Usha Martin Q1 FY26: Volume Boom, Margin Gloom – Can "One Usha Martin" Deliver H2 Growth?

Usha Martin Limited, a prominent player in the steel and wire rope industry, has just unveiled its Q1 FY26 earnings. In a market environment marked by a strong domestic growth narrative but also global uncertainties and evolving sector dynamics, how has Usha Martin navigated these waters? The latest results present a nuanced picture, revealing strong underlying operational momentum despite facing some headwinds on the profitability front. Let’s dig deeper to understand what this means for the company’s trajectory.

Orders: The Foundation for Future Growth

For a B2B business like Usha Martin, which supplies critical components to sectors like engineering, construction, and oil & gas, a healthy order book is a direct precursor to future revenues. While the earnings presentation doesn’t provide specific order intake figures or backlog numbers, the management commentary offers a crucial insight: they speak of a “robust order pipeline across international and domestic markets.” This is a positive signal, suggesting continued demand for their products, especially in an Indian economy where infrastructure and capital goods sectors are poised for growth.

The strength of this pipeline will be key to converting demand into tangible sales, and we’ll be watching for more quantitative details on order book size and conversion rates in future updates.

Sales Performance: Volume Growth Takes the Lead

Usha Martin kicked off FY26 with a notable increase in its top line. Consolidated Revenue from Operations grew by a solid 7.4% year-on-year (Y-o-Y), reaching ₹887.2 crore in Q1 FY26. However, on a sequential basis, revenue saw a marginal decline of 1.0% from Q4 FY25.

What’s driving this growth? The answer lies in volumes. The company reported a significant 10.4% Y-o-Y increase in overall sales volumes, indicating robust demand for its products. This tells us that the growth is predominantly volume-led. When volume growth outpaces revenue growth (10.4% vs 7.4%), it often suggests that average realizations (prices per tonne) have faced some pressure, which we will see reflected in margins.

Here’s how the key segments performed:

And the volumes:

The Wire segment stands out with an impressive 32.3% Y-o-Y revenue growth and a 36.6% Y-o-Y jump in volumes, highlighting strong demand in this product category. The Wire Rope segment also showed healthy expansion, aligning with the broader push in domestic infrastructure and manufacturing. However, the LRPC segment faced a sequential and year-on-year decline in both revenue and volumes, indicating specific market challenges in that area.

The increased contribution from international business (now 57%) also highlights the company’s diversified market reach. The overall sales performance, driven by volumes, aligns with the broader Indian economic context of robust domestic demand and government-led capital expenditure.

Earnings Performance: Margin Pressures Despite Volume Gains

While the top line showed promising volume growth, the story gets a bit more complex on the profitability front.

Consolidated Operating EBITDA declined by 6.1% Y-o-Y, resulting in a 2.3 percentage point contraction in its margin to 16.3%. This is explicitly attributed to “market-led margin pressures,” suggesting that the earlier noted decline in average realizations is indeed impacting profitability. The Operating EBITDA per tonne also saw a significant 12.6% Y-o-Y drop, reinforcing the squeeze on unit profitability.

Profit After Tax (PAT) also saw a slight 2.9% Y-o-Y decrease to ₹100.8 crore. However, a closer look at the P&L statement reveals something interesting: Other Income surged by an astounding 210.4% Y-o-Y (from ₹5.0 crore to ₹15.5 crore). This substantial boost from non-operating sources helped cushion the decline in operating profits. Without this support, the PAT decline would have been steeper, emphasizing the need for sustained operational efficiency improvements.

Another factor impacting PAT is the 32.0% Y-o-Y increase in Depreciation, likely a consequence of recent capital expenditures, which are common for companies in growth phases. This is a positive long-term signal, but it temporarily impacts reported earnings.

Given the volume growth and strategic initiatives, Usha Martin aspires to be a “fast grower.” However, the current quarter’s margin pressures mean it’s performing more akin to a “slow grower” on the profitability front. The key will be whether the “One Usha Martin” transformation can reverse the margin trend.

Key Business Metrics: A Mixed Bag

The company’s performance on key metrics reflects both strength and areas for improvement:

• EBITDA/Tonne: As discussed, this metric fell significantly Y-o-Y, directly illustrating the margin pressure. Its slight sequential improvement (2.9%) offers a glimmer of hope that the worst might be over or that internal controls are taking effect.
• ROCE & ROE: Both Return on Capital Employed and Return on Equity saw slight dips compared to FY25 (ROCE from 19.3% to 18.2%, ROE from 15.8% to 15.0%). While still healthy, this indicates that the capital employed is currently generating marginally less profit.
• Interest Coverage: This improved significantly from 18.8x in FY25 to 21.7x in Jun'25, a testament to declining finance costs and better debt management.
• Fixed Asset Turnover: Remained stable at 2.5x, implying that new assets from CapEx are not yet significantly contributing to revenue generation, or that the increase in asset base is being matched by revenue growth.

Working Capital: A Story of Discipline and Efficiency

One of the standout achievements this quarter is Usha Martin’s continued improvement in working capital management. The company reported a reduction in Net Working Capital (Days) from 199 in March 2025 to 196 in June 2025. This crucial improvement is explicitly linked to the “One Usha Martin” initiative, which aims to enhance operational discipline.

• The Current Ratio improved from 2.8x in Mar-25 to 3.0x in Jun-25, signifying a stronger short-term liquidity position.
• The Net Working Capital to Turnover (LTM, %) remained steady at 32.8%.

This focus on working capital optimization is vital, as it frees up cash flow, reduces reliance on external financing, and enhances overall operational efficiency. It’s a clear indication that management is delivering on its guidance regarding financial discipline.

Capital Expenditure (CapEx): Investing in Future Growth

Management mentioned that the Ranchi capacity expansion is “progressing as per schedule.” This is a key growth-oriented CapEx. While the financials show an increase in depreciation, indicating asset additions, the presentation doesn’t detail the CapEx amount for the quarter. However, the fact that such a significant project is on track reinforces the company’s commitment to expanding its production capabilities and capitalizing on future demand.

The nature of this CapEx is clearly for growth, aiming to enhance output and market reach. The impact on revenue and earnings will likely materialize once these new capacities are fully operational and contributing, possibly from the second half of FY26 onwards, aligning with management’s guidance.

Financing: A Debt-Free Milestone! 🚀

Perhaps the most impressive highlight from the balance sheet is Usha Martin achieving a net debt-free status at a consolidated level! As of June 2025, Net Debt stood at -₹14 crore, a significant improvement from positive ₹63 crore in FY25. This remarkable deleveraging is reflected in the Net Debt to Equity ratio dropping to 0.00, practically zero.

This achievement is a testament to strong cash flow generation and disciplined financial management. Being net debt-free provides immense financial flexibility, enabling the company to fund future growth CapEx internally without relying heavily on external borrowing, reducing financial risk, and potentially improving shareholder returns. This strong balance sheet position is a significant positive change and a clear delivery on long-term financial health goals.

Management Outlook: The “One Usha Martin” Promise

Mr. Rajeev Jhawar, the Managing Director, acknowledged the stable start to FY26 with volume growth but tempered by market-led margin pressures. Critically, he emphasized the “One Usha Martin” transformation, stating that its foundational phase is nearing completion in the first half of this fiscal year. The expectation is clear: “stronger outcomes from the second half of FY26 onwards.”

This transformation aims to create a more agile, integrated, and cost-optimized organization. The early benefits are already visible in improved working capital and the net debt-free status. Coupled with the Ranchi capacity expansion and a “robust order pipeline,” management is confident of a “meaningful step-up in its growth trajectory.”

Assessing Guidance: The management’s past emphasis on balance sheet strengthening and operational efficiency seems to be bearing fruit (e.g., net debt-free status, working capital improvement). However, the margin pressure in Q1 FY26 suggests that the ‘One Usha Martin’ initiative still has work to do on the profitability front. The market will closely watch if the promised “stronger outcomes” and “meaningful step-up” in growth materialize from H2 FY26.

Key Takeaways: Poised for a Pivot?

Usha Martin’s Q1 FY26 results paint a picture of resilience and strategic positioning amidst a challenging environment for margins.

• Volume-led Growth: The company delivered robust volume growth, particularly in the Wire segment, suggesting healthy demand for its core products, which aligns well with India’s domestic-growth themes like infrastructure and capital goods.
• Margin Under Pressure: Operating profitability faced headwinds due to “market-led margin pressures” and higher depreciation, indicating that pricing power is currently subdued. The surge in other income helped support the PAT.
• Financial Strength: The significant achievement of becoming net debt-free and improving working capital days are massive positives, showcasing excellent financial discipline and setting a strong foundation for future investments.
• Future Outlook: The ‘One Usha Martin’ transformation and the Ranchi expansion are critical growth drivers. If these initiatives successfully address margin pressures and leverage the robust order pipeline, Usha Martin could indeed see the “meaningful step-up” in growth trajectory management anticipates from H2 FY26. This company appears to be in a transition phase, investing for future growth, which could explain the temporary dip in earnings despite strong revenue and volume growth.

For investors, Usha Martin presents an interesting case. While current quarter earnings are subdued by margin pressures, the underlying operational strength (volume growth), strategic initiatives, and exceptional financial health (net debt-free) position it as a company to watch for a potential turnaround in profitability in the coming quarters. The market’s preference for domestic-growth themes, especially in infra and capital goods, also bodes well for Usha Martin’s long-term prospects.

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