Shankara Building Products: Demerger Drives Strategic Clarity Amidst Robust Steel Growth

Shankara Building Products Limited, a prominent player in India's building materials sector, has unveiled its Q2 and H1 FY26 results, showcasing robust performance driven primarily by its steel business, even as its strategic demerger nears completion. The company reported a consolidated revenue of INR 3,325 crores for H1 FY26, marking a significant 27% year-on-year growth. This impressive top-line expansion was underpinned by a 33% year-on-year increase in steel volumes, positioning the company firmly on track to achieve its ambitious 1 million tonne steel volume target for the full fiscal year.

Despite a challenging macro environment, Shankara Building Products demonstrated strong profitability, with consolidated Profit After Tax (PAT) surging by 84% year-on-year to INR 58 crores for H1 FY26. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) also saw a healthy rise of 39% year-on-year, reaching INR 110 crores for the half-year. This financial resilience is particularly noteworthy given the prevailing industry headwinds that impacted certain segments.

Segmental Performance and Strategic Shifts

The company's performance was largely bifurcated, with the steel segment acting as the primary growth engine. Steel sales contributed INR 3,026 crores, accounting for 91% of the total H1 FY26 revenue. This segment benefited from sustained demand, particularly in infrastructure projects, allowing Shankara to gain market share through aggressive strategies in regions like Gujarat and Maharashtra.

In contrast, the non-steel business, which includes categories like sanitaryware, plumbing, tiles, electrical, lighting, and paints, experienced a more moderate growth of 8% year-on-year, contributing INR 299 crores to the H1 FY26 revenue. This segment faced significant macro headwinds, including a slowdown in construction activities in key southern states like Karnataka, Kerala, and Telangana. These challenges were attributed to delays in government approvals, extended monsoon seasons, and slower money rotation in the market. Despite these obstacles, certain non-steel verticals like plumbing and sanitaryware managed to deliver growth of 14% and 7% respectively, showcasing underlying demand in specific product lines.

To counter these challenges and diversify its revenue streams, Shankara has been actively expanding its non-steel footprint. The company inaugurated a new non-steel store in Vijayawada and established three new fulfillment centers in Kochi, Thrissur (Kerala), and Indore (Madhya Pradesh). This expansion has increased its network to 94 operational stores and 36 fulfillment centers across 10 states and 1 union territory, covering 45 cities.

Financial Summary

Strategic Initiatives and Future Outlook

A pivotal development for Shankara Building Products is the nearing completion of its demerger. The company has received in-principle approval from both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) for the listing of Shankara Buildpro Limited, its marketplace business, expected by November-end. This strategic separation aims to create two distinct entities: Shankara Buildpro Limited (marketplace) and Shankara Building Products Limited (manufacturing), each with a focused management team and capital structure tailored to their respective operations. The marketplace business is projected to achieve 15-20% revenue growth in FY27, targeting a healthy Return on Capital Employed (ROCE) of 28-30%.

The manufacturing business is undergoing a comprehensive revamp, including a dedicated management team, machinery upgrades, and a focus on niche, value-added products. Management has guided for a 10% revenue growth for the manufacturing segment in FY27, with an ambitious target of improving EBITDA margins to 3% by FY27 from the current lower base. This will be achieved by increasing capacity utilization from the current 50%+ to 60-65% and a planned capital expenditure of INR 10-15 crores in FY27 for machinery upgrades.

Management's Vision and Disciplined Execution

Management's commentary reflects a balanced perspective, acknowledging market challenges while emphasizing strategic initiatives and disciplined execution. The company has maintained strict control over working capital, averaging around 30 days, which has helped in controlling finance costs despite the expanding scale of operations. This financial discipline, coupled with a proactive approach to market expansion and product diversification, underscores Shankara's commitment to sustainable growth.

The focus on improving the manufacturing segment, scaling up the e-commerce platform, and expanding the physical retail network demonstrates a multi-pronged strategy to enhance market penetration and operational efficiency. The demerger is expected to unlock further value by allowing each business to pursue its independent growth strategies with greater agility and focus.

Shankara Building Products Limited continues to solidify its position as a trusted leader in the building materials sector, committed to quality, affordability, and customer satisfaction. The strategic clarity post-demerger, coupled with robust operational plans, positions the company for continued growth and value creation in the dynamic Indian market.