Usha Martin Limited (517146) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to earnings conference call of Usha Martin Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh from CDR India. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us on Usha Martin's Q1 FY '26 Earnings Conference Call. We have with us Mr. Rajeev Jhawar, Managing Director of the company, Mr. Abhijit Paul, Chief Financial Officer; and Ms. Shreya Jhawar from the Strategy and Growth Team of the company. We hope all of you have had the opportunity to refer to the earnings documents that we shared with you earlier. We will initiate the call with opening remarks from the management, following which we will have the forum open for a Q&A session. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation. I would now like to invite Mr. Rajeev Jhawar to make his opening remarks. Thank you, and over to you, sir.

Thank you. Good morning, everyone. On behalf of the management team of Usha Martin, I would like to welcome you all to our earnings conference call. I will begin by sharing some updates on the operations and strategy following which our CFO, Mr. Abhijit Paul, will run you through the key financial highlights. We are pleased to report a stable start to FY '26 with the consolidated revenues of INR 887 crores, (sic) [INR 887.2 crores] driven by a year-on-year growth -- volume growth of 10.4% across our key segments. The Wire segment registered a strong 32.3% year-on-year revenue growth, while the Wire Rope division continued to perform steadily with a 7.9% increase in revenues supported by encouraging contributions from the crane and elevator rope segments. The LRPC segment continues to face certain headwinds and recorded a 3.4% year-on-year decline. Through the low strategic initiatives are underway to address these challenges. Operating EBITDA for the quarter stood at INR 145 crores with a margin of 16.3% and an EBITDA per tonne of INR 28,502 per tonne. Early gains from the One Usha Martin transformation supported profitability amid market-specific and global uncertainties. While the foundational phase of our initiative is largely complete, we expect more tangible benefits to emerge in H2 FY '26, as mentioned on our previous con call. A key measure of success will be our ability to scale while keeping costs in check, thereby driving better operating leverage going forward. Some of the key growth drivers for the business, which will enable us to scale are: One, the new CapEx at our Ranchi plant is now operating at a much more stable level with 70% commissioning complete and stabilized as of Q1. We are meticulously planning both factory and on-ground sales efforts to strengthen our product mix for this capacity. Progress is being closely monitored on a daily basis to ensure we capture high-value opportunities which will drive EBITDA margin improvement. Two, with the CapEx on stream, we have also successfully increased direct shipments of high-value segments from India to the European customers which demonstrates acceptance of our products in these quality conscious markets. It's encouraging to see that we have already started to get repeat orders reinforcing our confidence in this model as a sustainable growth driver. Three, even with some uncertainty in the U.S. market due to tariffs, we are confident of our position in the U.S. market. Our focus has been on retaining and even growing our market share. We have secured a sizable tender that provides strong order visibility for the rest of the year alongside our regular business in the U.S. Fourth, our synthetic sling solution, ocean fiber has gained faster-than-expected traction with strong brand acceptance in a short period of time. The inquiry pipeline is robust across offshore subsea and heavy lifting application. And our sales teams are actively working with potential customers to move these inquiries towards orders. Early trials and feedback have been extremely positive, and we are already seeing promising signs that ocean fiber will become a meaningful contributor to our high-value product portfolio in the due course. While these growth drivers strengthen our top line, we are equally focused on disciplined cost management to enhance margins. As a group, we are examining every cost line with the aim of improving efficiency and profitability. Some initiatives are already delivering results, while others will see benefits in the coming quarters. For example, employee costs have reduced from an average of INR 118.6 crore per quarter in FY '25 to INR 113.2 crore in quarter 1 FY '26. With further savings expected, we -- as we expand our shared services back office in India. Another example is on our finance costs. We have repaid the entire USD 3.4 million loan in Singapore and plan to fully repay EUR 2 million loan in Netherlands. With the impact of these transactions with these actions expected to reflect from quarter 2 onwards. All of these initiatives have led to strengthen balance sheet inventory levels have come down meaningfully from FY '25 peak, driving strong cash conversion. Operating cash flow stood at 95% of operating EBITDA in Q1 FY '26. Our balance sheet has also strengthened with the net debt free position at both stand-alone and consolidated levels, giving us greater flexibility to fund future growth without leverage constraints. Looking ahead, while Q1 FY '26 reflects a steady operational performance a stronger growth trajectory is expected in the second half as the benefits of transformation initiatives and capacity expansion gather pace. Better demand visibility supported by improved competitiveness across global markets position the company to pursue market share gains, even amid prevailing macro geopolitical uncertainties. This approach is expected to strengthen leadership in core segments and deliver sustainable value for all our stakeholders. With this, I would like to now invite our CFO, Mr. Abhijit Paul, to present the financial highlights for the quarter. Thank you, and over to you, Abhijit.

Thank you, and a very good morning to everyone. I will now provide a brief overview of the company's operating and financial performance for the quarter ended 30th June '25. In Q1 of FY '26, our consolidated net revenue from operations stood at INR 887 crore,(sic)[INR 887.2 crores ]reflecting a year-on-year growth of 7.4% over INR 826 crore (sic)[INR 826.4 crores] in Q1 of FY '25. This revenue growth was led by strong performance of our Wire segment, which grew by 32.3% year-on-year. The core Wire Rope segment, which continued to be the largest contributor with 72% share of the total revenue, registered stable performance with 7.9% growth on a year-on-year basis and is expected to gain momentum from H2 of FY '26, supported by recovery in demand and the ongoing One Usha Martin initiative. Operating EBITDA for the quarter stood at INR 145 crores (sic) [INR 144.6 crores] as against INR 154 crores in the same period last year. While margins were impacted by market-led pressures, our continued focus on operational efficiencies is expected to aid recovery in the coming quarters. Net profit for Q1 FY '26 stood at INR 101 crores compared to INR 104 crores in Q1 of FY '25. On the balance sheet front, I am pleased to report a significant strengthening in our financial position. As of 30th June 2025, we have achieved a consolidated net cash position of INR 14 crores compared to a net debt of INR 63 crores on March '25. Our disciplined capital allocation approach ensures that both ongoing and planned growth initiatives remain well funded. From a cash flow standpoint, we recorded a healthy improvement. Operating cash flow before tax for Q1 FY '26 stood at INR 137 crores, translating to approximately 95% of operating EBITDA compared to INR 102 crores or 66% of EBITDA in Q1 of FY '25. This improvement reflects our tighter operational controls and sharper working capital management. These strong cash flows supported by adequate working capital headroom provide a strong foundation for future investments and disciplined capital deployment. To conclude, we remain confident that strategic groundwork laid under One Usha Martin initiative combined with disciplined financial approach, positions the company well for the next phase of growth. Steady traction across markets, a sharper focus on operational agility and the continued strength in the balance sheet, cash flows [Technical Difficulty].

Ladies and gentlemen, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience, we have the line for the management reconnected.

Yes, please. So can we start with the question-answer?

Sure. [Operator Instructions]. The first question is from the line of Aman Kumar Sonthalia from AK Securities.

Sir, my question is related to U.S. market. Sir, there is a significant hike in the duty in the U.S. market. So how we will grow there and how we will maintain our business there?

Thank you for the question. So with regard to the U.S. market for steel wire rope, which fall under the Section 232, the tariffs are 50% across the board, so the reciprocal tariff is separate. And this 50% tariff for our particular product category is different and applies to all countries except U.K., which is at 25%. For us so far in terms of the impact of these tariffs, we have not seen a major issue because for most of our high-value products like elevator ropes, mining ropes, which we sell in the U.S. in most cases, we have been able to pass on a large part of the tariff increase to our distributors or to our end customers. And in some cases, where we can't do that, we have to take a judgment call of how to sustain, but our major focus has been that we don't want to give up our market share in the U.S. because we want to ensure that we don't lose our customers in the U.S. in the long term. And in fact, with our inventory on the ground, because we have a warehouse in Houston, with our inventory on the ground for our GP ropes, we have been able to actually get a better realization for our products and actually gain share in some cases. And one of the other positive developments has been that we recently won a tender in the U.S., which is a sizable tender, which gives us a good order visibility and a consistent order book for FY '26. So all in all, while the environment still remains uncertain, we don't know how things will evolve overall in terms of the tariff environment change every day, but as of now, we are feeling cautiously optimistic.

Next question is related to European markets. So I think there's a huge geopolitical tension is going on. So how do we see our European business going forward?

Our European business is -- we are very positive on our European business. With our integration with India and our BS U.K. facility, we have been able to now start getting better supply, direct supplies from our Indian plant on the BS U.K. brand to the European market and the supplies are going well, also getting repeat orders. This is helping us to even be more competitive in that market. We are able to make faster delivery to our customers. And both on the wind energy, renewable energy as well as on the oil offshore and the crane and elevator market, the demand is fairly strong, and we expect to have a decent growth in this financial year in Europe.

Okay, sir. Sir, I've seen a decrease in the manpower cost. But at the same time, I've seen that there is an increase in the other expenses. So whether we can expect further come down in manpower costs? And what is the reason for sudden spike in other experiences?

That's a good question. So if we look at our other expenses for this quarter, it was about INR 166 crores for the quarter. And if we compare it to the quarterly average for FY '25, it was about INR 163 crores. So that is -- as you said, there is a slight increase, there's a INR 3 crore increase. But if we look at -- break that down further, the other expenses can be seen as the fixed as well as the variable expenses. So the fixed expenses have actually decreased from the INR 37 crore level to about INR 34 crores through all of the initiatives which we've been talking about under One Usha Martin. What has increased is the variable expenses, which has increased from about INR 126 crores to INR 132 crores, but a large part of that increase is the freight component of INR 6 crores largely for Europe orders, which is actually recovered from end customers. So -- and the second part you mentioned, which was the employee expenses, the employee expenses have decreased actually from INR 125 crores in Q1, but that was slightly higher level on average if we see of FY '25, which was INR 118 crores per quarter, which has decreased to INR 113 crores this quarter, which is on an annualized basis, a INR 20 crore decrease, which we do expect will further reduce with all of the initiatives and the back office that we are setting up in India. So as more of these One Usha Martin initiatives materialize, we will see expenses across the board come down, but the most important part is we have to do that without compromising on our growth, which we are confident of, and that is what will give us better operating leverage.

And by the way, as sir has said in the initial remark that we are seeing a very good traction in the synthetic sling business. So can you throw some light on that business?

Yes. So as we mentioned in the opening remarks, the Ocean Fiber brand, which is our synthetic sling brand that has picked up really we are getting repeat orders from our customers for that product in Latin America, even in Europe. And we thought that it would take a while to build track record and go into this heavy lift synthetic slings market, but it's been great to see that we have already got success there and will be supplying heavy lift slings for the critical offshore wind market which is a high-value, high-margin product. And we've already secured the order, and we will be supplying it in the upcoming quarters. While it's still early days, and we don't want to put a number to it, we definitely think that in 18 to 24 months, it will become a meaningful sizable independent vertical for our next level of growth that we are targeting.

[Operator Instructions]. Next question is from the line of Pratim Roy from B&K Securities.

Congratulations on good set of numbers. I have just 2 questions. First of all is that last quarter there is one-off. So is there any one-off is there in this quarter as well? That is my first question.

Yes. This quarter, we don't have any [Technical Difficulty].

Hello.

No, there are no major expenses -- one-off expenses in this quarter.

Okay, sir. And secondly, sir, when we can expect that [indiscernible] billion cost optimization strategy that we have, which would be reflect in our book?

It should reflect from quarter 3 onwards -- at quarter 2, but we should be able to full advantage from quarter 3 onwards.

Okay. And 1 last question, if I may be ask. Like you said that U.S. tariff will impact is not that much as we can easily pass through the tariff to the end customer. But in some cases, that Chairman mentioned that we can't really have to some other steps. So is there any -- if you can quantify any number that, that much you can expect from that U.S. traffic deal and all? Any ballpark number on that side?

I think we are positively optimistic, and we should be able to not only retain our market share and ensure our margin protection and also, we should be able to, in some cases, increase our market share. But with the way it is that the tariff keeps on changing fairly frequently, we are a bit cautiously optimistic, and we hope that if this status quo what is being maintained is maintained going forward, we should be able to maintain our margins and volumes in the U.S. market.

Next question is from Prolin Nandu from Edelweiss.

I'll continue with the last participant's question on tariffs, right? Now, see 50% is a very large number. And despite that you are confident of you maintaining the market share as well as the margin. Can you help us understand how will you be able to do this? I understand that the domestic producers do not have the capacity enough to supply in the market. But with 50% differential, maybe they can also put up the capacity. And the larger question is that at, let's say, for example, you've been aware about this tariff thing before you thought about this restructuring, right, from U.K. to India, would your decision change? And can it still -- can you keep some capacity operational at the U.K. plant so that between India and U.K., right, you can take advantage of some of the tariff differential when it comes to some markets like U.S.? So this is the first question that I had.

Yes. So [Technical Difficulty] for others as well. We compete with the Koreans, we compete with other people in the India market. So for everyone, it is 50% as opposed to the reciprocal tariff where it's different tariff for [Technical Difficulty] so in that way, it's the level playing field. Secondly, when it comes to the U.S. market, the domestic market versus [Technical Difficulty] that is looked at very differently because the domestic prices, even with the 50% tariff and a lot of the major categories will still be at higher levels, they do command a premium. So in that way, we are still overall competitive. Thirdly, in your point around will the domestic producers set up any capacity? With the environment being so dynamic right now and uncertainty for them as well in the market that I think is happening on a daily basis. Based on our initial analysis, they are also not feeling like the -- it makes sense to put in more capacity because it's been changed in a couple of years, then they would be stuck with that additional capacity and there might be an oversupply at that point. So while they don't have production capacity right now to meet the demand, import will always be a factor, we don't see any major CapEx plans for the major producers over there. And then to your last point, for the BS U.K. part, we still have our machines in BS U.K. We reduced our manpower and we reduced our production over there. But we do have the flexibility where if we feel that this environment continues or changes and in some cases, the unit economics makes sense for us to produce in BS U.K. for the U.S. market, we have the flexibility to do that.

That's very encouraging to hear. My second question would be on the domestic market, right? Can you just help us understand what is the competitive environment here? Because there are some other players who also have probably got approvals in some of the mining tenders, so on and so forth, right? And some of the domestic players are also putting up capacity for high value-add wires. So versus, let's say, a few years back, has our competitive position in the domestic market taken a hit? Or how should One think about competition in the domestic market?

Good question. Domestic market in the Wire Rope segment, Usha Martin has between 65% to 70% of the market share, and we have a very strong data network, a very strong technical team, which supports these services to our customers, along with our dealer network. And we have been able to continuously maintain and in some cases, are focusing to increase our market share. The prices in the domestic market have also improved slightly more on account of the improved product mix, and we are expecting to continue to maintain our market share and we still enjoy a very strong support from our dealers and our customers. The competition in all the various segments will always be there. We have to see that how we continuously improve, enhance our product work, improve with our global design center and our R&D center in India to work closely with our customers to continuously upgrade the products to be able to improve the technical performance and the performance of our ropes and that is really helping us to ensure that we keep our market share. On the wire side of the business, we have seen a 32% growth year-on-year on the wire side. And we are more focused to increase the production of the high value-added wire, which is going to be helping us to improve the overall sales of our wires but more focused on the value-added products. And we are not getting into the commercial wires, which have a large volume, but low margin. So that is the kind of products which we are not in. So it's a niche market, which we are focusing, and we expect to continuously grow in that market.

Next question is from the line of Jasdeep Walia from Clockvine Capital.

Hello. Sir, can you hear me?

Yes.

Sir, with respect to products that you supply to U.S., are these being supplied by your India facility or the U.K. facility? And let's say, if the tariff were to remain at current levels, would it be possible for you to shift the entire production for your U.K. -- U.S. market to U.K. plant?

Most of the suppliers are taking place from India and our Thailand plant and we will continue to do so. As Shreya mentioned earlier that if there is an opportunity for us to be able to supply from U.K., definitely, 10%, 15% of this quantity can be even supplied through our U.K. plant, but we don't see that situation happening in the near future. Going forward, we have that flexibility. And we have kept the flexibility with our manpower, and we should be in a position to do that should the situation arise.

Got it, sir. And with respect to the flexibility that you mentioned, is it that the U.K. plant will require some manufacturing investments or modifications to be able to get the U.S. volume or the plant is ready and whenever you -- whenever you feel like time is right, the production could be comfortably move to U.K. plant?

No, we don't need any more fixed asset investment there. Our plant in machinery is in good shape. And we have retained all the equipment in the U.K., not moved anything out of the [Technical Difficulty]. And should the need be, we can quickly start production from that facility.

Sir, I'm just curious, given the fact that there's a large duty differential between U.K. and other manufacturing locations to the extent of almost 25%, why aren't you already shifting the U.S. volumes to U.K. plant? Because it will add a significant amount of margin to your U.S. sales, right?

Anything which goes from the U.K. plant, the wires and strands have to go first from India or Thailand to the U.K. plant. The U.K. cost of manufacturing is also not cheap with the cost of labor. So -- and then the logistics also first going to U.K. then getting it converted and then going back from there to the U.S. with the second leg of logistics, it's -- when you look at everything, it's still more competitive to supply from India and the Thailand plant.

And in any case, in most cases, the distributors or end customers are taking on a large part of the price increase. So that is something that is also helping us retain our share.

Next question is from the line of [ Rajesh Agarwal ] from Money [indiscernible] Capital.

We are seeing a traction in which elevator or locally domestic in that segment, are we seeing a traction? Because I read an article that elevator segment is growing by double digit. This is my first question.

The elevator is definitely growing fairly fast in the domestic market. And with the construction in the Tier 2, Tier 3 cities also of multi-storage buildings, we see that a lot of demand is coming up. Elevator is one segment, which is at the strong growth, in addition to the crane market, which is again related to construction, piling, mobile cranes, even ports. So these are the 2 segments which are growing fairly strongly in India.

Okay. And sir, second question, is there a possibility of working capital reducing further? And what will we do to increase the margin which we have guided to 18%? How the margins will come and how the working capital will improve?

Yes. So the -- definitely, the working capital will reduce going forward. In September last year, it was at 209 days at its peak and now it's come down to 196 days as of this last quarter. We are confident that this positive trajectory will continue. The second part is the EBITDA margin growth, yes, we definitely expect it to grow from the current [Technical Difficulty] levels to an average of 18% for the full year. And we are quite confident of that, both in the domestic and international markets. So first, in terms of the domestic market, we do expect better product mix and realizations going forward, and we have seen already early signs of that from our order pipeline with our dealer network. So overall, from Q2, where we expect the margins to go up. And then when it comes to the international business, one of the reasons the margin was also subdued was because in the Middle East in the past quarter, we did see certain pricing pressure with GP Rope, but even there, our focus is more on the high-value products now in elevator piling like you were talking about even in the Middle East market. So with that, it might take a little bit more time. But in H2, we do expect the recovery to come in. And then, of course, with the European business initiatives, which we've already talked about, that would also lead to further EBITDA margin improvement. So all of this gives us the confidence that H2 should be at much better level.

This includes any mitigation in the steel price rise also?