USHAMART - Usha Martin Ltd. Share Price

Usha Martin's management provided a positive outlook during the earnings call for Q4 and FY26, emphasizing growth opportunities and strategic initiatives for FY27. The company reported consolidated revenue of INR 3,691 crore for FY26, representing a 6.2% increase year-over-year. Q4 revenue was INR 979 crore, up 9.3% year-over-year. Operating EBITDA for the year increased from INR 597 crore to INR 705 crore, yielding a margin of 19.1%. The Q4 EBITDA was the highest since the sale of the steel business, reaching INR 212 crore, with margins at 21.6% and an EBITDA per ton of approximately INR 39,500.

The management highlighted several key drivers for the upcoming year, including:

1. Value-Added Rope Applications: The focus will remain on high-margin segments such as oil and offshore, elevators, port cranes, and mining, with a growing order book from new customers for H1 FY27.
2. Emerging Business Verticals: Expectations for significant growth in the Oceanfibre synthetic business and plasticated LRPC, with a meaningful scale-up anticipated in FY27.
3. Capital Allocation: With a net cash position of INR 332 crore, Usha Martin is well-positioned for targeted capital expenditure (capex) of approximately INR 300 crore over the next two years to enhance manufacturing capacity and pursue organic and inorganic growth opportunities.

Management expects a continued focus on maintaining operating margins above 20% while aiming for volume growth between 10% to 12%. They are optimistic about leveraging improved cash flows, cost discipline, and an expanded product mix to drive long-term value creation.

1. Question: "Though the profit is excellent, the margins are very good, but as far as volume is concerned, it is still concerning. I think the volume has not picked up. What is the reason behind that?"

Answer: "In terms of volume growth for this quarter, ropes saw about 5% growth. Our focus has shifted towards specialized rope applications, which don't always correlate directly to tonnage growth. We did face lower volumes due to geopolitical issues in the Middle East, impacting demand by approximately 900 tons. However, we aim for stronger volume growth in FY '27 while ensuring we maintain our revenue quality."

2. Question: "The ongoing crisis in the Middle East... how is the Company positioned to benefit from this situation?"

Answer: "We anticipate substantial opportunities from future reconstruction and oil production once the crisis resolves. While current demand is affected, our plant operations remain normal and safe. We're prepared to capitalize on the market surge post-conflict, leveraging our established relationships and operational capacity to meet the expected demand."

3. Question: "With rising steel and gas prices, will we maintain or improve our margins?"

Answer: "We've successfully passed on input cost increases for wire and LRPC segments. For wire ropes, we've improved our margins through a better product mix. We aim to sustain operating margins of at least 20%, focusing on enhancing our overall EBITDA despite input cost pressures."

4. Question: "Any breakthrough in synthetic slings and plasticated LRPC for this financial year?"

Answer: "We've made significant progress in approvals for plasticated LRPC and expect healthy growth in this segment once completed. For synthetic slings, we've gained traction with repeat orders and anticipate substantial growth this year and beyond, as we build market presence."

5. Question: "What's the outlook for the European and U.S. markets?"

Answer: "The European market performed well and accounted for 26% of our topline with positive outlooks driven by our integrated model and improved customer engagement. Meanwhile, the U.S. market has grown from 7% to 9% of our topline. Despite challenges, there are substantial growth opportunities, particularly in value-added segments."

6. Question: "How do you expect margins to evolve given the current profitability?"

Answer: "While we achieved approximately 22% margins in Q4, we believe sustained margins around 20% is realistic due to our favorable product mix. Continued focus on high-value products will play a crucial role, although seasonal variations depend on product dynamics and market conditions."

7. Question: "Could you provide insight into your capex plans for the next few years?"

Answer: "In the next two years, we plan to invest about INR 300 crore to increase manufacturing capacity for elevator ropes and specialized wires, as well as to enhance capabilities for plasticated LRPC. We'll also consider selective opportunities for inorganic growth to expand our global presence."

8. Question: "What are the current utilization levels and the impact of One Usha Martin?"

Answer: "Our rope capacity utilization stands at about 75%. The One Usha Martin initiative has led to significant cost savings"”fixed employee costs reduced by 3% and administrative expenses by over 7%. The initiative has helped streamline operations and enhance efficiency across the organization."

9. Question: "What is your approach regarding the enhancement of margins through product mix?"

Answer: "We are committed to enhancing our product mix towards higher value-added segments. Our strategy involves increasing the share of higher-margin products in our portfolio while keeping volume growth strong. This balance will help us maintain and potentially grow our margins, even in challenging market conditions."

10. Question: "Can you provide the status of your Thailand plant modernization and product expansion?"

Answer: "The modernization of our Thailand plant is underway, focusing on specialized cords and elevator ropes. We expect significant operational improvements over the next 18 months, which will enhance our ability to produce value-added products and meet market demand efficiently."