Usha Martin Gdr 144A

Ladies and gentlemen, good day and welcome to the earnings conference call of Husha Martin Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Dev Rishi Singh of CDR India. Thank you and over to you, sir. Thank you. Good afternoon, everyone. And thank you for joining us on Usha Martin's Q3 FY24 earnings conference call. We have with us Mr. Rajiv Jawar, Managing Director of the company, Mr. Aniswan Sanyal, Chief Financial Officer, and Ms. Shreya Jawar, from the strategy and growth team of the company. We hope all of you have had the opportunity to refer to the earnings documents that we 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 Jhawer to make his opening remarks.

Thank you and over to you, sir. Good afternoon, everyone.

On behalf of the management team of Pusha Marjan, I would like to welcome you all to our earnings consult call. I will begin by sharing quick operational and strategy-related updates of the company, following which our CFO, Mr. Anirban Sanyal, will run you through the key financial highlights. I am pleased to report that over the first nine months of the year, we have made healthy progress on our strategic growth initiatives. These include 1. Continuous enhancement of our product portfolio 2. with a focus on value-added offerings, and two, strengthening our capabilities through CapEx strength initiatives. During the recent quarters, there have been rising pressures in our wire and strength and LRPC segments, which has had an impact on the revenue performance. Despite that, we have shown resilience, managing to maintain stable top-line performance, on the back of strong support from our core wire rope segment. The contribution of wire rope segment to our consolidated revenue has increased to 70% in the 9 months FY24, up from 67% in FY23. Simultaneously, the share of value-added industry segments in our consolidated revenue registered growth reaching 49% up from 44% in FY23. It's worth highlighting that within the wire rope category, the contribution of value-added segments increased to 70% in 9 months FY24, up from 65% in FY23. Additionally, during the same period, revenue from international markets constituted 55% of our total revenue. Despite the volatility in seed prices, our wire rope realizations have consistently shown an upward trend. This positive trajectory is particularly noticeable in our value added wire rope products, which demand substantial engineering expertise. This has helped improve our profitability with our operating EBITDA and PAT registering a healthy growth of 23.7% and 27.9% respectively. In this financial year, our focus was on value. From next year, we will do value-led volume growth. So, looking ahead, our first wave of capital expenditure, that is Phase 1 expansion in Rashi, is set to be completed in Q4. This phase includes the increase of capacity for higher value added products such as train ropes, compacted ropes, plasticated ropes, oil and offshore ropes. Furthermore, our CAPEX initiatives include the modernization of existing production facilities aimed at enhancing our infrastructure. We believe that these investments will further strengthen our position as a leading global player in the wire rope sector. I would also like to take this opportunity to give updates regarding a few important growth initiatives taken by us. Number one, we have set up a step-down subsidiary company in Saudi Arabia through our Dubai subsidiary, Brunton Wire Ropes, to target the growing Saudi market. 2. Our island subsidiary, Usha Siam, recently acquired the remaining 50% stake in Cezac Usha. Previously, it was a 50-50 JV with Cezac Viro of Japan. We will use this facility for the manufacture of high-value elevator ropes. 3. We are planning to enter the synthetic slings market through our UK plant, Brenton Shaw UK. This will be our first foray into the synthetic slings. space. In addition, Husha Martin is actively pursuing various internal initiatives that will continue to contribute positively to its operational and financial performance. Firstly, the successful integration of our international businesses with the Indian operations is encouraging growth energies and creating a more integrated and collaborative approach across our global and local teams. Secondly, to support our constant commitment to strategic growth, we have established cross-functional groups for our key growth segments such as mining, elevator, fishing, and structural, maximizing our impact in these critical areas. Furthermore, our dedication to a one-stop-shop approach with an intensified focus on services is actively contributing to an overall enhancement in customer satisfaction. Going forward, we are confident that our efforts in this initiative will help position us as a comprehensive solution provider in the wireless sector. Lastly, the continued strengthening of our international teams and organizational structures is equipping us effectively to meet the unique demands of a diverse market. In conclusion, I want to highlight that presently our company is dedicated to its strategic initiatives and leveraging its fundamental strengths in the face of the global market environment. We are confident that our sustained efforts will yield positive results, playing an important role in driving sustainable growth for Usha Market. 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 and nine months ended 31st December 2023. Thank you.

Thank you and a very good afternoon to everyone. I will now provide a brief overview of the company's operating and financial performance for the quarter and nine months ended 31st December 2023. The consolidated net revenue from operations stood at Rs. 797.1 crore in Q3 of FY24 as against Rs. 833.6 crore in Q3 of FY23. This 4.7% year-on-year dip was primarily going to reduce contributions from both the wire and strand and LRTC segments. Notably, our wire root segment sustained steady revenue despite registering a year-on-year reduction in its sales volume. These segments increased realization played an important role in supporting our overall revenue performance during the quarter. Our operating EBITDA for the quarter showcased a heavily 23.7% rise on a year-on-year basis, reaching Rs. 167.1 crores. Additionally, the operating EBITDA per count demonstrated a notable 33.3% year-on-year improvement at Rs. 34,000. The Q3 FY24 operating EBITDA margin rose to 19.7%, up from 16.2% in Q3 of FY23. The company's sustained emphasis on value-added products and its expanding global presence played an important role in enhancing our overall margin position. Our net profit for the quarter stood at Rs. 107.5 crores, registering an increase of 27.9% from Rs. 84.1 crore in Q3 of FY23. On a 9-month basis, net revenues from operations stood at Rs. 2,396.2 crore compared to Rs. 2,412.5 crore during 9 months of FY23. Operating EBITDA stood at Rs. 447.1 crore in 9 months FY24 as against Rs. 359.4 crore in 9 months of FY23. Profit after tax for 9 months FY24 total Rs. 317.8 crore registering a 29.6% year-on-year increase. Our balance in position continues to be strong. with our net debt expectation improving to 0.05 times as of December 2023. Despite a capped spend of approximately Rs. 196 crores in 9 months of FY24 and the allocation of funds for definite disbursement, our net debt remains at comfortable levels. We have increased our inventory levels to be well prepared for the anticipated increase in demand in the coming quarters, while also considering the challenges posed by global logistics amidst the current volatile geopolitical climate. This approach helps us to efficiently meet the requirements of our expanding customer base, particularly new clients, ensuring we remain responsive and well-prepared in a dynamic market environment. Coming to our cash flows, there has been a healthy year-on-year improvement in our cash flow generation. The cash flow from operations before income tax for 9 months of FY24 stands at Rs. 420.3 crores and at 94% of operating EBITDA compared to Rs. 214.5 crores during 9 months of FY23 and at 60% of operating EBITDA. Our robust cash flows coupled with ample headroom on working capital lines will continue in supporting our planned capital allocations. In conclusion, I would like to emphasize that given the promising demand outlook for our product and our dominant position within the sector, we are committed to maintaining strong financial discipline. We believe that our thoughtfully planned business strategies and proactive initiatives will continue to play an important role in maintaining and further strengthening our leadership position. With favorable industry dynamics and Kushra Martin's inherent strength, We are confident in achieving sustainable growth for all our stakeholders. This brings me to the end of my address. I would now request the moderator to open the line for the question and answer session. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles.

The first question is from the line of Aman Kumar Sontalia from AK Securities.

Please go ahead. Good afternoon, sir. Sir, congratulations for the excellent set of numbers despite we have limited capacity. And, sir, we have a few questions regarding future outlook of the company. Number one, sir, what is the update of expansion and when can we expect the expanded capacity to start contributing to the bottom line of the company?

As I mentioned, the phase one capacity expansion is getting completed within the Q4, within the next one month. And this is a brownfield expansion at Raji, which is getting completed. And we expect the volume to start coming in from, I would say, Q1 of the next financial year. Having said that, we will start the ramping up from Q1. And depending on how the demand picks up and how we are able to push our volumes, We will definitely see the benefits coming from Q1 of the next financial year.

Okay, sir. Sir, next question. In the last two years, we have supplied groups to big ticket clients in Europe and in USA. Now, I hope they will be assured of our quality and capabilities.

So, can we expect big repeat orders coming from the big clients?

Yes, so we have started getting more business from the premium customers that we were able to secure in Europe and the US as well. Just to give an example, our Grunting for UK business, it does continue to see strong growth this year as well and the current year we forecasted to show growth of 30% compared to what we did last year at DSUK. And the major growth, as you said, has come from, you know, the OceanMax, CraneMax brands, which are supplied to the high-end customers, like you mentioned. Other than that, we're also targeting elevator ropes, and we have been successful and now approved with suppliers of major OEMs in Europe, even within the mining rope segment in the U.S., and also in Europe now, we're seeing great development, especially with our MineMax brand, and we have been able to win key contracts. So, yes, with strong collaboration with all of our European entities along with the Global Design Centre and offering customers with a one-stop-shop solution rather than just supply of the products that has helped us develop these relationships with the major customers and, you know, helps us continue to gain this business.

Okay. Thank you. Next question is, why is it critical and we have low cost advantages? However, where does the company score over competitors in the international market like Pendenso and Viapro regarding quality in branding?

As we mentioned that we have been able to develop through our collaboration or with those working with our international subsidiaries and the parent company where we get the cost advantage of low cost manufacturing compared to what the Europeans are and the Americans are through our disintegration between the wires and strength in supply from India and taking advantage of our manufacturing facility in Europe and also with our design center, our development center in Italy, we definitely are more competitive and are able to gain market share. So this is definitely going to happen which is close integration between the two entities and that is how it is helping us to get better market share as well.

Sir, one more question regarding this southern area, southern area, southern area. When can we expect a contribution from this venture and how ample is the opportunity? And are we planning to set up a plant there?

With regards to Saudi Arabia, so we have set up this shutdown subsidiary through Brunton Wire Rope. And we will provide as part of the entity under the EMM brand, we will provide value-added services there for ropes similar to our other service centers that we have in Roto right now. And we plan to cater to, you know, all the value-added segments, oil and gas, ports, planes, construction and infrastructure, as well as be a massive opportunity there. And so with that, there will be demand for general engineering ropes as well. So that is something we will also cater to. In terms of timelines, we do expect to start the operations in Q1. The teams are ready as well as the equipment has been ordered. And at first, on the question on the plant setup there, at first, it will be a service center like I was mentioning for value addition for ropes such as cutting, coiling, socketing, testing and so on. And of course, also, it will be a stock point for distribution and supply to customers in Saudi Arabia. And our goal is that we want to start this way. And eventually, we'll get to sell the market a little bit better. And we'll get some traction in the market, establish our track record there as well, and then consider further expansion. But it's early days right now. So, we'll see how things progress.

Yeah. And one last question, madam. Sir, the outlook of Alara PC is not looking very bright. So, it's a commodity and in LRTC neither we have pricing power nor literacy. Sir, are you planning to exit this business and put our energy into core of the fire of business where we have both pricing power and literacy?

Sir, you are right that LRTC is right now, last few quarters we have seen the margins coming down considerably. and with big players, competitors having their own steel, have been able to aggressively push volumes to market and thereby with very, very low margins. Having said that, we are focusing on getting into value-added LRPC, which is galvanized LRPC, plasticated LRPC, PVC-coated LRPC, Of course, the quantity and demand is project-based and we have got some good orders. Our products have been well established. But I would say that the ranking up from a demand perspective may take a few quarters, but that is definitely going to be one of our focus areas. We would continue to supply the LRCC because it is still adding maybe lower margins, but still adding positively to the overall profitability and it's an independent plant. Having said that, we would also look at opportunities that using the wire drawing and bedding facilities which is part of the LRTC line, how we can get into other value-added wires which can add much better contribution, A, within the domestic market exports and even through the Brunton Shaw UK, how much we can do that. So, I would say it would be a few difficult quarters with the LRTC overall margins, but I am sure that with these initiatives, we should be able to see a better margin from this facility.

Okay, sir. Thanks a lot. Thank you. That's all my side.

Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead. Thanks for the opportunity. My first question was on the volume growth for next year. If we look at on a quarterly basis, our wire rope volume has touched between 23,000 to 25,000 metric tons per quarter for the past six quarters. So, how do you see the growth in volume growth in the wire rope segment for FY25 once the new KPS comes on screen?

As I mentioned, new CapEx is getting commissioned in Q4 completely. It was a brownfield expansion which requires addition of new machines within the setup as well as upgrading our presenting facilities to increase the volume and a new picking house. All of that is getting commissioned in this quarter. I would say that next year, looking at the volume growth, I would say that we should be able to get at least 15,000 tons of extra volume of ropes coming in. We would definitely aim to go even higher but looking at the demand, market and also little bit time taking for the specialty products it may be plus minus some quantity but I would say that at least it would be 15,000 tons more than what we did this year.

And it will be largely for specialized applications like mining, port cranes, etc.? ?

We would push towards that and as these markets take some time to develop, it would be a combination of these special products as well as GP ropes through our own distribution facilities where we add value to that. So it would be a combination of both.

Sure. My second question was on the subsidiary performance. If you look at the performance of this quarter, you know, if we remove scanning performance from control units, performance is seen as considerate. dip in the performance of for subsidiaries for this quarter you know like this performance in terms of revenue and that is lower by is lower for the most is the least in compared to the last five quarters So, what has led to this decline in performance of subsidiaries? And one request that we had put in last call also is to give some brief or some financial presentation for each of the subsidiaries that will be held soon.

I think the overall performance has considerably improved compared to the previous quarters. In fact, our EBITDA per ton has been the highest in this quarter compared to the last few quarters with a constant growth every time. While the volume has been flat, what we mentioned that going forward, we should be in a position to get to 15,000 tons extra which will definitely add to the revenue, which will add to the revenue. increase the revenue also in the coming quarter. As far as subsidiaries is concerned, I think all the international subsidiaries have performed well and all of them have had recent growth and I would say that that is something which would continue to happen and they work very closely with the parent company and we expect them to continuously contribute to the overall profitability of the business.

Okay, because sir if I was just you know deducting the you know standalone performance from consolidated performance and you know if you look at those numbers you know that has been showing some decline in revenue as well as you know profit ability maybe some you know transfer pricing might have happened in standalone because standalone performance has improved significantly in this quarter and consolidated has, you know, little bit has been some pressure on, you know, like in terms of revenues growth and all.

We look at the business on a consolidated basis. You know, we don't look at it standalone separately and the international business separately because this is one business entity and sometimes one particular subsidiary may be less or more But I would say that the overall profitability has improved by almost 23 and 30% if you look at it from quarter on quarter. So we actually don't track the, we track the businesses, individual businesses, but when we look at it as an integrated, we look at one consolidated balance sheet and not break it up into individual components.

My last question was on the margin side. We have seen a significant uptake in margin in the quarter with every time margin is touching almost 20%. So is it a one off quarter or do you think 20% kind of margin should continue to maintain 25%?

Our endeavour would be to continue to maintain and grow our margins with more and more volumes of wire rope coming in with the new capacity expansion more towards the wire rope side. So I am sure that going forward we should expect the margins to be and we had also even mentioned that we would endeavour to go towards 20% and then gradually push it up. So we are on track and as I mentioned in my address that you know, we have been able to successfully create a value-led growth in this year and going forward, it will be value-led volume growth. So, we expect the margins to be stable and also hope to take the advantage of higher volumes giving an overall better performance in the subsequent quarters.

So, because, you know, normally, you have indicated that the margins will remain around 18-19% so this time given our performance and you are saying that you know we can even go 20% plus kind of margins going forward.

I mean like we said that the quarter on quarter variations may happen again day from product, product mix, volume, various external dynamics but overall our focus is to grow the absolute profitability and also to maintain the healthy margins.

Sure. So, last question is on the Saudi Arabian market. So, how big are this market and what kind of volume can we expect from this market over the next year or so?

We are currently, Saudi Arabia is a very growing market based on all the feedback which we get and our survey which has been done under the new crown prince who is taking major indicators of new infrastructure and growth in in the oil as well as on the boats, the infrastructure and few of large projects have been announced. Currently we are selling through our Indian operations as well as through Dubai almost about 1500 to 1800 tons per annum. Having our own setup over there with our own marketing team combined with the growth opportunities, we expect to grow reasonably well in the coming years.

So, thank you so much. Thank you. The next question is from the line of Kunal Kothari from Centrum Broking. Please go ahead. Thank you for the opportunity and congratulations to the set of members. As you mentioned that there was a dip in the realization on the LRPCs segment while our IO segment is doing well. So, I would like to understand from you what variables that we can track properly to understand the changing business environment for the products that we are in business. So, to get a fair value of understanding that the coming quarter will be better, the coming year will be little bit softer because of the so and so changing dynamics. So, what exactly that can help us to understand

better the business dynamics of our business? See, the prime driver is always going to be the growth in the viable business because that's our core business.

The LRPC lower margins have already been factored in this financial year. I would say in the last three or four quarters, the LRPC margins have been subdued, the prices have been subdued and I have said that this is because of of the increased volume by the steel-backed manufacturers. Having said that, going forward, I would say that our profitability would be driven by the wire-row part of the business and how much we are able to convert the LRPC into plasticated LRPC, galvanized LRPC, and also looking at other types of LRPC where highest-end side products can be provided, particularly in the export market. So those are going to definitely going to overall improve the profitability coming from the LRPC sector. And I would say that the growth going forward coming is going to be from the wire rope side where the new capacity expansion is going to give us increased volume of at least 15,000 tons in the next financial year once the capacity is completed now. That is also going to help the value-led volume growth with a continued focus on the specialty viable business and of course with the new initiative which we have dropped in Saudi Arabia and also expanding our integration with our international subsidiaries. So, I would say this is the way we would continue to improve our financial performance in the coming and in a way we are insulating or hedging our business and not depending on the LRTC business, which could have a good quarter, a good year, depending on the overall demand and supply, or could even be subdued. So, I think it has already been factored in our performance in the last two or three quarters.

So, let me frame my question better. Right now, we are doing nearly 20% of margin. what variables or factors which can you know can have an impact and lead to the margins fall to say 15-17% you know what factors or you know it can take to 25% can you help me to map it out in a simpler way that these are the factors that to be seen we understand well that you know that is important for a company

You see, as far as again to be very specific to you, this 20% what we have been able to achieve going from 15% to 20% is by continuously focusing on the viral business and improving the product mix and going into more value-added businesses including integrating with our international businesses which deal with absolutely high-end customers which fetches a much higher realisation. So based on this we have been able to achieve this 20% and this is after factoring that the negative margin which we have or fallen margins in the LRTC. Going forward I would say that if you want to really see that with these margins of LRTC can we maintain this 20% Margin, I will say yes, it is possible to do it based on the work which has already been done and it is reflecting in our margin. Going forward, if LRTT gives us better margins through the galvanized or plasticated, it is also going to contribute a little bit to the bottom line. Going forward, getting to 25%, I would say that it is going to take a while and with all the various initiatives, But I am sure that the company would continue to focus on the journey or value addition as well as the volume. And hopefully we should do even better going forward.

Okay sir. So last question. We are doing a CAPEX right now. So right now what is our overall capacity segment wise and post CAPEX completion both phase 1 and phase 2? How much capacity will be added?

We are in phase 1 and phase 2 together we are adding 45000 between 45 to 50000 tons of capacity increase. Phase 1 will get us to almost about 30-35000 tons of capacity increase. But having said that it is going to take a while to build the market and establish the quantities in the market. And the phase 2 would add between 10,000 to 15,000 tons. So, altogether about 50,000 tons is going to be added in phase 1 and phase 2. This is going to be a combination of wire rope and wires and some plasticated LRTC also.

So, this entire chapter exists in the value-added product, am I right?

It is in the wire rope category, which means it is going to be a combination of GC rope Crane ropes, plasticated ropes, fishing ropes, all the different categories of wire ropes. It would be a combination of different varieties of wire ropes.

Okay. So, if we assume that we achieve this full utilization level post CapEx capacity in next 3 to 4 years, so what kind of margins that we can look at that point of time? And you guide in the trend that if we achieve so and so utilization level, so our cost will, fixed cost will come down. And with the much higher value-added product and the value of segment contribution, so that will lead to further improvement in the margin that we can see in next 3 to 4 years.

We hope so. Let's see. It has been a drag in from 15 to 20%. And we would continue to focus in our journey to further build our value-added products and services and more focus on wire rope. So, I would not like to make any statement as to how, but I think definitely with the various initiatives and more focus on wire rope and value-added services, we would definitely move in the direction of taking it, maintaining it and growing it steadily.

Okay, sir. Thank you so much and all the best. Thank you. The next question is from the line of Gunjan Kamra from Nivesha.

Please go ahead. Thank you for the opportunity and congratulations for those set of numbers. So, the first question is I wanted to understand how is the competitive scenario in the Middle East region, the Saudi region as well. So, the considering you know lot of expansions are happening in that region as well and they are trying to gain market share so what is the kind of competitive scenario with respect to other countries and their local companies as well we are our Brenton Brenton wire which is our subsidiary in Dubai is the only wire row producer in the GCC in the entire Gulf region and that has been there for quite some time

and with our local producers we have a significant advantage of being local and being able to supply. Even the Saudi Arabian market which is within the part of the GCC is all encouraging local producers to come and local service providers to come by making investments and also having various policies which encourage the locals to come and thereby giving them an opportunity to gain market share and give various I would say various formulas where you are having local presence with local investments and local people to be able to get to higher market share with their important customers. So being the only producer I would say that that should give us an advantage being present in that market and having said that being such an important growth market The whole world, whether it's the Koreans, the Chinese, the Europeans, everybody is looking at this as an opportune market to come in. So competition will be there. Having been present in this region from before will only help us to get a better positioning in that market.

Got it. And so the margin profile also in the Middle East, is it the same as the US or the Europe market? Or is Is it slightly lower or how is it?

It's pretty much similar in terms of the value-added products like drain ropes, mining ropes, and chain ropes, elevator ropes. These are fairly similar to what is there in Europe and US. And when it comes to GP ropes, it's a competitive market and we all need to compete. And I would say it is pretty much similar to the... international market. Everyone competes in every market together, so it's pretty similar, I would say.

Yeah, and just to add to that, in the Middle East, you know, in terms of the GP ropes, there has been some, you know, pressure and more competition coming in with respect to GP ropes, so our strategy has been to fold again over there. One is, we've added value added services there, so rigging services as of last year in our Dubai plant, So that has helped us get closer to the customer and get higher margins in that sense. And secondly, again, our share of GP ropes has decreased and our share of train ropes and oil and offshore ropes, which are higher value, that has increased. So if I compare in FY23, GP ropes was maybe around 48% to 50% of the volume, which is now 36% for us in these nine months. And at the same time, the crane and oil and offshore which was about 47% is now about 60%. So, with the competitive dynamics that play right now and some pressure on DC, this is the 2-4 strategy as we have discussed do really well in our mid-week subsidiary.

Got it. And in the European and the US markets, the last quarter also we were discussing that there was a little slowdown in the European markets But the order book of Usha Martin was really strong. So, right now also, I guess, the market is little slow in the metal market in the European region at least. It is slow. So, how is the planning out there right now?

You see, Europe market overall, of course, in the GP segment is slow. Basically, the general infrastructure growth in the European markets are definitely slow because of the high inflation and lower cap expense. But when it comes to these special ropes, particularly for the big projects, what we have been able to successfully build over the last years through the Brenton Shaw network, based on the fishing ropes, based on the big oil and big ropes and the big projects which we have been able to successfully develop, those are having, continue to have the strong market, particularly in the oil offshore, fishing, And these sectors continue to show good growth and we are getting good traction through these products. Having said that, I would say that Europe would overall continue to be a very important market for us. And with the good order book on these special rules, we should be able to continue to do well in this market.

Thank you. And in the US also, so we are supplying to the mining sector only or where is the additional demand coming from? Which sector are you talking about?

In the US, mining rope, definitely we had done some trial orders and those were successful and we've gotten good feedback on the life of the ropes there and we're getting repeat orders in mining. But other than that, we've also seen increases in the plain elevator market and also a gundola rope market which again is a high value product so in that sense again you know compared to GT rope these high value products have done better for us in the US market and from the US we also cater to the South America market right so in South America as well in the mining segment we have done well in Chile, Peru in the Columbia region as well even in the port segment in South America we have got some traction and a good contract there. And, and then finally, the fishing rope business as well in Latin America has done pretty well. We've gotten some trial orders in Ecuador and even Brazil, South Chile. You know, slowly, slowly we're building up the market. I won't say, you know, it's, you know, big banks, big orders there, fishing rope. Again, we get trial orders, we supply successfully and then, you know, hopefully we get repeat orders in that sense. So, Overall, he would stay a pretty positive outlook for the America region.

Got it. And one last question. Since this is a brown-field case that we are doing right now, but any one-time expense that we have to incur in Q4 or Q1 for this capacity expansion?

Anirban, can you answer this question, please?

No, there are no one-time costs in this. So, these are all possible things. No, there are no separate one-time costs. What we put up is the range of the wave one capex is about 300 to 310 crores and that takes care of the cost that we are estimating.

Got it. Okay. Thank you, Thomas and good luck to the entire team.

Thank you. Thank you. The next question is from the line of Sanjay Shah from KSA Securities.

Please go ahead. Sanjay, the line has been unmuted. You may proceed with your question.

As there is no response, we will move to the next question, which will be from the line of Jatin from Invest Savvy Portfolio Management. Please go ahead.

Sir, what we wanted to know was that while you have managed the profitability despite movement and speed crisis going low, If the seed price and sharing were to reverse, does that help your business generate more? Edita?

No, I think our wire rope business, we have made it a value-driven business where we have been able to protect our margins, be it in a downward steel market or upward steel market. And I think that is something which we have worked hard and build a strong product portfolio that would serve it, which would help us to maintain margins both in a little volatile market also. And that is a model we would like to work, and that is how we have been able to build our relationship with our customers. It is not based on scale pricing fees or GPs. It's the value protection which we are able to do.

So... So, prices pass on...

Yeah, more or less we have been able to work it in a model where we have insulated our business from going up or down. So I would not say when it goes down we will gain a profit or when it goes up we will lose. So we have been able to work on the wire of site. When it comes to LRTC and wire, it is a pass-through when it goes up or goes down. It is generally factored into the monthly pricing.

Okay, and what is your outlook for, you know, profit growth, you know, this pricing of steel going forward or it's too volatile for you to take a call? Let's say next one year, what is your sense of how it goes, especially for the electricity business?

For LRTC, it's all pass-through. So whether the volume prices come down, the LRTC within a month accepts the same price and reverts on the other side. For me to forecast on how the steel prices would move in the next one year is difficult. And I would, you know, we are no more in the steel business for us to comment on the steel prices.

Okay, so it's all pass-through and that is fine. and in terms of you know some guidance on where you see you know your let's say steady case operating margin percentages because we've seen you know concerted effort to move the operating margins up from around 13, 15, 16% to 18 to 20% now Do you see any further growth of this going up in steady state or do you think that we have mostly reached where you would want to reach the long run?

This is something which is a constant focus of the management to continuously keep on improving. As we have said that we would gradually keep on pushing the value-added products and that is something that will help us to come so far. We feel that our effort is going to be further continuing, including the new capacity which we are adding in our manufacturing facilities in India, whether it is the value-added LRPC. So our continuous effort would be to see that how we continuously improve our market. And the effort, let's see how far it is able to help us manage it. Hopefully it should be better.

So, but what would your steady-state target be? While obviously it would be good to go beyond that aspiration, but what would be a target where you would say that it would start getting on even with all the things, you would be happy with this kind of stabilizing at those levels?

These levels are good and let's see. It's difficult in our business. A lot of things depend on the product mix which segment is getting you better revenues, how the Saudi Arabian market will span up, how our other initiatives will come. Our endeavor is to see that whatever we have achieved, try to maintain that and see that how we can improve on it. So, you know, even in the journey when it was 15%, I was reluctant to commit because the initiatives are there, but it just takes a while to get you to these levels. I can only say that our entire management team across the globe is focusing more on value-added products and services, which will enable us to get to that. But it is hard to give a particular number that this is something which we do. And you should see the track record in which we have been able to build. And I am sure that our team will continue to further focus on improving it, but not need to commit on it at the moment.

So, let me just one last question. If I were to ask you, what are the two things you are most looking forward to or excited about in your company growing and what are the two things which you would say kind of are concern areas for you going forward? So, like two things maybe you should consider.

Let me tell you only this side. I feel the the We have a large volume of LRTC and we have seen a steady decline of margins. So that is something which is in the overall volume is significant and that is something which is definitely a matter of concern. And I don't see that improving in the near future based on what the market dynamics I see. That is point number one. Point number two is the logistics issue, the global logistics challenges because of the Red Sea and the Middle East geopolitics. I think the global two things are going to get affected. One is the transit time to our destination, whether it's in Europe and US, would go up by at least 15 to 20 days or almost 30% more time than what it usually takes. Also, it is going to incur higher freight. Having said that, this is going to be not only for us, but for all the Koreans, Chinese, Malaysians, anybody who is supplying into these markets. Our endeavour would be to push the cost increase to the customers. But that is one part and that is something which we have done in the past also during the pandemic when the logistics went haywire. So this is of course a challenge which has come in the last 2-3 months. Secondly, this is going to definitely create a situation where there could be increased working capital needs because of the increased transit time in our business. So that is something still in the near future. So these are the two negative worrying things I would say glaring worrying things. On the positive side, Really looking at the Saudi Arabian market, which is, I feel, one of the fastest-growing markets in a GTC country, as well as probably one of the markets which everybody is looking at a growth in the near future. Secondly, our pouring into synthetic slings, a part of our Brenton Shaw Manufacturing Plants Initiative, to get into... high value as in synthetic slings which of course we are investing about 4 to 4.5 million pounds or sterling for say about 5.5 million dollars into this. That is something I am excited about and that is something which is the first foray into synthetics for the company. This has got high end and it is complimenting our wide of businesses where our services industry works on it and I feel if this is something which can really build into a good revenue and profit model in 2-3 years time.

Sir, you are not, there is no concern on that case which you have mentioned and some ED issue as well as some theorem of NTS which is there with some mention of

These are subdued matters and I would rather not comment on those at the moment. But I can tell you, not impacting the performance of the company.

Okay. Thank you. Thank you.

Thank you. Ladies and gentlemen, to ensure that our management is able to address questions from all participants in the conference, we request you to please restrict your questions to two per person. You may rejoin the queue for follow-up questions. We have the next question from the line of Sonal Minha from Prescient Cap Investment Advisors. Please go ahead.

Hi, sir. This is Sonal Minha. Am I audible?

Yes, sir. You are audible. Yes.

Sure. Okay. My first question is regarding the expansion plan that you've summarized. So, two parts to it. First one, by when do we expect the phase 1 and phase 2 roughly broader timelines to be over? That's the first part. And secondly, you mentioned that the cumulative capacity we're adding roughly is between 45K to 50K some. So, is it fair and simplified to assume that if we are selling roughly 190 odd K tons a year, you are adding capacity to build a phase to go up by roughly 25% from A1?

To answer your first question, the phase 1 capacity expansion is completing in Q4, that is in the month of February, March this year. And the phase 2 would be in another 18 months from now. Major initiatives of the CapEx ordering has already been done for the phase 2. Quite a large portion is from imported equipment. So that is going to come more towards the fourth quarter of the next financial year, of this financial year. Coming to yes, the volume is expected to, the capacity addition is close to 50,000 tons. And our endeavor would be to push these volumes. Since these are all technical products with value added services, we would start getting the benefits from this from quarter one of this year. But it is going to take the ramp up including the marketing and the repeat order and increasing the market share. including the initiatives which we mentioned about Saudi Arabia and also integrating with our other international subsidiaries, will take some time. But overall, our endeavor would be to get to these levels of the capacity increase in over the next few months.

Understand that. So, is it fair to assume that given that it is a value added product and we rent it to the office that if let say we achieve the potential and the capacity, we are looking at maybe utilizing the best of its capacity over the next 36-odd months, basically that is where we are at. Is that not wrong?

We would push it very hard and our international subsidies as well as the various initiatives are there. We also need to understand how the various economies, because 55% of the issue comes from our international businesses. Whereas some good initiatives from Saudi Arabia, Middle East which are growing markets, Europe in certain sectors doing well, certain sectors are still slow. America's certain growth, particularly on the specialized products, what Shreya mentioned is doing well. We overall expect that we should be able to get to those increased volumes over the next, I would say, two to three, next two years, we should be able to fully stabilize the market. What we don't want to do is push the prices down because that is something which is going to impact the existing margins also. It's been a tough Turning for us to take it to these levels. So, we would develop these markets. We don't want to go and push and get into the lower end of the markets and get capacity. We would gradually push it up and make sure that the top line and the bottom line steadily grows with us.

I appreciate that. Coming to that point itself, any demand outlook triggers like what you mentioned about the middle, any demand outlook triggers if you talk about let's say India and America by and large assuming there is an infrastructure push in America, there is some central approach in India, if you could just highlight, let me write about what's real, what's not, what is calling in your, around your area of expertise, that means we have to understand these markets because sitting here in India, we have no place to be.

How much of that falls into the relevant sectors? See, India is a very strong market and we have seen that growing and we have a 60-70% market share in India. So, we will grow with whatever the growth at which India grows. There is a big project of the of the Parvat Mala project which the government has announced which is going to have big ropeways coming up so that is also going to help us and we are in touch with all the authorities and there is a good potential for these projects coming up for the various and all of these require wire ropes also there are big infrastructure projects coming up big highways, railways high speed railway projects where there would be good demand of plasticated and galvanized LRCC. So, I am sure that that kind of a market should do well. And overall growth of India, if it does at the current level, even our share in the keeping our share at 67% would continue to, we would continue to grow at the same pace in India. It would not be possible to increase the market share. Having said that, Europe, U.S., our market share, particularly U.S., is very low. we are at only 2-3% market share and with the growth opportunities in the US and the various teams which we have organized there, I feel the volume growth will come from Europe, US, Saudi Arabia, Middle East and even some parts in Southeast Asia, particularly Vietnam, Indonesia. These will also continue to grow and add volumes and value to our business.

I understand that sir.

Thank you. Thank you. Ladies and gentlemen, we will take that as our last question. I would now like to hand the conference over to the management for closing comments.

Over to you, sir. I would like to thank everyone for attending this call and showing interest in 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 to 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.

Thank you. On behalf of Pusha Martin Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.