 to Rs 75 crore due to muted exports in the cored wire segment and uncharacteristic margin squeeze in the aluminium segment.
The management believes the price scenario is bottoming out and the differential between aluminium scrap price versus LME aluminium price will revert to normal.
The company remains net cash positive, with a high ROCE. Strong Balance sheet gives them the confidence to undertake Capex in new businesses with 3X profitability potential.
More clarity will start emerging on the two new ventures announced by the company in the last twelve months in the coming quarters. To recall, Sarthak had announced entry into flux cored wire segment – a horizontal diversification – around 10 months ago. Then around a month ago, the company announced plans to enter bio-enzyme space, this is an unrelated diversification.
Flux cored wires are consumable in the welding space. The manufacturing process is similar to the process of making cored wires. The company has commissioned a pilot capacity of 1000 tons per annum; the early signs are good. Sarthak expects a revenue of Rs 4 crore in this quarter from this line. It will take a decision on capacity scale up at some point during FY25. The business is not particularly capital intensive. The first line, which was imported, cost the company Rs 5 crore, and can support revenue of around Rs 16 crore. Future lines will cost around half of this, since the company will be able to do local procurement.
The bio-enzyme venture is clearly unrelated to current competencies, and therefore, a big leap for the company. Plans here are still materializing. What the company has revealed so far is that the plans hinge on technology transfer from government’s lab -CSIR (Council of Scientific and Industrial Research). The initial investment expected is Rs 10 crore. The applications of industrial bio-enzymes span a large area: ethanol, breweries and distilleries, detergents, textile and leather, animal nutrition, food processing and industrial wastewater. The company is yet to announce its initial focus area.
We will be happy to address queries and arrange interaction with the Sarthak Metals management.
(Wisdomsmith assists Sarthak Metals on Investor Relations)