Usha Martin Limited analyst Q&A

Ladies and gentlemen, we will now begin with the question-and-answer session. The first question is from Aman Kumar Sonthalia from A K Securities.

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

So, with regard to the U.S. market for steel wire rope, which fall under the Sec. 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 UK, 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 and 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 cannot do that, we have to take a judgment call of how to proceed. But our major focus has been that we do not want to give up our market share in the U.S. because we want to ensure that we do not lose our customers in the U.S. in the long term. And in fact, because we have a warehouse in Houston, with our inventory on the ground for our GT ropes, we have been able to actually get a better realization for our products and actually gain share in some cases. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call 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 FY26. So, all in all, while the environment still remains uncertain, we do not know how things will evolve overall in terms of the tariff environment. Things change every day. But as of now, we are feeling cautiously optimistic.

My next question is related to European market. I think there is a huge geopolitical tension going on. So, how do we see our European business going forward?

We are very positive on our European business. With our integration between India and the BSUK facility, we have now started supplying the BSUK brand directly from our Indian plant to the European market. Supplies are going well, and we are also receiving repeat orders. This is helping us become more competitive in that market, and we are able to ensure faster deliveries to our customers. Demand remains fairly strong across wind energy, renewable energy, oil & offshore, and the crane and elevator segments. We expect to see decent growth in Europe in this financial year.

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

That is a good question. So, if we look at our other expenses, for this quarter, it was about Rs. 166 crore, and if we compare it to the quarterly average for FY25, it was about Rs. 163 crore. As you said, there is a slight increase; there is a Rs. 3 crore increase. But if we break that down further, the other expenses can be seen as fixed as well as the variable expenses. So, the fixed expenses have actually decreased from the Rs. 37 crore level to about Rs. 34 crore through all of the initiatives which we have been talking about under ‘One Usha Martin’. What has increased is the variable expenses, which has increased from about Rs. 126 crore to Rs. 132 crore. But a large part of that increase is the freight component of Rs. 6 crore, largely for Europe orders, which is actually recovered from end customers. And the second part you mentioned, which was the employee expenses. The employee expenses have decreased actually from Rs. 125 crore in Q1. But that was slightly higher level, on average if we see of FY25, it was Rs. 118 crore for quarter, which has decreased to Rs. 113 crore this quarter, which is on an annualized basis, a Rs. 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. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call

As sir has said in the initial remark that we are seeing a very good traction in the synthetic sling business. So, can you shed some light on that business?

So, as we mentioned in the opening remarks, the Oceanfibre brand, which is our Synthetic Sling brand, that has picked up really well. 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 sling market. But it has been great to see that we have already got success there and we will be supplying heavy lift sling for the critical offshore wind market, which is a high value, high margin product, and we have already secured the order, and we will be supplying it in the upcoming quarters. While it is still early days and we do not 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.

Okay, thanks.

The next question is from the line of Pratim Roy from B&K Securities.

Congratulations on the good set of numbers. I have just two questions. First of all, in the last quarter, there was a one-off. So, is there any one-off in this quarter as well?

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

Okay. Secondly, when can we expect that the 800 to 100 million cost optimization strategy that we have will be reflected in our books?

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

You said that the U.S. tariff impact is not that much as we can easily pass through the tariff to the end customer. But in some cases, Shreya ma'am mentioned where we are unable to do so, we have to take some other steps. So, if you can quantify any number, what kind of impact we can expect from the U.S. tariff overall. Any ballpark number on that side?

I think we are cautiously optimistic. We should be able to not only retain our market share and protect our margins, but also, in some cases, increase our market share. However, since tariffs continue to change fairly frequently, we remain cautiously optimistic. If the current status quo is maintained going forward, we believe we should be able to sustain both our margins and volumes in the U.S. market.

Okay, thank you.

I continue with the last participant's question on tariff, right. Now, 50% is a very large number, and despite that you are confident of maintaining the market share as well as margin. Can you help us understand how you plan to achieve this? I understand that domestic producers do not have enough capacity to supply, but with 50% differential, maybe they can also put up the capacity. And the larger question is that, let us say, for example, you were aware of the tariff before you thought about this restructuring from the U.K. to India, - would your decision change? And can you keep some capacity operational at the U.K. plant so that between India and U.K., 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.

While 50% is the tariff, it is the same for others as well. We compete with the Koreans and we compete with other people in the India market. So, for everyone, it is 50% as opposed to the reciprocal tariff, where it is different tariff for different countries, right; so, in that way, it is a level-playing field. Secondly, when it comes to the U.S. market, the domestic market versus export, that is looked at very differently because the domestic prices, even with the 50% tariff in 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, 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 as there are changes happening on a daily basis. Based on our initial analysis, they are also not feeling like it makes sense to put in more capacity because if things change 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 do not have production capacity right now to meet the demand, import will always be a factor. We do not see any major CAPEX plans for the major producers over there. And then to your last point, for the BSUK part, we still have our machines in BSUK. We have reduced our manpower and we have 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 BSUK for the US market, we have the flexibility to do that.

That is very encouraging to hear. My second question would be on the domestic market. Can you just help us understand what the competitive environment looks like, because there are some other players who seem to have received approvals in some of the mining tenders, and some domestic players are also putting up capacity for high value-add wires. So, compared to a few years ago, has our competitive position in the domestic market taken a hit, or how should one think about competition in the domestic market? Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call

Good question. In the domestic wire rope segment, Usha Martin holds about 65% to 70% market share. We have a very strong dealer network and a highly capable technical team that supports customer service along with our dealers. This strength has helped us consistently maintain and in some cases even grow our market share. Domestic prices have improved slightly, mainly due to a better product mix. We expect to maintain our strong position going forward, with continued support from both our dealers and customers. Competition exists across all segments, and we are focused on continuous improvement, enhancing our products with the help of our global design center and R&D facility in India. This close collaboration with customers allows us to keep upgrading our products and improving technical performance, which in turn helps us maintain our market share. On the wire business side, we recorded a 30% year-on-year growth. Our focus is on increasing the production of high-value-added wire, which boosts overall sales while keeping us away from the low-margin commercial wire segment. That’s not a space we operate in. We're focused on a niche market and expect to continue growing within it.

Thank you.

The next question is from the line of Jasdeep Walia from Clockvine Capital.

So with respect to products that you supply to US, are these being supplied by your India facility or the UK facility? And if the tariff were to remain at current levels, would it be possible for you to shift the entire production for your US market to the UK plant?

Most of the supplies are currently taking place from our India and Thailand plants, and we will continue with this arrangement. As Shreya mentioned earlier, if an opportunity arises to supply from the UK, we can definitely shift 10% to 15% of the volume through our UK plant. However, we do not foresee that situation occurring in the near term. That said, we have ensured flexibility, especially on the manpower front and should the situation change, we will be well-positioned to make that shift.

Got it, and with respect to this flexibility that you mentioned, is it that the UK plant will require some manufacturing investments or modifications to be able to cater to US volumes, or is the plant ready and, whenever you feel the time is right, the production could be comfortably moved to the UK plant?

No, we do not require any further fixed asset investment there. Our plant and machinery in the UK are in good shape, and we have retained all the equipment, nothing has been moved out. Should the need arise, we can quickly resume production from that facility. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call

I am just curious, given the fact that there is a large duty differential between UK and other manufacturing locations of almost 25%, why aren’t you already shifting the US volumes to the UK plant because it will add a significant amount of margin to your US sales?

Anything that goes from the UK plant, wires and strands, must first be shipped from India or Thailand to the UK. The cost of manufacturing in the UK is also not low, primarily due to higher labor costs. Then there's the added logistics cost: first sending material to the UK, converting it there, and then shipping it again to the US. Considering all of this, it still remains more competitive to supply directly from India and Thailand.

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

Got it. thank you.

The next question is from Rajesh Agarwal from Moneyore Capital.

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

The elevator segment is definitely growing fairly fast in the domestic market. With the construction of multi-storied buildings in tier two and tier three cities, we are seeing a lot of demand coming up. Elevators are one segment witnessing strong growth, in addition to the crane market, which is also linked to construction activities such as piling, mobile cranes, and even ports. So, these are the two segments showing fairly strong growth in India.

And the second question, is there a possibility of further reduction in working capital, and what do we plan to do to increase the margin to the guided level of 18%? How will the margins improve, and how will the working capital improve?

So, definitely the working capital will reduce going forward. In September last year it was at 209 days at its peak and now it has 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 16.3%* levels to an average of 18% for the full year and we are quite confident of that both in the domestic and international market. 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 there 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 pressures with GP rope but even *Changed from 13.3% to 16.3% - this is a factual correction. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call there our focus is more on the high value products now in elevators, piling like we 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 have already talked about, that would also lead to further better margin improvement. So, all of this gives us confidence that H2 should be at a much better level.

This mitigates any increase in steel prices also?

No, the steel prices have been fairly stable and in fact we saw last two months a slight reduction in prices and with the feedback what we have, we do not see a major increase coming up on steel. So, it is more or less stable I would say.

What will be the maintenance CAPEX this year?

Maintenance CAPEX would be close to Rs. 25 to Rs. 30 crore.

Okay and fresh CAPEX?

The maintenance CAPEX is expected to be Rs. 25 to Rs. 30 crore and the total CAPEX to be around Rs. 150 crore.

Okay.

The next question is from the line of Shreyansh Shah from Fort Capital.

Congratulations on a decent set of numbers. Basically, I have two questions. One is in the wire segment you reported a 32% year-on-year growth. So, I just wanted to understand, is it driven by structural demand or short-term orders seen this quarter? And the second question is the LRPC segment - volumes fell, so was this is due to temporary project delays, price competition or a structural slowdown in the segment?

On the first question, the wire business as we mentioned in our previous calls, we have started focusing on increasing our presence in the auto sector as well as on some niche products like door springs, etc. So, this market is one we have been consistently focusing on, and we expect this trend to continue going forward. Coming to the LRPC market, yes, the monsoon period as well as the demand and price pressures have been significant. As mentioned in our opening remarks, both the volume as well as the margins are under pressure. Our focus would be to keep on increasing our focus on the plasticated LRPC business, which would help us to get a better margin for our product. So, this trend of pressure on the general LRPC is expected to continue more so on the margin front. Volumes may get better once the monsoon is over and the project activity starts. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call

Just a follow up question on the LRPC that you mentioned. So, going forward do you think that the revenue contribution from the LRPC segment would be declining from here on?

Yes, we expect it to be at similar levels or would be declining, and the plasticated LRPC which is the value added should gradually be going up. So, that is what we expect. We do not see this as a very business which can add significantly to our growth going forward, the general LRPC.

Okay, understood. Post your Ranchi expansion how much incremental capacity in metric tons will you add, and how quickly can it be ramped up for sudden orders that may come in?

So, regarding the Ranchi capacity, as mentioned in the last concall, we have an overall capacity increase of around 40,000, out of which rope capacity is around 20,000. As of now, we have already installed about 70% of the capacity and the remaining 30% installation will be completed by end of Q2, around October. Within this increased capacity, we have developed new products, plasticated ropes are part of this additional capacity. So, expansion will help us generate good volumes going forward.

Okay sir, thank you.

The next question is from Shraddha Kapadia from SMIFS Capital.

So, just continuing with the question by the earlier participant, I would just like a brief overview, - could you share the new CAPEX plans beyond Ranchi for the future?

For the future, we have a Rs. 60 crore investment plan in Thailand which is under implementation. At our Ranchi plant, once this phase is completed, as our CFO mentioned, by Q2, we would definitely look at opportunities to grow, particularly in our elevator rope and crane rope segments, because that is an area where we are seeing a lot of traction coming from both domestic and international markets. As and when we see demand growing, we would take proactive steps to increase our capacity, which could be at the Ranchi plant, or we could also add new capacity at our Hoshiarpur plant to cater to this increasing demand.

We have seen a good growth in the wire strands segment. How sustainable is this growth? Is it driven by new customer acquisitions or increased industrial demand, - could you help us understand that?

It’s a good question. We are acquiring new customers as well as increasing volumes with our existing ones. Having identified this as an important vertical for us, we’ve been working on it over the last few quarters and have successfully developed the business. This is not a one-off growth, we expect it to continue steadily, with volumes growing quarter after quarter. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call The key areas we are focusing on include the auto sector, which is performing fairly well. We are also working on door springs, as one example, and zinc- aluminum wires, which are used for rockfall barriers and certain critical spring applications. These areas are our focus, and we believe this will continue to be an important vertical going forward.

Thank you so much for your detailed answer.

The next question is from Sanjay from ithought PMS.

I have a question on margins and EBITDA per ton. We reported Rs. 28,500 as EBITDA per ton in Q1. Is it possible to break this up into wire rope domestic and export segments within the wire rope business?

We do not specifically mention the EBITDA per ton. But if we do a rough calculation for wire ropes, it will be in the range of Rs. 55,000 to Rs. 60,000 per ton, as most of the fixed cost is allocated to the wire ropes. For the wire segment, EBITDA per ton will be between Rs. 12,000 to Rs. 15,000, and for LRPC, it will be on the lower side, around Rs. 2,000 to Rs. 3,000 per ton.

The reason I was asking is because I was looking at the wire rope realizations in the U.S., which are as high as $8,000 - $8,500 per ton. With wire rope doing a 12% EBITDA margin, it seems like they are doing $900-$1,000 EBITDA per ton, translating to Rs. 85,000 per ton. Are we also in a similar ballpark for our U.S. exports? And does it imply that as our share of U.S. goes up, our margins could increase going forward.

So, wire rope, like Abhijit said, is on average Rs. 55,000 to 60,000 per ton, but export and international markets, definitely you get a better EBITDA margin compared to domestic. We do not separate it out and share those numbers, but it would definitely be on higher levels. And if we increase our share in our international markets, whether it is U.S. or direct export to Europe from India, it would definitely improve the EBITDA per ton going forward.

Okay. So, post all the cost initiatives, like the ‘One Usha Martin’ initiative, what kind of EBITDA margins target do we have let us say for FY27 at the consol level?

As Shreya mentioned earlier, we should be able to achieve 18% on an annualized basis for this financial year, based on the various cost initiatives we have undertaken, most of which are under implementation and expected to be completed by Q2 of this year. We will begin seeing the benefits of these initiatives thereafter. Secondly, with the new CAPEX now implemented, we expect volumes to improve from these additions. Alongside this, our marketing efforts for the expanded capacity have also gained traction. If we are expecting 18% for the full year, we are confident that next year this will improve further and believe margins in the range of 19% to 20% are achievable going forward. Transcript of Usha Martin Ltd. Q1 FY26 Earnings Call

Got it. Sorry to keep going back to the tariff issue, but given that Bridon- Bekaert is based out of UK, they might have a better advantage over us, and even WireCo which is based out of USA, - can we still compete with them despite manufacturing in India or Thailand? Do we see any weakness in WireCo, especially since some credit rating reports have indicated they’ve been struggling over the last two to three years?

Yes, we’ve also heard that WireCo has been facing some challenges, though I don’t have detailed information on that. What I can say is that our team is fairly confident and we too are confident that we should be able to maintain and grow our market in that region. This confidence stems from our local presence, our own distribution and warehouse setup, and our close engagement with customers. We have also recently won a large contract, which strengthens our position in that market. Among the international players including Korean, Turkish, and ourselves, the tariff levels are fairly similar. Chinese competitors, in fact, face slightly higher tariffs. So overall, we remain cautiously optimistic about our position in the U.S. market as of now.

Got it.

The next question is from Jayshree Bajaj from Trinetra Asset Managers.

As you mentioned in Q1 that the Company is nearing completion of the foundational phase of the transformation, could you please provide some specific, measurable operational KPIs that you expect to improve by the end of the second quarter? Also, what percentage of cost savings or efficiency gains has been realized so far?

Yes, so in terms of the measurable KPIs, of course, we talked about in terms of cost reduction, the employee cost as well as other expenses and we expect decrease in that which would help us get at least 18%. The other is the working capital reduction which came down to 196* days this quarter. Even the inventory came down to 175 days this quarter. We are tracking both of these, and we hope to reduce this further by at least 10 days over the few quarters. That is another KPI we are targeting. Third is looking at our cash conversion. So, we converted about 95% of the operating EBITDA to cash and by the end of the year we are targeting to take this even more than 100% levels which we are confident of achieving through overall better financial discipline and working capital management. These are some of the KPIs that we are targeting. In terms of how far we are with this, we started this in around September, October of last year and from Q3 we expect to see the full benefits of it.

You will start seeing the full benefits of what has been articulated begin to reflect in our numbers from the coming quarters. Some of the figures have already been shared by her, the rest are still a work in progress and should start showing from Q2 onwards.

That will be the last question for today. I will now hand the conference over to the management for closing comments.

I would like to thank everyone for attending this call and showing interest to Usha Martin Limited. I hope we have been able to answer all your questions. The Company is dedicated to creating value for all its stakeholders in a sustainable manner. Should you need any further clarification or would you like to know more about the Company, please feel free to reach out to us or CDR India. Thank you once again for taking the time to join us on this call and see you all in the next quarter.

Thank you very much. On behalf of Usha Martin Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.

This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.