Usha Martin- Coming out of Chaos

Usha Martin -
Q1 FY 25 concall and results highlights -

Revenues - 826 vs 814 cr, up 1.5 pc
EBITDA - 154 vs 146 cr, up 6 pc ( margins @ 19 vs 18 pc )
PAT - 104 vs 101 cr ( capitalisation of new facilities led to higher depreciation in Q1, ramp up of these capacities is expected to better absorb these costs in future )

Segment wise revenues -

Wire Ropes - 595 vs 553 cr, up 8 pc
Wire and Strand - 71 vs 65 cr, up 9 pc
LRPC - 88 vs 116 cr, down 24 pc

Wire rope segment is the value added, high margin segment - now contributes to 72 pc of company’s revenues

Geography wise business breakup -

India - 44 pc
Europe - 25 pc
Asia Pacific - 13 pc
Middle East - 8 pc
America - 10 pc

Steel prices / Ton @ 51.9k vs 59.2k

EBITDA / Ton @ 32.6k vs 32.2k - largely flat( indicating high degree of value addition )

Gross Debt @ 317 cr
Net Debt @ 73 cr

Key demand drivers going forward -

OEM approvals and successful project references to drive performance in US and Europe

New opportunities in Oil and Offshore sectors

New orders from Wind energy sector - due increased focus on green energy

Launch of Synthetic slings in later half of FY 25

Indian govt’s focus on ropeways, bridges and high speed railways

Major projects like - Parvatmala - are expected to drive demand over next few years

Increased high - rise constructions leading to increased demand for elevator ropes

During the Qtr, company’s primary focus was on ramping up the newly established facilities for their value added products. This should result in stronger performance in H2 for the company

GoI has planned aprox - 250 ropeway projects for next 5-7 yrs - should augur well for the company

Company’s Galfan wire capacity is coming up in next 3-4 months. These wires are used across Europe to make rockfall barriers in the hilly areas. The same are also required extensively in the Himalayan regions. This should again be a good demand driver for the company

Company is expanding its capacity in their European venture. Even in Europe, demand is good for Oil, Gas and Wind energy sectors

Expecting double digit demand growth for the elevator ropes for next 3-5 yrs - both in India and International mkts

Company expects volume and value growth ( both ) to pick up wef Q2. Even in relatively commoditised segment of LRPC ropes, company is focussing on plasticated and galvanised LRPC to drive better value

Company is reasonably confident of maintaining EBITDA / Ton of around 32k for the remainder of the this FY ( despite weakness in steel prices )

Company sees it various initiatives ( that its taking these days ) to bear good economic fruit inside next 2 yrs

Company’s incremental capex are all in the value added areas - this should be margin accretive going fwd. Even in LRPC segment, margins should improve going forward due Galvanisation and Plasticisation of their products

Guiding for a volume growth of 10 pc for FY 25 ( that’s because - even if the value added products grow strongly, the demand is tepid in the general purpose ropes and LRPC segments ). This volume growth should accelerate wef FY 26 - provided there are no major geo-political tensions / headwinds

Employee costs should moderate going into Q2 and onwards as there were some one time performance bonuses that were given to the employees in Q1

Price for normal LRPC is around 65-70k / Ton. For plasticated, this price rises to between 135-170k / Ton - depending on the specifications

General purpose ropes sell for around 135 k / Ton where as specialised / value added ropes sell for double that price

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

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Usha Martin -

Q2 FY 25 results and concall highlights -

Revenues - 891 vs 785 cr, up 13 pc
EBITDA - 161 vs 144 cr, up 11 pc ( margins @ 18 vs 18.5 pc )
PAT - 109 vs 110 cr ( largely flat YoY )

Gross Debt @ 318 cr
Net Debt @ 127 cr

Segment wise revenue breakup -

Wire Ropes - 661 vs 554 cr, up 19 pc ( volumes @ 28k vs 23k MT )
Wire and Strands - 80 vs 69 cr, up 16 pc ( volumes @ 10k vs 8k MT )
LRPC - 86 vs 92 cr, down 7 pc ( volumes @ 12k vs 13k MT )

Higher margin Wire ropes contributed to 73 pc of sales. Within wire ropes, value added segments like - crane, oil and offshore, elevator, mining and fishing - rose to 72 vs 70 pc YoY

EBITDA / ton @ Rs 32.5k vs Rs 31.2k YoY

Domestic : International sales @ 45 : 55

Have approved dedicated capex @ their UK facility to make Synthetic slings. Production of Synthetic slings should begin by start of Q4. Synthetic slings is an exiting new product line with high growth potential

Going forward, company is expecting a demand pickup for galvanised and plasticated LRPCs

Q2 is seasonally weak Qtr for company’s domestic business due monsoons. Expecting a pickup in Q3 as Govt expenditure also ramps up

Company expects EBITDA margins to improve ( due positive operating leverage )as the volumes pick up and the capacity utilisation of their expanded capacity @ Ranchi is utilised in a better fashion

Because of the Red Sea crisis, transit time has increased by 3-4 weeks for their products headed to US, EU mkts. This has led to longer working capital cycle for the company

Company’s facility for rock knitting wires ( specialised wires made up of Zinc and Aluminium ) should go live by start of Q4. It ll be a 7000 MT capacity with margin potential of Rs 35-45k / MT. Company may even expand this capacity if they see good demand in this segment

It took quite some time for the company to obtain all the necessary approvals and certifications from customers in Saudi Arabia. Have started to see good order inflow from Saudi Arabia in Q3. Execution of these orders is expected to commence in Q4. However, the real big bump up in business from Saudi Arabia should only happen in FY 26

Similarly, real business momentum in the Synthetic Slings segment should only start to build up in FY 26

At present, company is the only domestic supplier of specialised wires/ropes that are expected to be used in the Parvatmala project. Company is undergoing the process to obtain all the necessary clearances, certifications and approvals for the same. Once all this is completed, commercial supplies will only start after another 2-3 yrs. Total addressable mkt for the company in the Parvatmala project should be around 3-3.5k cr

Monsoons are a weak season for plasticated and galvanised LRPCs. Company is now seeing demand pickup for these products. Expect to sell volumes of 400-500 MT / month of these two products combined in the coming months

80-85 pc of company’s sales are from replacement demand. About 15 pc of their product demand is for fresh capex

Capex for H1 was @ 120 cr. Phase -1 of Ranchi Capex is now complete. It should take another 120-130 cr for phase -2 to be completed

Elevator Industry in India is showing very strong growth. Similarly, because of rapid infra buildup in India, demand from Crane ropes is also strong

Guiding for a 10-12 pc volume growth for FY 25, FY26. Should be able to clock EBITDA margins between 18-20 pc

Currently supplying to 4-5 different mining projects in US and 3-4 in Australia. Seeing good repeat orders from these projects. Growing the mining business is not easy as it takes a lot of time and effort to get validations and orders from new customers. Should take 2-3 yrs for company to see incremental growth in this segment ( as base business continues to be steady and profitable )

Renewables + Oil and Gas business - currently contributes aprox 20 pc of company’s business. Both these segments are witnessing good demand and growth trends

Life of mining ropes varies from 15 days to 1 yrs depending on application type. Life of crane ropes vary from 1-3 yrs. Life of Anchoring / Mooring ropes varies from 3-5 yrs

Company estimates that by Q1 FY 26 - company should start substantial operational leverage to kick in from the expanded capacities and increased volumes

Going fwd, as volumes pick up and the product mix improves - margins should gradually keep inching up

Sales realisation for general purpose ropes vary between Rs 1.2-1.4 lakh / MT. For the Value added ropes, it varies between Rs 2-4 lakh / MT

Disc : holding, biased, not SEBI registered, not a buy/sell recommendation

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Usha Martin | Trust Buying

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Usha Martin trust bought shares worth 6.4 cr at 341/sh

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