Usha Martin – Coming out of the Chaos

First ever Conf call, my detailed notes, 4th March 23:

Focus areas per mgmt:

1. modernization and capacity expansions plans – focused on high value products
2. grow in international markets – targeting geographies having low market share
3. Leverage BrentonShaw brand – secure premium customers and OEMs.
4. Digital initiatives – increase op. efficiencies
5. ESG

• Turn around in European subsidiary:

• • Org structure – initially all our subsidiaries were working in Silos, now they are unified under one mgmt.
• • Earlier BrentonShaw in UK – previously sourced RM from European sources but now it does from our Indian company.
• • had breakthroughs with important premium customers and OEM with collaboration from our global R&D center in Italy.

• On ability to pass on RM – avg. consumption of wire rod has inc. from 44k/t (FY21) to 62k/t (FY23). EBITDA – 15.9 to 26.5k/t ( FY21 and 23 resp.) – we have been able to pass on RM increases, also increase EBITDA – active mgmt. on product portfolio – do more value-added products. LRPC is more linked to commodity prices. Plasticated LRPC is more of a specialty flavor. Company has been able to plan around this.

• North America: Company initially focussed only around the Houston area in North America – 2-3% Market share (MS). Strengthened mgmt and opened offices in east and west. Able to get OEM orders. If we move to 4-5% will double our volumes.

• • Growing in North American and South American markets, taking MS away from competitors – every country concentrating on energy security – we work very closely with our customers – although product is mfgd. in India, important clients have someone close to them – working closely with them on the ground and have critical inventory for them. Our biz model although might have higher working capital but is covered up by higher realizations and higher MS.

• biz model is to have our own distribution model – stock inventory according to customer needs – Leads to higher realization – and thus leads to higher ROCE. The target is to go towards 25% from 17 to 19% (currently)

• Intend to do more of wire ropes; within LRPC want to do the value-added like plasticated LRPC; even within strands do value add – but both these won’t be as good as the ropes and specialized wire ropes.

• Take FY23 as a benchmark going forward.

• Capex plan: Phase 1 is 310 crores giving approx 40k TPA – Q3 FY24 target completion.

• 25-30k TPA is the output of 167 cr in phase 2 of capex – 18-24 months to complete—10k tonnes of wire rope. – predominantly for Mining Rope – are single-length ropes- need heavy machinery. Capacity can be 25-30kt – Installed capacity might be higher, but 10k TPA is what we realistically feel we can make and sell ( in the next 3-4 years).

• 62 crores for Thailand modernization for compacting and non-rotating ropes

• Indian plant – crane ropes, mining ropes and some specialized wire ropes.

• Value added would be aimed to be around 50% of the pie.

• Plasticated LRPC – current capacity is 500tpm, after phase 1, 800-1000tpm – in 18-24 months

• on wire front – in the past we had to evacuate the steel we had so we had higher contribution from this segment in the past and now the wires have come down – setting up 167 crores galfan line – zinc aluminum – 10ktpa and 10ktpa of specialized wires.

• Servicing biz: Aberdeen and Rotterdam – turn over of 700 crores per year has been attained. Dubai and Thailand just started. Expect to grow by about 15-20% in the next few years. Margins are going to be higher than wires. 4-5% higher than regular wires.

ROCE target is 25% and this should lead to

1. • EBITDA margins from 14-15 to 18% +
2. • EBITDA – Higher value products Rs.50k/t , general purpose rope is around 25k/t

• Steel price has reached as high as 18k/t and still been able to manage the volatility. As we go to higher value-added products, steel as a component reduces.

• Having a base in India helped seize on the opportunity during the geopolitical crisis. Next 3 years we have very good visibility.

• • European companies – big companies give orders whose lead time is high- 6-12 months
• • Dedicated dealers in India, who buy regularly from us to cater to 80% of our replacement market and our own distribution network.
• • 2-3 months of order flow in our pipeline.
• • Based on consumptions and forecast gives us confidence in the visibility.

• Total capacity is around 300kt – 70% is our current CU. LRPC 60-65kt, Ropes 126kt, production is 110kt. Since product mix plays a vital role – getting to 70-75% CU is very good according to industry standards.

• Revenue growth target = 15-18% CAGR

• LRPC don’t plan to grow, as capacities grows across contribution will be lower overall. Ropes will contribute close 70-72% of revenue in the longer run.

• Have to look at annual numbers and use FY23 as a base, not to look at quarterly numbers.

• with steel prices softening currently, the company does not foresee any inventory loss.

• OEM – 20% and replacement market – 80%

• International subsidiaries – Capacities and capacity utilization (CU) below are for Ropes

• • Dubai – installed 15k, use 13.5k, 83% CU
• • USSIL – 86% CU

• BrentonShaw – 50% CU – no plans to expand here, as there is scope for growing here, based on client additions. When we get closer to 75-80% we will consider plans to expand.

• BrentonShaw – a diff league, premium product is 200-350-400 Tonne single weight rope – goes into critical applications, very few players produce something like this.

• Geographical comments:

• • Thailand – might not be on the same level as BrentonShaw or India due to the product mix.
• • India and Europe will be the prime growth drivers
• • In Middle East – Plan to get into Saudi Arabia market as there are big growth plans in the current regime for the future.
• • In USA and Canada – very low presence – 2-3% market share, plan to grow here.

• • Europe – substantial growth opportunities exist and we plan to cater to that.
• • Norway & Germany – targeting to expand in these countries.

• Next 5 years, we have good visibility for growth, would not comment about 10 years.

• Synthetic ropes and steel wire ropes – have very little common ground. Focus for us to stay in steel wire ropes.

• Ebitda/tonne growth over the past two years – as it been because of steel prices or efficiency – its not steel prices which is a pass-through, its because of our product mix, wire rope contribution to pie has gone up.

• International operation Ebitda/tonne has been – Rs. 27.6k/t

• Domestic operation Ebitda/tonne has been – Rs. 18.7k/t

• Share of International biz has also grown in the pie (realizations are higher)

• We have a steel plant in Thailand and UK, and we don’t see a big steel price arbitrage (with ±$30-$40/tonne). This arbitrage was there 3 years ago during the pandemic.

• 60-65% Market Share(MS) in India for wire rope, good relationship with our dealer network (been with us for 40-45 years), key customers working relationship. Challenging to increase beyond a certain MS – we will definitely grow with govt. push. We see a good opportunity in other areas internationally, where the MS is very low – this will be our future growth driver.

• for India with Gadkari’s announcement – We are not into the ropeway biz, we service them with our ropes – they have a longer replacement period – 8-10 years – we work with clients who have bagged these orders.

PS: any misinterpretations, mistakes, or typos are purely mine.
~Ganesh Raao