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Jul 08, 2023

Usha Martin : Earnings Call Transcript

Usha Martin Limited Q1 FY24 Earnings Conference Call Transcript August 08, 2023 Moderator:Ladies and gentlemen, good day and welcome to the earnings conference call of Usha Martin Limited. As a

Usha Martin Limited

Q1 FY24 Earnings Conference Call Transcript

August 08, 2023

Moderator:Ladies and gentlemen, good day and welcome to the earnings conference call of Usha Martin Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal the operator by pressing '*' and then '0' on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Devrishi Singh from CDR India. Thank you and over to you, sir.

Devrishi Singh: Thank you. Good evening, everyone and thank you for joining us on Usha Martin's Q1 FY24 earnings conference call. We have with us Mr. Rajeev Jhawar - Managing Director of the Company, Mr. Anirban Sanyal - Chief Financial Officer, and Ms. Shreya Jhawar from the Strategy & Growth Team of the Company.

We hope all of you have had the opportunity to refer to the earnings documents that we had shared with you earlier. We would now like to initiate the call with the opening remarks from the management, following which we will have the forum open for a question-and-answer session. Before we start, 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.

I would now like to invite Mr. Rajeev Jhawar to make his opening remarks. Thank you and over to you, sir.

Rajeev Jhawar: Thank you. Good evening, everyone. On behalf of the management team of Usha Martin, I would like to welcome you all to our earnings conference call. As I had mentioned in our last conference call, we remain committed to conducting such forums on a regular basis. Our aim is to foster transparency and strengthen the communication channels with the investor and analyst community.

I would like to begin by sharing quick operational and strategy-related updates on the Company, following which our CFO, Mr. Anirban Sanyal, will run you through the key financial highlights.

We are pleased to report that all our strategic initiatives, including the emphasis on enriching our product mix by focusing on higher value-added ropes, have assisted us in reporting healthy profitability during the quarter. On a year-on-year basis, our operating EBITDA increased by 24.2% with operating EBITDA margins improving by 2.4% basis points to 17.9%. Furthermore, a better contribution from higher realization International markets supported margin improvement.

Transcript of Usha Martin Ltd. Q1 FY24 Earnings Call

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The share of the wire rope in our consolidated revenue further improved to 68% in Q1FY24 compared to 67% during FY23. The share of revenue from International operations also increased to 56% during Q1FY24 compared to 55% during FY23. Further, the share of value-added industry segments in our consolidated revenue increased to 50% during Q1FY24 as compared to 44% during FY23.

Moreover, within the wire rope, the value-added segments constituted 71% during Q1FY24 compared to 65% during FY23. The balance sheet continues to remain significantly derisked with the net debt at Rs. 99 crore end of Q1FY24 despite a CAPEX spend of approximately Rs. 68 crore during the quarter, emphasizing the significant improvements in operating cash flows before tax generated during the quarter.

As we have discussed previously, we aspire to consistently undertake efforts to increase market share in International geographies to further enhance profitability and our global market presence. We are already witnessing significant traction with International customers particularly for technical advanced wire ropes. In line with this, the Company is strategically focusing on higher value specialty grade ropes. It is important to note that producing these wire ropes requires substantial amount of engineering know-how and technical expertise. To maintain a competitive edge on the global stage, our Global R&D center, located in Italy, plays a pivotal role in designing advanced wire rope utilizing proprietary software to develop products that meet and exceed global standards. Through our focus on R&D, we have been successfully competing with global competitors and garnering a growing base of direct International clients. This achievement stands as a testament to our capabilities and positions us among the best in the world.

Our capex initiatives are progressing smoothly. The increased capacities will predominantly cater to diverse array of critical applications and value-added products including mining ropes, non-rotating crane ropes, compacted ropes and plasticated ropes. Our wave one expansion at Ranchi is on track and is expected to be substantially completed by end of Q3, supporting our revenue growth endeavors.

In conclusion, I would like to express our confidence that the various strategic initiatives undertaken by Usha Martin will certainly yield positive results and drive significant growth for the Company. Our team's dedication and hard work and their relentless pursuit for excellence has enabled us to achieve notable milestones over the last 3 years. The Company remains guided by its core values of innovation, integrity, financial discipline and customer focus. These values have been the foundation of our success and will continue to drive all our future endeavors.

With this, I would like to hand over to Mr. Anirban Sanyal, our CFO, who will present the operational and financial highlights for the quarter ended 30th June 2023. Thank you.

Anirban Sanyal: Thank you and a very good evening to everyone. I will now briefly take you through the Company's operating and financial performance for the quarter ended 30th June 2023.

Transcript of Usha Martin Ltd. Q1 FY24 Earnings Call

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The consolidated net revenue from operations stood at Rs. 814.4 crore in Q1FY24 as against Rs. 758.7 crore in Q1FY23. The Company achieved a 7.3% year-on-year increase in revenue largely due to improved realizations from our value-added and solution-based offerings. Our International operations also played a key role, recording a significant 13% year-on-year increase in their topline performance.

Our operating EBITDA for the quarter registered a healthy 24.2% increase on a year- on-year basis at Rs. 145.7 crore. Moreover, the operating EBITDA per ton also demonstrated 25.8% year-on-year improvement at Rs. 32,227. The operating EBITDA margin of Q1FY24 rose to 17.9% from 15.5% in Q1FY23. This improvement in margin performance is also attributed to our strong focus on value-added products as well as our efforts to enhance our International presence. Additionally, our EBITDA performance demonstrates the strength of our business model and the strong pass on mechanism for raw material costs that we have in place.

Our net profit for the quarter stood at Rs. 100.8 crore, registering an increase from Rs. 82.2 crore in Q1 of FY23. On the balance sheet front, we have managed to reduce our net debt to Rs. 99 crore as on 30th June 2023 compared to Rs. 185 crore end of March 2023. Additionally, our cash flow from operations before tax was Rs. 177 crore for Q1FY24. The sharp reduction in net debt, robust operating cash flows and adequate working capital line headroom continues to support our planned capital allocations. We also remain committed to optimizing our working capital to reduce the overall cash conversion cycle.

In conclusion, I would like to say that Usha Martin's continuing focus on product portfolio enrichment, steady growth in our International operations, continuing leadership in India and strong balance sheet will enable us to deliver steady and consistent growth in the future.

This brings me to the end of my address. I would now request the moderator to open the line for the Q&A session. Thank you.

Moderator:Thank you very much. We'll now begin the question-and-answer session. The first question is from the line of Gunjan Kabra from Niveshaay. Please go ahead.

Gunjan Kabra: I wanted to ask from the EBITDA per ton perspective, if you compare FY22 and FY23, in the engineering general ropes, our share has reduced from 28% to 20% and our geographic revenue from India has decreased from 49% to 44% and the value-added product segments have increased. So, we are seeing quite a good EBITDA per ton expansion from 19,000 to 26,000 in FY22 to FY23. So now, from here on, what kind of EBITDA per ton and if you can guide on how further this revenue mix you expect to change, or do you see change in any product mix or geography wise? Are we focusing lot more on exports and not in India now and how this share will reduce is what I wanted to understand from EBITDA per ton perspective?

Rajeev Jhawar: You see, the EBITDA per ton has definitely improved because as I mentioned that the product mix has shifted more towards ropes and within ropes more into the specialty ropes and that would continue. The progress would continue even after the expansion because most of the expansion is towards the wire rope and that too focused more on the specialty wire ropes. In India, we have a market share of close

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to 65% to 70%, which is a very healthy market share and that is something we would continue. Whereas our presence in the International market, we are at about 5% of the market share approximately, and that gives us an opportunity to increase our presence in the International market and take more market share at a better value addition. So, I would expect that we would continue towards achieving what we had mentioned in our previous call, towards 18% plus EBITDA margin on an ongoing basis and then slightly keep on increasing as the product mix improves.

Gunjan Kabra: Sir, is it not a very conservative way because you are targeting export markets and realizations are very high and value-added product is where the expansion is coming. So, are you very conservative in your estimates or how is it?

Rajeev Jhawar: You see in wire rope while we are expanding and more and more into specialty, it takes time to enter into new markets and new customers. So, as we are progressing towards it, as the percentage would increase, I am sure the numbers would be better. But it is better to be cautious and move on step by step because it takes time to open up new markets and new customers for these special products. We expect it to be better. As we enter into these new product segments and markets, we definitely expect it to be better, but these take some time, and we definitely would like to see things happen and improve from there on.

Gunjan Kabra: And if you are starting a new capex, which is in Q3FY24, so how much time does it take to ramp up because a new plant will definitely take some time to ramp up. So, if have normalized demand, so in how many months or quarters can we see the ramp up?

Rajeev Jhawar: See most of the project would get completed in the phase one or wave one capex by Q3. So, we will start seeing the benefit of volumes coming from Q4 and I would say that it would take three to four quarters to see that these not only from the production side, but from the market side, it would take three to four quarters to get the full benefit of the full capex start coming in.

Gunjan Kabra: And sir with respect to the US and Europe, there is a little slowdown in the business environment, and we were in talks with a few customers in the US where you were trying to onboard them. And in the Europe last quarter, you already guided that we have converted. So, how is this order traction going there and what kind of order visibility do you have from the export market right now?

Rajeev Jhawar: While the overall slowdown may be there, but the sectors and the new customers which we have worked on, particularly on the mining sector, oil offshore sector and the crane and port sector, we see good traction from these markets. And all the fruits of the last one or two years, of the efforts by our team, plus we have expanded our team in Europe and US, we see a good traction from our products and our segments. So, while there may be an overall slowdown, but in our sectors, we are seeing that there is a reasonably good demand, and we do not see much of a slowdown there.

Moderator:The next question is from the line of Aman Sonthalia from AK Securities. Please go ahead.

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Aman Sonthalia: First of all, lots of congratulations for the excellent set of numbers and you and your team's hard work are reflected in the working of the Company quarter after quarter. Sir, I have a few questions. Recently I have seen on a year-on-year basis, our employee cost has increased from Rs. 89 crore to Rs. 107 crore. So, this is due to general inflation or we are investing in human resources for our future expansion and all?

Rajeev Jhawar: In India, the increase is entirely on account of the wage revision, which comes once in 4 years for the workers and the increment of officers. Increase in the International businesses is on account of new recruitments, particularly to enhance the marketing and R&D functions in Europe and America. So, these are the reasons. And now that the new capacity is also coming up in the next few months, so, we need to really build our International team to be able to focus more into newer markets and newer customers. So, that is the reason we have built this and that is the reason for this increase.

Shreya Jhawar: Just to add to that, like you mentioned in the Americas, earlier, we were focused primarily in the Houston area, but over the past year, we've also had a setup with people in the East region and the Pennsylvania region, as well as the West in the Nevada region. So, I think because of our focus in the US market, we've needed to expand beyond just the center to both the coast to cover the entire thread, which is quite expansive. And along with that, even in the Latin America region, we've put in, not resources, physically present there, but our team in the US and Europe also travels frequently to Latin America to cover that market as well. So, these are pretty new markets for us. The only way to grow is to hire talent that has familiarity with those markets and the network in those markets and then on the other side, we've also hired some sector experts because we have focus on the higher value sectors, we want specialists in elevator rope, in mining rope, in fishing rope as well. So, in Europe, we've hired more people catering to those specific markets, such as fishing as well where we want to grow.

Aman Sonthalia: Thank you. My next question is; I've recently seen a video of Brunton Shaw. There, we have dispatched rope, I think two rope of 329 ton per rope. So, it is I think dispatched from UK to Brazil. So, what type of rope it is and where it will be used and whether it's one-off order or whether we are getting regular order like this?

Rajeev Jhawar: These ropes are very high end, each single weight of 330 tons each. Brunton Shaw, we have the facility to produce rope, single length ropes up to 400 tons. And these ropes are crane ropes, which are used for basically lifting oil platforms from one position to the other, or even building big wind farms in the deep sea. And these are used in very high-tech cranes and go 4,000 meters deep in the water where they are doing all these installations and these are very high-tech ropes, very high safety requirements. And Brunton Shaw has a premium brand in this over there and these are just not one-off orders. Brunton Shaw has been producing these, I would say in the last 12 months we have seen a good traction and we have received quite a few orders ranging from 150 to 350 tons per reel. The interesting part is that while the ropes are produced there, the wires and strands are supplied from India, giving us a complete supply chain control on the entire product, and thereby also helping us to get a better margin. So, these would be continuing. We have got some orders which would be continuing over the next three to four quarters and I am sure with the few

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Usha Martin Limited published this content on 14 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 August 2023 09:04:09 UTC.