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Multiple levers, One direction

We visited Usha Martin’s mother plant spread across ~140 acres in Ranchi and were impressed by USM’s in-house manufacturing capabilities to move up the value chain into high-margin specialized products. The visit reinforced our positive view on the company, with the combination of in-house machinery development, increasing focus on VASP and planned capacity additions providing visibility for sustained value growth. We believe USM could unlock further value from rest of its overseas operations under the One Usha initiative. With most of the UK restructuring benefits started flowing, there is significant potential for cost savings at other locations too. Post Covid, USM had initiated a turnaround plan with modernization capex to shift Thailand ops towards specialty ropes, which is still at lower margins than consolidated entity. Although middle east crisis may hamper near term volume growth, we believe USM is well placed to benefit from the volume growth opportunities in domestic as well as global markets with planned expansions, integration and value addition. The key monitorable remains the pace of commercialization of these capabilities, particularly in elevators and other specialized applications.

The process of conversion of wire rods to wires to strands and finally to wire ropes used in multiple applications is labour intensive, multiple SKUs & customer approvals makes it difficult to replicate; safety is most critical aspect and customer specific requirements gives USM an opportunity to add value. Post selling off steel business, USM has gradually penetrated in high margin OEM businesses across US and Europe. USM is targeting 20% EBITDA CAGR over FY26-29E, supported by

(a) organic 10-11% volume growth driven by planned capacity additions

(b) increasing the share of specialized products to drive value growth

(c) gradual capacity expansion in other high-margin ropes. We remain positive on USM and maintain our conservative 15%+ EBITDA CAGR over FY26-29E, reiterate Buy with TP of INR596 assigning 25x PER to Sep’28 EPS.

Focus on value addition and innovation:

Over the last few years, USM has focused on value-added products within the wire rope segment to cater to high-margin end-user industries, while also developing machinery to support expansion. For instance, the Lock Coil machine was internally designed at ~25-30% of the cost of a new machine if purchased, enabling USM to produce a wider variety of innovative products. During our plant visit, we observed that a significant portion of the machinery is developed inhouse, with management indicating that around 60-70% of certain required machines can be manufactured internally. This not only lowers capex but also provides greater flexibility to develop products for niche applications.

USM is increasingly focusing on products where technical specifications and customer requirements are more important than simply competing on price. The plant has capabilities across wire drawing, patenting, galvanizing and zinc-aluminum coating, allowing USM to manufacture a wide range of products across applications. USM currently processes more than 100 grades of wire rods in the 5.4–14mm range.

USM is also developing capabilities for high-strength and ultra-high-strength wires for transmission-line applications. Galstar, the company’s zinc-aluminum coated wire used as rockfall barriers and protection against landslides, is seeing strong demand outside India, with production targeted to increase from 150-200 tonnes/month currently to 500-600 tonnes/month. The company is also adding another zinc-aluminum coating line by FY27

Another area of focus is large-diameter and specialized ropes. USM has recently commissioned a machine capable of processing 50-95mm wire rods, at a cost of INR500mn, which management indicated is only the second such machine globally after Bridon-Bekaert. The machine allows USM to cater to specialized mining and sub-sea applications. USM is also targeting niche opportunities across synthetics, specialized wire ropes and other products where there are synergies with its existing capabilities.

One Usha initiative offers further scope for international operations: The One Usha Martin initiative has already delivered INR650-700mn of cost savings over the past 18 months, with the UK operations undergoing significant changes to improve efficiency by the end of FY25. The UK integration provides a tangible example of the benefits from greater coordination between international operations and the Ranchi facility. Shifting manufacturing to India’s cost-efficient operations, while leveraging the UK’s proximity to customers for sales and distribution, has helped reduce manufacturing and supply-chain costs, improve working-capital efficiency and enhance competitiveness. With Thailand being one of USM’s larger international manufacturing operations, we see scope for similar benefits from deeper integration and operational optimization over time.

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