Usha Martin Limited (517146) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the earnings conference call of Usha Martin Limited. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Anoop Poojari from CDR India for opening remarks. Thank you, and over to you, Anoop.

Thank you. Good morning, everyone, and thank you for joining us on Usha Martin's Q3 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'll initiate the call with opening remarks from the management, following which, we'll have the forum open for a question-and-answer 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 shared with you earlier. I would now like to invite Mr. Rajeev Jhawar to make his opening remarks.

Good morning, everyone, and thank you for joining us today. On behalf of the management team of Usha Martin, I would like to welcome you to our earnings conference call for the third quarter of FY '26. I will begin with a summary of the quarter and then share our perspective on the drivers behind the performance. Consolidated revenues for the quarter grew 6.6% year-on-year to INR 917 crores, driven by a better product mix and steady demand trends across our key markets. The Wire segment continued to demonstrate strong momentum, delivering a 20.2% year-on-year increase in revenues. The Wire Rope segment reported 6.6% year-on-year revenue growth while the LRPC segment recorded a 13% decline year-on-year. Operating EBITDA for the quarter stood at INR 176 crores representing a strong 23.3% year-on-year increase. Operating cash flow before tax stood at INR 561 crores, translating into a robust 114% conversion of operating EBITDA into cash. These results are a direct outcome of the strategic choices we have made. First, we continue to push value accretive products and applications across our portfolio. During the quarter, this was driven by higher traction in elevator ropes, train ropes and oil and offshore ropes, where requirements are more engineering-driven and less price-led. This approach also extends to OCEANFIBRE, our synthetic sling solution, which complements our steel rope portfolio in specialized oil, offshore, and lifting applications. Over the past few quarters, this vertical has performed well for us, and we have executed several projects successfully. The OCEANFIBRE brand is now established and will continue to scale this segment. Second, our focus continues to be on adding new customers across geographies because that is what ultimately drives sustainable volume growth. We have a dedicated focus on tracking how many new customers we are onboarding each month across markets. A good example of this is Saudi Arabia. Since starting our Rigging business there, we have added around 60 new customers. While these customers are currently small in terms of volumes, but as the trials are completed and share of wallet increases, we expect volumes from this base scale up. Third, our focus on cost structure continues to translate into better operating leverage. Over the past year, we have simplified our processes and policies, improve productivity and rationalize overheads under the One Usha Martin framework. This further allowed us to deliver healthy margins during the quarter and achieved an EBITDA per tonne of INR 33,350 per metric ton and margins of 19.2%. Fourth, we continue to focus on generating strong cash flows, improving working capital and being thoughtful about capital allocation. This has allowed us to strengthen the balance sheet, while continuing to invest. We closed the quarter with a net cash position of INR 198 crores and an ROCE of 20%. Looking ahead, Growth remains a key priority for us, and volumes are an important part of that equation. We see volume growth coming from new focused areas where we have been building capability over the last few years. This includes the high-quality Wires such as GALSTAR, value-added ropes across segments like elevators, crane, mining and oil and offshore as well as specialized products like the plasticated LRPC. These are categories where customer qualification cycles are longer, but once established, they tend to be more stable and recurring. With CapEx at Ranchi plant facility largely stabilizing, ongoing approvals and a healthy order book, we are well positioned for a pickup in volumes in the coming quarters. Additionally, over the past few quarters, we have significantly deepened our engagement with the end customers. Our R&D teams are working closely with these customers to develop customized solutions, enabling us to participate in more specialized and higher value requirements. This closer integration with customers also provide us with reasonable visibility on demand pipeline, reinforcing our confidence in scaling up volumes and value. While the global operating environment continues to present uncertainties, the steps we have taken over the past few years give us the confidence in how the business is positioned, both operationally and financially. This gives us a stable base to continue into our next phase of growth. With this, I would like to now invite our CFO, Mr. Abhijit Paul, to present the financial highlights for the quarter. Thank you.

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 and 9 months ended 31st December 2025. In Q3 FY '26, our consolidated net revenue from operations stood at INR 917 crores as compared to INR 861 crores in Q3 of FY '25. This performance was driven by a healthy 20.2% year-on-year growth in Wire segment, while Wire Rope segment, which accounted for around 73% of the total revenues, registered a 6.6% year-on-year growth. The growth was supported by an improved product mix and a disciplined approach to the volumes across key markets. Operating EBITDA for the quarter stood at INR 176 crores as compared to INR 143 crores in the same quarter last year, with margins improving to 19.2% from 16.6% Net profit for the quarter FY '26 -- Q3 FY '26 increased to INR 107 crores from INR 92 crores in Q3 FY '25, despite a onetime cost impact of INR 13 crores arising from the implementation of the Wage Code. The improvement in profitability was driven by favorable sales mix and operating leverage, supported by sustained cost discipline. For the 9 months period ended 31st December '25, consolidated net revenue from operations stood at INR 2,712 crores, registering a 5.2% year-on-year increase over 9 months of FY '25. During the period, the Wire segment recorded a strong 21.8% year-on-year growth, while the Wire Ropes segment grew by 5.6%. Operating EBITDA for 9 months FY '26 stood at INR 494 crores, as compared to INR 458 crores in 9 months of FY '25. Profit after tax from continuing operations for the 9-month period stood at INR 336 crores, up from INR 305 crores in the corresponding period last year. On the balance sheet front, overall net working capital has reduced by INR 97 crores from the peak of December '24, reflecting continued improvement in working capital management across the business. This reduction was driven primarily by lower inventory levels and continued discipline in receivables management, while maintaining a stable current ratio. Net working capital days have remained broadly stable on a trailing basis, even as absolute working capital levels have declined, indicating improved execution discipline. Free cash flow generation during the 9 month FY '26 remained strong at INR 318 crores, supporting meaningful deleveraging of balance sheet. Gross debt reduced from INR 338 crores in March '25, to INR 172 crores as of December '25, driven by internal accruals. As a result, the company has moved into a net cash position, which has also led to a notable reduction in the finance cost and further strengthened our financial flexibility. To conclude, our performance in Q3 and first 9 months of FY '26 reflects the benefit of our disciplined operating and financial approach with improving margins, strong cash generation and the strengthened balance sheet. With a net cash position and stable demand across key markets, we believe the company is well positioned to support growth initiatives, while maintaining financial discipline. This brings me to the end of my address. I will now request the operator to open the line for Q&A session. Thank you.

[Operator Instructions] We take the first question from the line of Aman Kumar Sonthalia from AK Securities.

Congratulations to the team for delivering a strong set of results in challenging macro environment. The healthy cash flow generation is particularly encouraging. But sir, I have a few questions regarding the results. Sir, when do we expect a clear and sustained recovery in volume growth and which business segment are likely to lead this recovery?

Thank you so much for that question. Of course, volume growth is very important to us. If we look at the 9 months period so far, we have seen about a 5% increase in volume growth. On the Wire side, we have been able to increase volumes more -- and -- but on the Rope side, of course, there's definitely further scope to push up volumes, which have only been marginally up, I would say, year-on-year. When we can see this growth, so of course, from a CapEx point of view, our capacities are ramped up on the Rope side, and we are ready to push up production. Now it's just about getting the right mix for optimal utilization and also pushing further on the market side. As we mentioned in the opening remarks, there are a few things that we are doing on that front to push up volumes, be it, one, actively developing and tracking new customers across all our regions. Second, we're also working on more OEM approvals in the value-added segment, which is our focus, for example, in elevators, cranes, et cetera. And also, we are pushing more volumes through value-added services, which we are working more directly with the end customers, which is helping us get better visibility on demand and so we can plan the right mix better. So all of these should help us in the coming quarters to push up volumes in Q4 as well and then in the next financial year.

Madam, whether we are seeing good order position compared to last year?

Yes, we see a much healthier order book, both on the domestic and export fronts based on all the various initiatives the company has taken. And with this increased order book position, which is much better than what it was same time or in the previous quarters, we expect that to also help us ramp up volumes in the coming -- in this quarter and the coming quarters.

And sir, generally, I think the high-value orders, the capacity utilization comes down. So do we have better high-value orders? Or is the commodity part of the order we had?

The commodity part of the order generally is on a month-on-month basis, what comes. The high-value products and project-based orders, which are generally booked in advance because they are specialized in nature, require special raw material and extra manufacturing, processing time for those. And we see a very good order book on those at the moment as well as good pipeline of inquiries. Hopefully, that should help us in translating into more value-added products in the future there. The other part, what you said, of course, the value-added production, the processing time is higher than the standard in general purpose ropes. And we see generally a 30% lower output -- 30% to 35% lower output, if it's a specialized product requiring higher compaction and higher tenses of ropes.

And sir, since Europe is our very important market, so how will free trade agreement translate into tangible benefit for Usha Martin in terms of export, volumes, margins and overall competitiveness over the next 12 to 24 months?

The European market, the free trade agreement in any case for our product was nil duty. So we don't see any major issue -- any major improvement. So it was already on a 0 duty. So it is business as usual for us. Our products did not attract any duty even earlier. So it's business as usual for us.

Okay, sir. And sir, what is the current status of the Saudi Arabian business and how the Thailand operations are ramping up?

The Saudi Arabian business is slowly ramping up. We have seen quarter-by-quarter the business ramping up. As I mentioned earlier, that we have developed 60-odd new customers and more and more are getting added and supplies have already started. So we expect from quarter 4 onwards, improvement in the volumes, and it should be a gradual ramp-up in the next financial year. And we should be able to see better numbers in the coming quarters.

And sir, about Thailand operation?

Thailand operation is -- the Thailand plant, we have made some capital expenditure and started some modernization of our plants. And we see a good traction of orders coming in from Southeast Asian markets and also with some European customers based on the new CapEx which we have initiated. However, we are in the process of also working on a cost optimization plan, which would take another, I would say, 4 to 6 quarters to be able to fully implement. And once these 2 initiatives are implemented, we hope that Thailand in the next 4 to 6 quarters should also start yielding better financial numbers.

And sir, one more question. How is the synthetic sling business scaling up? And can it become a meaningful contribution to revenues and margin in the next financial year?

Yes. So the synthetics business is doing well, as we have mentioned, the OCEANFIBRE, which is our brand for the synthetic sling solution, that is now well established. We are consistently getting orders on a month-on-month basis. And we do hope to continue to grow this vertical in the next financial year. We've developed 8 to 10 new customers, and we're also getting repeat orders from our existing customers. So definitely over the next year and then over the next 2 to 3 years, this should become an even more meaningful vertical for us.

And when do you expect...

I'm happy to say that when we had initiated this project that it would take a couple of years to breakeven. But I'm happy to say that in the very first year, we would be cash positive in this business and the inquiry base is strong, and we hope that these can help, as Shreya mentioned, to ramp up in the coming couple of years.

That's great, sir. When do we expect a significant volume in plasticated LRPC? And how important can the product be in the company's future growth, sir?

Plasticated LRPC is a very important part, particularly in the -- for the infrastructure business. The approval process does take time. We have approvals from 2 or 3 of the big players, and we are in the process of getting approvals for a couple of more, which we hope should happen in the next 2 to 3 months. Once these approvals are in place, we should not only be able to supply to products to them within India, but also an opportunity to export this. I would say, give us another 2 quarters, say, quarter 1 and quarter 2, then we see a good ramp-up of plasticated LRPC also.

And sir, closing question is which business segment and geographies will drive the next phase of growth for Usha Martin? And what strategic initiative will help the company and achieve the next level of growth, sir?

See, the good part for Usha Martin is that we have a fairly diversified geography, and that also helps us, particularly in this geopolitical crisis as well as certain segments keep improving or keep coming down. So our focus would continue to be servicing all these geographies and trying to increase our volume wherever possible. Of course, Saudi is something we started new. We are going to ramp up. Europe continues to be an important -- for our future growth, as most of the big producers or -- and the big contractors are based out of Europe. Their rope demand may be in different parts of the world, but generally, the orders generated from Europe. So European customers, the OEMs would continue to be our prime area of growth within the Rope segment. But at the cost of repetition, we would continue to focus in every part because we have the capacity now, we want to ramp up our volumes. And we don't want to ignore any segment or any geography. So I think things should get better. You will see the volume as well as the top line should start growing, value-wise in the coming quarters based on all these initiatives.

We take the next question from the line of Jasdeep Walia from Clockvine Capital Advisors.

Sir, could you tell us about trends in volumes in India, U.S. and Europe in the third quarter, which has just gone by? Sir, this is only about Wire Ropes.

So going with the volumes, you want to know quarter -- 9 months figure, right?

No. In the quarter -- third quarter, how was the volume growth in India, U.S. and Europe in Wire Ropes business?

So year-on-year growth. So year-on-year, this quarter, we did around 13,000 tonnes in India right? This is again of the -- against around 12,000 tonnes in the Q3 of FY '25. So roughly, I would say, 10% -- around 5% to 10% -- 5% growth over last year Q3. On the European side, it is more or less flat in a similar level, a bit on the lower side. And U.S. growth of 5% to 8%.

Got it. Sir what is the reason that growth in India has been less than expectations. In the last quarter, I think management had said that last quarter was subdued because of monsoons, and hence, the volume growth will come back in third quarter. So -- but this quarter also, we see -- mid-single-digit kind of growth in India and Europe is flat. So what are the reasons driving this subdued growth in volumes?

So overall, in the domestic market, we are seeing growth in the categories that -- the value-added categories like, for example, elevator rope where we -- in the domestic market with the Tier 2, Tier 3 cities coming up. We are seeing growth in that segment. Even in the port segment, we have reasonable market share but we are seeing growth there. Where the growth has been slightly slower is on the GP Rope segment and more of the low-value Wire Rope segment, where as we mentioned before, when we focus more on the value-added side, the overall productivity of the plant decreases. So we have to make a choice as to where we want to focus our energy. So there are certain low-value general purpose Wire Ropes where realizations aren't as attractive and because our focus is on the value-added side, that is some area that we have seen volumes stay stable or decreasing.

Got it. And is higher competition in low-value GP Ropes also the reason why maybe margins have gone down, and hence, you're not interested in that in growing that business?

No, it is not entirely true because the domestic market, we are not -- other than very few selected areas, it's not because of competition because of a strategic choice we have made that whether I produce those products on those machines or if I have the opportunity to produce value-added products, we produce, which will give us a higher contribution on a particular line of product. And that choice we have made. So it's not that we are losing on price to competition. It's a deliberate policy that, if I have orders of the higher value-added products, we focus on servicing those customers. But even the domestic market has been subdued. It has not been so aggressive on the GP Rope market. And we will see that in quarter 4 onwards, we are seeing a pickup of demand, and we should be able to get better volumes in the coming quarters.

We take the next question from the line of Rupesh Tatya, from Long Equity Partners.

Congratulations, Rajeev-ji for a very good set of numbers. My question is, sir, on the CBAM issue, Carmen Border Adjustment Mechanism that Europe has come up with. I think it became applicable from January '26. And I think in the FTA also, this was -- I think there was no sort of relief on this front. And I think steel is one of the major industries, they are basically the target industry of this. So is there any impact of this on us? Do we need to change some source of steel, how we procure steel? Can you give some color around that?

Yes. So on the CBAM issue, if you look at our product line, it's Wire Ropes and Wires, right? So Wire Ropes comes under Section 7312, which is currently as part of the definitive period in January 2026. It's not included yet because it's a more downstream, complex steel product, which will likely get included in the 2028 cycle. So from a Wire Rope standpoint, we are not impacted yet. On the Wire standpoint, which comes under Code 7217, that is something that is included. Most of the wires that we supply is largely in the domestic market in the United Kingdom, which is not included and some small volumes, maybe around 100 to 200 tonnes annually in the European market. So for that small volume, it comes into effect from this year. What we are doing is, we are doing all of the calculations, which need to be submitted on an annual basis. So in FY -- February FY '27 and we are doing all the necessary calculations working with our customers to understand what the impact would be and taking necessary actions. As of now, it's a very small volume for us, so not a meaningful impact. But we are making all the preparations required for when larger part of our products get included and for Wire Rope, which also will probably get included in the coming 2 years.

So what sort of changes do we have to do from 2028? And does it sort of reduce our competitive advantage in the sense that India has one of the lower steel prices. Does it give some advantage to European manufacturers? I mean any color you can give around that? What exactly do we have to do to not have to give any levy for the CBAM?

Yes. So what we are doing now is even though this is 2 years ahead, we are starting to do the calculations. Both of direct and indirect emissions for the product to understand what actually could be the potential financial impact, right? So even though we're statutorily not required to do the submissions, we are still doing the calculation. So we get an estimate of what that impact would look like. Now what we have to do is look at, okay, how do we minimize this impact going forward, right? So that might mean that we look at dedicated lines within the plant, which are more already green manufacturing, that can help us reduce this emission. We've already taken up a project to set up a 4-megawatt solar power plant in the Ranchi plant. So that can be more dedicated to these lines for which we supply to the European market. So these are some of the initiatives. Once we have a decent understanding of the impact, we will use these initiatives to see how we can overall minimize it so that the overall financial impact and burden on us is reduced to the maximum extent possible.

So it is a solveable problem. Is that the right takeaway from this?

Yes, definitely. And ultimately, CBAM is not just applicable to us, it will be applicable to everyone else as well, right? So to that extent, it is not a significant competitive disadvantage to us. But we still want to take all the necessary actions in place to make sure we are prepared. And this is a journey we started a few years ago already with trying to see what all we can do in the plant to minimize our emissions. So that is a journey that will continue and now we've put the accelerator on it as well.

The second question, sir, is Ranchi CapEx. I mean, where are we on the ramp-up? I don't remember now how much capacity was there. What is the capacity utilization? How will you see FY '27 playing out? How will the value mix move? Some color around Ranchi CapEx ramp up?

So we took a capacity addition of 40,000 tonnes in ropes at our Ranchi facility. So that includes -- sorry, 19,000 tonnes of rope and 21,000 tonnes of wire. So our rope capacity at Ranchi and Hoshiarpur. Ranchi Was around 72,000 tonnes before these additions. And with this 19,000 tonnes addition, it will be around 91,000 tonnes. And our capacity utilization in Ranchi facility is around 75% at the moment, after this addition. So that is related to the rope capacity. On the wire front, in Ranchi, our capacity after this addition of 20,000 will be roughly 75,000 tonnes, where we'll be having around 78% capacity utilization.

So this 75% capacity utilization is a consolidated capacity?

For Ranchi plant? You asked for the Ranchi plant? So what -- when you say -- about the Ranchi plant?

Okay. Okay. And final question, Rajeev-ji is, I mean, we are now net cash positive, what an amazing journey. I think most of the issues are sorted. So are there any large virgin markets or large virgin product categories that we are working on and that can take us from, I don't know, INR 2,500 crores revenue in wire ropes to, let's say, INR 4,000 crores revenue in 2, 3 years. Any -- what is the strategic road map looking like? How are we seeding the new segments? Any color around that would be very helpful.

Yes, definitely. I mean now that we, as you mentioned, have a net cash position of about INR 200 crores, and that is continuously growing. So we're constantly thinking about how we will continue to invest and the priority would be to continue to reinvest in the business. And as we mentioned, we want to do all of the CapEx from our internal accruals as well. In terms of demand, we do see demand across some product categories where capacity is still a constraint today. So we are continuing to deploy targeted CapEx in those areas, primarily around brownfield projects or debottlenecking projects where we feel that returns will be attractive. And the CapEx of this would be, say, around INR 250 crores to INR 300 crores around that level. At the same time, we're also looking at inorganic opportunities that will help us build markets for the capacities that we have created. So we are present virtually across all markets, but in certain areas, for example, in Europe, our presence is primarily in certain regions, whether it be Netherlands, in the England, Scotland area as well as in the Spain area. But there are so many other markets in Europe, be it Germany, where we are seeing some growth and other markets in Europe as well where there is still an opportunity for growth. So we will look at both inorganic and organic opportunities that will help us build those markets. And of course, as part of our overall capital allocation plan as well, we might also look at greenfield opportunities if that makes sense.

And -- just a quick question. Parvatmala project, I think I saw Adani got a contract, maybe, I don't know, 6 months, about 3, 4, 6 months ago. So when can we realistically expect first commercial order for the Parvatmala project? And it will be what kind of range it will be, the size of the order?

See Parvatmala project, the Rope, there are a few contracts which have been issued. We expect these projects to -- Wire Rope procurement is at the last stage of the project. We are in touch with all the supply -- all the people who have won the projects, be it in Prayagraj, be it the Adani and various, and they are also in touch with us. But I think it will be not before next 2 to 3 years we see the first kind of supplies happening to these projects because these projects take minimum 3 to 5 years for them to come to level where they start buying the Wire Ropes. So we are in the initial stages, but I'm happy to say that few of them are in constant dialogue with us. And we are working to supply all the details to them, work with them. And hopefully, let's see, if we can get few orders in the next couple of years.

We take the next question from the line of Prolin Nandu from Edelweiss Public Alternatives.