Usha Martin Q1 FY27 earnings call

Usha Martin commenced FY27 with a robust performance, reporting a 16% year-on-year increase in consolidated revenue to INR 1,033 crore. Operating EBITDA surged by 44% year-on-year to INR 208 crore, leading to a significant EBITDA margin expansion to 20.1%. This growth was primarily attributed to a strategic shift towards high-value products and improved realizations, with value growing faster than volume across businesses. Profit after tax also saw a healthy 41% year-on-year growth, reaching INR 142 crore.

The Wire Rope business recorded an 18% year-on-year revenue growth, with the value-added rope component increasing to 73% of the segment's total, contributing to an EBITDA per ton of INR 40,581. The Wires business delivered strong growth, with volumes up 19% and revenue up 32% year-on-year. The Plasticated LRPC segment achieved its highest volume and value this quarter, securing its first international order for stay cable applications, highlighting its genuine differentiation. Oceanfibre, the synthetic sling brand, continued its upward revenue trend, with a long-term goal to reach 10 million GBP from its current 2-3 million GBP level.

While domestic rope volumes grew approximately 12% year-on-year (21% in value), and the U.S. and European markets showed strong traction, Middle East operations faced significant challenges. Volumes in the Middle East declined by approximately 28% due to ongoing geopolitical and market disruption^🌐s, leading to project delays and conservative stocking. Despite these regional headwinds, the company's geographic diversification and focus on better pricing helped maintain overall revenues at last year's levels in the challenging Middle East market.

Usha Martin demonstrated strong cash generation, with operating cash flow before tax at INR 242 crore, representing a 116% cash conversion of operating EBITDA. Free cash flow stood at INR 135 crore after funding INR 73 crore in capital expenditure during the quarter. The company plans a total capex of INR 250-300 crore for FY27, primarily focused on expanding specialized wire rope capacity, including an additional 6,000 metric tons per annum for elevator ropes, with commissioning expected to begin in October and complete by Q1 FY28.

The company's financial profile was further strengthened, closing the quarter with a net cash position of approximately INR 465 crore. This robust balance sheet allows for confident investment in future growth. India Ratings and Research upgraded Usha Martin's long-term credit rating to IND AA- from IND A+ with a stable outlook, reflecting healthy cash generation and prudent capital allocation over recent years.

Management addressed potential future risks, including the Carbon Border Adjustment Mechanism (CBAM). While currently exposed to wires (7217) under the definitive period, the impact on wire ropes (7312) post-FY28 is being assessed, with an expectation of lower impact due to negligible process-related emissions compared to input materials. The company also discussed its non-core UM Cables division, exploring options to utilize its strategically located facility for value-added wire and rope business, and reviewing strategies for the Thailand segment to enhance profitability through product mix and integration.