Usha Martin- Coming out of Chaos

Introduction:
Usha Martin is one of the world’s leading manufacturer of wire rope. Established in the year 1960, today Usha Martin is a multi-unit and multi-product organization. The wire rope manufacturing facilities located in Ranchi, Hoshiarpur, Dubai, Bangkok and UK produce one of the widest range of wire ropes in the world. The infrastructural facilities are equipped with the latest state-of-the-art high capacity machines to manufacture world-class products. Our Global R&D center located in Italy, is actively engaged in designing of wire ropes and uses proprietary design software to develop products that are the best in class. Usha Martin also has a comprehensive R&D facility in their manufacturing unit at Ranchi in India.

Long standing application in diverse sectors like Oil & Offshore, Mining, Crane, Elevator, Infrastructure etc. is the testimony of our expertise in manufacturing high quality wire rope products. As a business entity, we have always focussed on delivering value added products and services to our customers. To ensure that our commitment to quality percolates through every sphere of our operations, we have built a robust network of capabilities spread across the globe. Our distribution centers are located in the UK, North America, South America, Netherlands, Australia, Russia, Singapore, South Africa, Indonesia, Vietnam, China, Kazakhstan and Iran. Usha Martin’s facility at Ranchi is one of the world’s largest wire rope manufacturing facility under one roof.

Important Developments:
Deleveraged: Usha Martin recently sold its one million tonne integrated steel plant at Jamshedpur to Tata Steel for around ₹4,200-4,600 crore. And used a vast portion to pay of Debt.

Infrastructure Push: The govt. huge budget push will help Usha martin steel rope business used in construction Equipment to pick up demand.

Current Valuation: It is currently trading at 10-12x PE multiple. And would be lower if consider FY23E.

I think, there is good value in the stock. I would request, the forum members to please present there thoughts and contribute in thread.

Source: After selling off steel business to the Tatas, Usha Martin turns focus on consolidation - The Hindu BusinessLine

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Sales growth has continuously declined
Promoters pledge is 50%

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I had attended the AGM of Usha Martin Limited held online today. Some of the working notes of the AGM are given below (can be some discrepancy in noting down the notes):

• We are at exciting stage in the company. See great opportunities in domestic and international markets despite challenges globally. Company to focus on key strategic issue and higher value segment.
• Mining in America, South America and Australia are a big opportunity for us. Takes 3 years to develop relationship. We have made major breakthroughs in Africa, Australia, South America and now US. Booked more than 200 tonne of orders in US and South America. There is huge shortage of manpower resulting in shortage of mining ropes. Wherever we have supplied orders, we have matched or even exceeded the life of rope expectations. Next 3 – yeears see 300 – 500 MT per month from 100 MT per month currently. It’s difficult to get into this market but once you get in, it continues for long time,
• Ports – developed crane ropes – Have 85 – 90% market share in many ropes like Middle East. Started supplying to PSA in Singapore and expect higher market share. Expand port crane ropes in Europe, South America and America. Expansion in Ranchi and Thailand will help in increasing our market share.
• Elevator ropes and fishing ropes in domestic and international market – taken good market shares. We have approval from Schindler, Otis etc for India and international markets.
• Fishing ropes doing well in Scandinavian market and have breakthrough in South American markets.
• Looking beyond products into services and looking to expand services in Europe. Singapore we have started this. Few years back we had 4 million dollars sales and now we will do 14 million dollar in FY23 and ramp up further to 20 million dollars. Middle east also we will do well.
• Russia also we see opportunity as it used to import from Europe and America. Due to sanctions, the companies in these geographies aren’t supplying and we are getting good enquiries. See good business in next 2 – 3 years from Russia.
• European and Thailand performing very well. Strengthened orgnisation structure. Significant improvement in topline and bottom line this year.
• European market is important market for us and there could be disruptions due to issue of gas supplies. Germany is a big supplier of ropes and given issues there we will get more opportunity due to higher fuel and other costs. Final stages of starting distribution business in Germany. Already started supplying through our Rotterdam subsidiary.
• Sustainability of margins? 14,000 to 18,000 per MT on standalone basis improvement in FY22. Consolidated 18,000 to 22,000 per MT in FY22. Expect these margins to sustain. Some inventory gains but it’s not substantial. Our ability to develop more and more specialty products leading to higher margins. Expect margins to be sustainable. Volatility in RM prices? Volatile environment but able to maintain margins. Not just RM but also freight basis. Most contracts now on FOB basis. Margins to be at similar levels.
• Company’s focus will be more and more on high value added products and increase share of services.
• New modernization project is funded entirely through internal accruals. Complete the expansion by Q4FY23.
• Asset Turnover – aim at 1.5 – 2 times of fixed assets.
• %age on wire ropes, LRPC, wires – no further investment in LRPC – expect to grow to 75000 – 78,000 MT from 65,000 MT and to 85,000 MT next year – there is going to be competition from JSW or Tata Steel. We have good brand and will be able to compete.
• Also into plasticated LRPC. Part of plastication lines – better margins in domestic and international markets. Good demand in near future.
• Expansion – mostly its on wire ropes and improving the facilities in Ranchi – labor productivity – modernization – reduce cost of production – most of it would be to improve volumes of wire ropes – 30,000 MT wire rope capacity to be added. 60% of that would be on value added side like oil, mining, elevator, port etc
• Oil sector lot of investment coming up – new opportunities and investment coming up. Lot of pipeline and enquiries there. If oil sustains above 100 doller per barrol. Expect it to be very strong atleast in next 2 years. %age contribution from oil & gas segment is 15 – 20% in wire ropes and expect this to go up.
• Conference calls to be started from this quarter itself
• Wire ropes – product pricing – UML is in the mid-range – US and European companies would be at higher range, Korea is in line with UML price range. As we inch higher in product mix, we will move towards higher range.
• Growth in next 2 – 3 years? Based on expansion and bullishness in demand we expect to grow at 15 – 20% in next 2 – 3 years including volume growth.
• Focus will be on international markets. Mining - Australia, South America, Africa. Elevator – India, Europe. Fishing ropes – Scandinavian countries, Oil & gas – present across world
• Net debt – 191 crore – debt to be paid off using internal accruals.
• Steel in Thailand – India steel used to go there but now import duty imposed. Most of it now comes from unit of Tata Steel. Also, buy from China and Korea – small quantity. Competitively source steel for Thailand subsidiary.
• International subsidiary capex – not much capex in distribution subsidiary. Usha SIAM has turned around. Plant was established in 1981 – old one. Thailand plant – 4 – 5 million USD in next 4 – 5 quarters – improve processes and add capacity in specialty ropes and fine ropes. European and Thailand subsidiary should show good turnaround these financial year.
• Volume – rope 52,000 FY21 to FY22. Wire strand volume reduced. LRPC – 49,000 to 65,000 MT. Alteast 10 – 12% growth in volumes. Some benefit from expansion. Next year big improvement in volumes post expansion.
• Daughter just joined the business and is based out of Singapore. Getting involved in International market. Will also be in India at mother plant soon.

(Disclosure: Invested from lower levels)

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Answers start from 1:34:00min incase if looking to save time

Disc : invested from lower levels. Not a reco.

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what are ur views on these risks?

  1. Around 400 crs contingent liabilities that form 23% of the networth.
  2. ED/CBI cases pending.
  3. hangover on family business dispute
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These are risks which are known unknowns, only way to deal with them is to either avoid the co completely, or to buy at a valuation where you can size the position appropriately on a PF Level

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Possible Quantification of the risks if they were to materialize, though these cases the outcome is not that simple.( from latest credit report)

Lets look at ED conviction rate, probability seems quite low purely statistically

Note that similar cases ( mining) are being in news against other groups as well by govt agencies in recent times.

Price pattern of UM hasnt been great in last few months and understandable given flat volume growth reported in Q1, newsflow over global economic/capex intensity,

It is a retail heavy holding stock, regular selling by in active promoters. Here is a glimpse of institutional holdings/ strong hands

What is factored in current price is the key question - Q1 annualized they are at 12 PE, with a near debt free balance sheet and value add capex going on, tecnicals - hovering near 200 MA support.

If we were to look at recent export numbers - looks like good times ahead given strong QoQ volume growth ( note dataset is selective expprts to west world and aug data is partial given some lag - point is direction) - business performance with an eye to technical could be one of the ways for those invested

Invested

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Mixing fundamentals with little technicals…
Standing at crucial juncture of 200 DMA.
Could this be a make or break below this level? Could it get too weak on technical levels if it breaks this level? Just asking for learning as it has not break 200 DMA from quite a long time now so if anyone has any views please share. Please see I have read business and know risks, etc Thanks


It has taken support at 200 dma where it took support earlier. If it doesn’t bounce from here and crosses 200 dma then a chance of double top pattern formation. As long as the new capex doesn’t kick in volume won’t increase. So maybe it will consolidate. Not expecting any rerating given the legal overhang.
Disclosure: Exited at 129 with minor loss to invest elsewhere.

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Hi Ishmohit, do you see any risk of PE contraction due to commodity nature of the business? as we have learned in SOIC that we shall buy deep cyclical commodity businesses at the high P/S and P/E ratio when earning are suppressed. where UML is currently having highest EBITA/ ton and earnings. Is their any chances of Volume and EBIDTA contraction and PE derating?

Disc: Not invested, studying

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