Usha Martin Ltd

NSE:USHAMART

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the earnings conference call of Usha Martin Limited.

[Operator Instructions] Please note that this conference is being recorded.

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

[Devrishi Singh]

Thank you. Good afternoon, everyone, and thank you for joining us on Usha Martin's Q3 FY '24 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 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 Jhawar to make his opening remarks. Thank you, and over to you, sir.

[Rajeev Jhawar, executive]

Good afternoon, everyone. On behalf of the management team of Usha Martin, I would like to welcome you all to our earnings conference 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'm pleased to report that over the first 9 months of the year, we have made healthy progress on our strategic growth initiatives. These include: one, continuous enhancement of our product portfolio with a focus on value-added offerings and two, strengthening our capabilities through CapEx client initiatives. During the recent quarters, there have been pricing pressures in our Wire & Strand 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 FY '24, up from 67% in FY '23. Simultaneously, the share of value-added industry segments in our consolidated revenue registered growth reaching 49%, up from 44% in FY '23. It's worth highlighting that within the Wire Rope category, the contribution of value-added segments increased to 70% in 9 months FY '24, up from 65% in FY '23.

Additionally, during the same period, revenue from international markets constituted 55% of our total revenue. Despite the volatility in steel 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 deem -which demands 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 Ranchi is set to be completed in quarter 4. This phase includes the increase of capacities for higher value-added products such as crane 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 the 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. Two, our Thailand subsidiary, Usha Siam, recently acquired the remaining 50% stake in Tesac Usha. Previously, it was a 50-50 JV with Tesac Wirerope of Japan. We will use this facility for the manufacture of high-value elevator ropes. Number three, we are planning to enter the synthetic slings market through our U.K. plant, Brunton Shaw UK. This will be our first foray into the synthetics space.

In addition, Usha 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 synergies and creating a more integrative -- 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 and this initiative will help position us as a comprehensive solution provider in the wire rope sector. Lastly, the continuous strengthening of our international teams and organizational structure is equipping us effectively 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 strength 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 Martin.

With this, I would like to hand over to Mr. Anirban Sanyal, CFO, who will present the operational and financial highlights for the quarter and 9 months ended 31st December 2023. Thank you.

[Anirban Sanyal, executive]

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 9 months ended 31st December 2023.

The consolidated net revenue from operations stood at INR 797.1 crores in Q3 of FY '24 as against INR 833.6 crores in Q3 of FY '23. This 4.4% year-on-year dip was primarily owing to a reduced contribution from both the Wire & Strand and LRPC segments. Notably, our Wire Rope segment sustained steady revenues despite registering a year-on-year reduction in its sales volumes. This segment increased realization is an important role in supporting our overall revenue performance during the quarter.

Our operating EBITDA for the quarter showcased a healthy 23.7% rise on a year-on-year basis, reaching INR 157.1 crores. Additionally, the operating EBITDA per tonne demonstrated a notable 33.3% year-on-year improvement at INR 34,000. The Q3 FY '24 operating EBITDA margin rose to 19.7%, up from 15.2% in Q3 of FY '23. the company's sustained emphasis on value-added products and its expanding global presence plays an important role in enhancing our overall margin position. Our net profit for the quarter stood at INR 107.5 crores, registering an increase of 27.9% from INR 84.1 crores in Q3 of FY '23.

On a 9-month basis, net revenues from operations stood at INR 2,396.2 crores, compared to 2,402 -- INR 2,412.5 crores during 9 months of FY '23. Operating EBITDA stood at INR 447.1 crores in 9 months FY '24 as against INR 359.4 crores in 9 months of FY '23. Profit after tax for 9 months FY '24 stood at INR 317.8 crores, registering a 29.6% year-on-year increase.

Our balance sheet position continues to be strong, with our net debt-to-equity ratio improving to 0.05x as of December 2023. Despite the CapEx spend of approximately INR 196 crores in 9 months of FY '24 and the allocation of funds for different disbursements, 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 amid 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 FY '24 stands at INR 420.3 crores and at 94% of operating EBITDA compared to INR 214.5 crores during 9 months of FY '23 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 products 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 Usha Martin's inherent strengths, 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.

[Operator]

[Operator Instructions] The first question is from the line of Aman Kumar Sonthalia from AK Securities.

[Aman Sonthalia, analyst]

Sir, congratulations for the excellent set of numbers despite we have limited capacities. And sir, I have a few questions regarding future outlook of the company. Number one, sir, what is the update of extension? And when can we expect the expanded capacity to start contributing to the bottom line of the company?

[Rajeev Jhawar, executive]

As I mentioned, the Phase 1 capacity expansion is getting completed within the Q4, within the next 1 month. And this is a brownfield expansion at Ranchi, which is getting completed. And we expect the volume start coming in from, I would say, Q1 of the next financial year. Having said that, the ramping up would take -- we'll start 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.

[Aman Sonthalia, analyst]

Okay, sir. Sir, next question, in the last 2 years, we have supplied ropes to big ticket clients in Europe and in U.S.A. Now I hope there will be assured of our quality and capabilities. So can we expect big repeat orders coming from the declines?

[Shreya Jhawar, executive]

Yes. So we have started getting more business from the premium customers that we were able to secure in Europe and the U.S. as well. Just to give an example, our Brunton Shaw 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 BS UK, and the major growth, like you said, has come from 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 the suppliers of major OEMs in Europe. Even within the mining rope segment in the U.S. and also in Europe now, we're seeing trade 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 center and offering customers with a one-stop shop solution rather than just supply of the product that has helped us develop these relationships with the major customers and helps us continue to gain this business.

[Aman Sonthalia, analyst]

Next question is a high-end wire rope is critical entity have low-cost advantages. However, where does the company spoor competitors in the international market like [indiscernible] regarding quality branding?

[Rajeev Jhawar, executive]

You see, as we mentioned that we have been able to develop through our collaboration or with close 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 strands being supplied 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 with this close integration between the 2 entities and that is how it is helping us to get better market share as well.

[Aman Sonthalia, analyst]

Sir, one more question regarding this South Arabia -- Saudi Arabia. When can you expect a contribution from this venture and how ample is the opportunity? And are you planning any to set up a plant there?

[Shreya Jhawar, executive]

With regards to Saudi Arabia, so we have set up this step down subsidiary through Brunton Wire Ropes. And we will provide as part of the entity under the EMM brand, we will provide value-added services, therefore ropes similar to our other service centers that we have in Europe right now and we plan to cater to all the value-added segments: oil and gas, ports, cranes, construction and infrastructure as well we see a massive opportunity there. And I'm sure with that there will be demand for general engineering ropes as well. So that is something we will also cater to.

In terms of time lines, 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 set up there, at first, it will be a service center, like I was mentioning for value addition for ropes such as curtain, 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 study 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 for us. Yes.

[Aman Sonthalia, analyst]

And 1 last question, madam. Sir, the outlook of LRPC is not looking very bright. So it's the commodity and in LRPC neither we have pricing power nor leadership. Sir, are we planning to exit this business and put our energy into core Wire Rope business where we have both pricing power and leadership?

[Rajeev Jhawar, executive]

You're right that LRPC is right now -- in the last few quarters, we have seen the margins coming down considerably. And with the big players, competitors having their own steel have been able to aggressively push volume 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 ramping up from a demand perspective may take a few quarters but that is definitely going to be 1 of our focus areas.

We would continue to supply the LRPC because it is still adding maybe lower margins to -- 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 patenting facilities, which is part of the LRPC 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 LRPC overall margins but I'm sure that with these initiatives, we should be able to see a better margin from this facility.

[Operator]

The next question is from the line of Ankit Gupta from Bamboo Capital.

[Ankit Gupta, analyst]

My first question was on the volume growth for next year. We -- if we look at on a quarterly basis, our rope -- wire rope volume has [indiscernible] seen 23,000 to 25,000 metric tonnes per quarter for the past 6 quarters. So how do you see the growth in -- volume growth in the Wire Rope segment for FY '25 once the new CapEx comes on stream?

[Rajeev Jhawar, executive]

As I mentioned, the 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 patenting facilities to increase the volume and a new pickling 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 tonnes of extra volume of ropes coming in. We would definitely aim to go even higher. But looking at the demand market and also a 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 tonnes more than what we did this year.

[Ankit Gupta, analyst]

And it will be largely for specialized applications like mining, port cranes, et cetera?

[Rajeev Jhawar, executive]

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.

[Ankit Gupta, analyst]

Sure. Sir, my second question was on the subsidiary performance, so if you look at the performance of this quarter, if we remove standalone performance from consolidated performance, we've seen a considerable dip in the performance of our subsidiaries for this quarter like this performance in terms of revenue and profit tax is lower by -- is lower for the -- is the least in compared to the last 5 quarters. So what has likely to decline in performance of subsidiary?

And one request we had put in last con call also is to give some brief or some financials in the presentation for each of the subsidiary that would be helpful.

[Rajeev Jhawar, executive]

I think the overall performance has considerably improved compared to the previous quarters. In fact, our EBITDA per tonne has been the highest in this quarter compared to the last a 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 tonne extra, which will definitely add to the revenue -- which will add to the revenue, increase the revenue also in the coming quarters. As far as subsidiaries is concerned, I think all the international subsidiaries have performed well, and all of them have had a decent growth.

And I would say that, that is something which would continue to happen, and they worked very closely with the parent company, and we expect them to continuously contribute to the overall profitability of the business.

[Ankit Gupta, analyst]

Okay. Because if -- I was just deducting standalone performance from consolidated performance and if you look at those numbers, that has been showing some decline in revenue as well as profitability. Maybe some transfer pricing might have happened in standalone because standalone performance has improved significantly in this quarter. And consolidated has -- little bit has been some pressure on -- like in terms of revenue growth and all.

[Rajeev Jhawar, executive]

We look at the business on a consolidated basis. We don't look at it standalone separately and the international business separately because this is 1 business entity. And sometimes 1 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 a quarter-on-quarter. So we actually don't track the -- we track the businesses as individual businesses. But when we look at it as an integrated, we look at 1 consolidated balance sheet and not break it up into individual components.

[Ankit Gupta, analyst]

Sure, sir. And sir, 1 last question is on the margin side. We have seen a significant uptick in margins in the quarter with EBITDA margins touching almost 20%. So is it a one-off quarter or do you think the 20% kind of margins we should continue to maintain in FY '25 as well?

[Rajeev Jhawar, executive]

Our endeavor 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'm sure that going forward, we should expect the margins to be -- and we had also even mentioned that we would endeavor to go towards 20% and then gradually push it up. So we are on track. And as I mentioned in my address that we have been able to successfully create 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 get the advantage of higher volumes giving an overall better performance in the subsequent quarter.

[Ankit Gupta, analyst]

Okay. Because normally in earlier calls, you indicated that our margins will remain around 18%, 19%. So at this time, given a performance and you're saying that we can even grow 20%-plus kind of margins going forward.

[Shreya Jhawar, executive]

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

[Ankit Gupta, analyst]

Sure, sir. And last question is on the Saudi Arabian market. So how big is this market? And what kind of volume can we expect from this market over the next year or 2?

[Rajeev Jhawar, executive]

You see, we are currently -- Saudi Arabia is a very growing market based on the -- all the feedback which we get in our survey, which has been done, under the new Crown Prince who is taking major initiatives of new infrastructure and growth in the oil as well as on the ports, the infrastructure and a few large projects have been announced. Currently, we are selling through our Indian operations as well as through our Dubai almost about 1,500 to 1,800 tonnes 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 quarters.

[Operator]

The next question is from the line of Kunal Kothari from Centrum Broking.

[Kunal Kothari, analyst]

Congratulations for good set of numbers. Sir, as you mentioned that there was a dip in the realization on the LRPC segment, while our Wire Rope segment is doing well. Sir, 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 a little bit softer because of the so and so change in dynamics. So what exactly that can help us to understand better the business dynamics of our business?

[Rajeev Jhawar, executive]

See, the prime driver is always going to be the growth in the Wire Rope 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 3 or 4 quarters, the LRPC margins have been subdued, the prices have been subdued and I've said that this is because of the increased volumes by the steel-backed manufacturers. Having said that, going forward, I would say that our profitability would be driven by the viral 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 higher-tensile 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 tonnes in the next financial year once the CapEx, which is completed now. So that is also going to help the value-led volume growth with a continued focus on the specialty Wire Rope business and, of course, with the new initiatives, which we have talked 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 LRPC 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 2 or 3 quarters.

[Kunal Kothari, analyst]

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

[Rajeev Jhawar, executive]

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 Wire Rope 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 -- at a much higher realization. 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 a fall in margins in the LRPC.

Going forward, I would say that if you want to -- if -- to really see that with these margins of LRPC, can we maintain this 20% margins? I will say, yes, it is possible to do it based on the work, which has already been done, and it is reflected in our margins. Going forward, if LRCC 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'm sure that the company would continue to focus on the journey of value addition as well as the increased volumes. And hopefully, we should do even better going forward.

[Kunal Kothari, analyst]

Okay, sir. Sir, last question, as 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?

[Rajeev Jhawar, executive]

We are -- in Phase 1 and Phase 2 together, we are adding 45,000 -- between 45,000 to 50,000 tonnes of capacity increase. Phase 1 will get us to almost about 30,000, 35,000 tonnes 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 tonnes. So altogether, about 50,000 tonnes is going to be added in Phase 1 and Phase 2. This is going to be a combination of wire ropes and wires and some plasticated LRPC also.

[Kunal Kothari, analyst]

Sir, this is -- this entire CapEx is in the value-added products, am I right?

[Rajeev Jhawar, executive]

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

[Kunal Kothari, analyst]

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

[Rajeev Jhawar, executive]

We hope so. Let's see. It has been a journey from 15% to 20% and we would continue to focus in our journey to further build our value-added products and services and more focused on wire ropes. 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.

[Operator]

The next question is from the line of Gunjan Kabra from Niveshaay.

[Gunjan Kabra, analyst]

Congratulations for a good set of numbers. Sir, my first question is, I wanted to understand how is the competitive scenario in the Middle East regions, the Saudi region as well? So the considering a lot of expansions are happening in that region as well and they're trying to gain market share, so what is the kind of competitive scenario with respect to other countries and their local companies as well?

[Rajeev Jhawar, executive]

See, we are -- our Brunton Wire, which is our subsidiary in Dubai, is the only wire rope producer in the GCC, in the entire Gulf region. And that has been there for quite some time. And with our local presence, we have a significant advantage of being local and being able to supply. Even the Saudi Arabian market, which is within the 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.

[Gunjan Kabra, analyst]

Got it. And sir, the margin profile also in the Middle East, is it the same as the U.S. or the Europe market or it's maybe slightly lower or how is it?

[Rajeev Jhawar, executive]

It's pretty much similar in terms of the value-added products like crane ropes, mining ropes and -- crane ropes, elevator ropes, these are fairly similar to what is there in Europe and U.S. And when it comes to GP ropes, it's a competitive market, and we all need to compete and those -- 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.

[Shreya Jhawar, executive]

Yes. And just to add to that, in the Middle East, in terms of the GP ropes, there has been some pressure and more competition coming in with respect to GP ropes. So our strategy has been twofold again over there. One is we've added value-added services there to begin 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 crane ropes, and oil and offshore ropes, which are higher value, that has increased. So if I compare in FY '23, GP ropes was maybe around 48% to 50% of the volumes, which is now 36% for us in these 9 months. And at the same time, the crane and oil and offshore, which was about 47% is now about 60%.

So with those competitive dynamics at play right now and some pressure on GP with this twofold strategy has really helped us do really well in our Middle East subsidiary.

[Gunjan Kabra, analyst]

Okay. Got it. And in the European and the U.S. market, the last quarter also we were discussing that there was a bit slowdown in the European market but the order book of Usha Martin was really strong. So right now also, I guess, the market is a little slow and the metal market in the European region, at least, it's a little slow. So how are we panning out there right now?

[Rajeev Jhawar, executive]

You see, Europe market overall, of course, is in the GP Rope segment is slow. Basically, the general infrastructure growth in the European markets are definitely slow because of the high inflation and lower CapEx spend. But when it comes to the special ropes, particularly for the big projects, what we have been able to successfully build over the last -- through the Brunton Shaw network, be it on the fishing ropes, be it 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 throughout 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 ropes, we should be able to continue to do well in this market.

[Gunjan Kabra, analyst]

Okay. Okay. And in the U.S. also, so we are supplying to the mining sector only or where is the additional demand coming from, which sector?

[Shreya Jhawar, executive]

In the U.S. 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 an increase in the crane, elevator market and also gondola rope market, which again is a high-value product. So in that sense, again, compared to GP ropes, the high-value products have done better for us in the U.S. market. And from the U.S., we also cater to the South America market, right? So in South America as well in the Mining segment, we've done well in Chile, Peru, in the Colombia region as well. Even in the port segment in South America, we've got some traction and a good contract there. 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, slowly, slowly we're building up the market.

I wouldn't say it's big bang -- big orders there, fishing rope again, we get trial orders, we supply it successfully and then hopefully, we'll get repeat orders in that sense. So overall, we would say a pretty positive outlook for the Americas region.

[Gunjan Kabra, analyst]

Got you. And 1 last question. Since this is a brownfield CapEx that you're doing right now, but any onetime expense that we have to incur in Q4 or Q1 for this capacity expansion?

[Rajeev Jhawar, executive]

Anirban, can you answer this question, please?

[Anirban Sanyal, executive]

No, there are no onetime cost on this. So these are all...

[Gunjan Kabra, analyst]

[indiscernible].

[Anirban Sanyal, executive]

No, there are no separate onetime costs. What we put up in the range of the wave 1 CapEx is about INR 300 crores to INR 310 crores and that takes care of the cost that we have estimated.

[Operator]

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

As there's no response, we will move to the next question, which will be from the line of [ Jatin ] from InvestSavvy Portfolio Management.

[Unknown Analyst]

Sir, what I wanted to know was that while you have managed the profitability despite movement in steel prices going lower, if the steel prices trend were to reverse, does that help your business generate more EBITDA?

[Rajeev Jhawar, executive]

No. I think our wire rope business, we have make it -- 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 built a strong product portfolio back with service, 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 steel price increase or decrease, it's the value protection, which we are able to do. So...

[Unknown Analyst]

So price is passed on -- price volatility is passed on to the customer.

[Rajeev Jhawar, executive]

Yes. 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 rope side. When it comes to LRPC and wires, it is a pass-through. When it goes up or goes down, it is generally factored into the monthly prices.

[Unknown Analyst]

Okay. And what is your outlook for profit growth this prices of steel going forward or it's too volatile for you to take a call? Let's say, next 1 year, what is your of sense of how it goes, especially for the LRPC business?

[Rajeev Jhawar, executive]

It's -- for LRPC, it's all pass-through. So whether the volume prices come down, the LRPC within a month except the same price and reverse on the other side. For me to forecast on how the steel prices would move in the next 1 year is difficult. And I would -- we are no more in the steel business for us to comment on the steel prices.

[Unknown Analyst]

No, no, it's okay, if it's pass-through even that is fine. Sir, and in terms of some guidance on where you see your profit, let's say, steady case operating margin percentages is lending because we've seen a concerted effort to move the margin -- operating margins up from around 14%, 15%, 16% to close to 18% to 20% now. Do you see any further growth of this going up in steady state or you think that we've mostly reached there would we want to be the long run?

[Rajeev Jhawar, executive]

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

[Unknown Analyst]

So -- but what would your, say, steady-state target be? While obviously, it will be good to go beyond that aspiration but what would be a target where you'd say that it would start getting not even with all things you would be happy with this kind of stabilizing at those levels?

[Rajeev Jhawar, executive]

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 even in the journey when it was 15%, I was reluctant to commit because the initiatives are there, but it 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'll do. And you should see the track record in which we have been able to build. And I'm sure that our team will continue to further focus to improving it but not need to commit on it at the moment.

[Unknown Analyst]

So let me just -- 1 last question. If I were to ask you, what are the 2 things you are most looking forward to or excited about in your company growing? And what are the 2 things that you would say kind of a concern areas for you going forward? So like 2 things, maybe which keeps you awake at night and 2 things, which you are most excited about?

[Rajeev Jhawar, executive]

Let me tell you on the risk side. I feel the -- we have a large volume of LRPC, and have seen a steady -- 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 1. Point number 2 is the logistics issue. The global logistics challenges because of the Red Sea and the Middle East geopolitics. I think the global -- 2 things are going to get affected. One is the transit time to our destinations, whether it's in Europe and U.S. 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, the Malaysians, anybody is supplying into these markets. Our endeavor would be to push the cost increase to the customers. But it is -- so that is 1 part and that is something, which we had 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, it is going to definitely create a situation where there could be increased working capital needs because of the increased transit times in our business. So that is something still in the near future. So these are the 2 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 GCC country as well as probably 1 of the markets, which everybody is looking at growth in the near future. Secondly, our foray into synthetic slings, a part of our Brunton Shaw manufacturing plant's initiative to get into high value-added synthetic slings, which, of course, we are investing about GBP 4 million to GBP 4.5 million, or say about $5.5 million into this, that is something I'm excited about, and that is something, which is a first foray into synthetics for the company. This has got high-end and it is complementing our wire rope businesses where our services industry works on it, and I feel if this is something, which can really fit into a good revenue and profit models in 2 to 3 years' time.

[Unknown Analyst]

So you are not -- there's no concern on that case, which was mentioned some privy issue as well as some hearing on 20th, which is there, some mention of...

[Rajeev Jhawar, executive]

These are sub judice matters, and I would rather not comment on those at the moment.

[Unknown Analyst]

But those are not...

[Rajeev Jhawar, executive]

But I can tell you, not impacting the performance of the company.

[Operator]

[Operator Instructions] We have the next question from the line of Sonal Minhas from Prescient Cap Investment Advisors.

[Sonal Minhas, analyst]

Sir, this Sonal Minhas. Am I audible?

[Operator]

Yes, you're audible?

[Rajeev Jhawar, executive]

Yes.

[Sonal Minhas, analyst]

My first question is regarding the expansion plan that you've summarized. So 2 parts to it. First one, by when do we expect the phase 1 and Phase 2 roughly broader time lines to be over? That's the first part. And secondly, you mentioned that the cumulative capacity we are adding roughly is between 45,000 to 50,000 tonnes, so is it fair and simplified to assume that if we are selling roughly 190,000-odd tonnes a year, we're adding capacity to build up sales to go up by roughly 25% from here on?

[Rajeev Jhawar, executive]

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. Various 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 tonnes. And our endeavor would be to push these volumes. Since these are all technical product with value-added services, we would start getting the benefits from this from quarter 1 of this year. But it is going to take the ramp up, including the marketing and the repeat orders 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 over the next few quarters.

[Sonal Minhas, analyst]

I understand that. So is it fair to assume that given that it's a value-added product and we're entering to the geographies that, let's say, we achieve the potential and the capacity, we're looking at us maybe utilizing the best of this capacity over the next 36-odd months, roughly, basically, that's where we are, if I'm not wrong?

[Rajeev Jhawar, executive]

We would push it very hard and our international subsidiaries as well as the various initiatives are there. We also need to understand how the various economies because 55% of revenue comes from our international businesses. Whereas, some good [ pitches ] from Saudi Arabia, Middle East, which are growing markets. Europe, in certain sectors doing well, certain sectors are still slow, Americas, 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, 2 to 3 -- in the next 2 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 journey 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 lowest end of the market and get capacity. We would gradually push it up and make sure that the top line and the bottom line steadily grows with us.

[Sonal Minhas, analyst]

I appreciate that, sir. Coming to that point itself, any demand outlook triggers -- like what you mentioned about the Middle East, any demand outlook trigger, which you talk about, let's say, India and America, by and large, assuming there is an infrastructure push in America, there is some similar push in India. If you could just highlight a little bit about what's real, what's not, what is falling in your -- around your area of expertise, that will be helpful to understand these markets? Because sitting here in India, we're really opaque to these, how much of that fall into, there are limit [indiscernible]?

[Rajeev Jhawar, executive]

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 Parvatmala project, which the government has announced, which is going to have big growth rates 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 is -- the high-speed railway projects, where there would be good demand of plasticated and galvanized LRPC. So I'm sure that, that side of the market should do well. And overall growth of India, if it does at the current level, even our share in the -- keeping our share of 67% would continue to -- we would continue to grow at the same pace in India. It wouldn't be possible to increase the market share.

Having said that, Europe, U.S., our market share, particularly in the U.S., is very low. We are at only 2% to 3% market share. And with the growth opportunities in the U.S. and the various teams, which we have augmented there, I feel the volume growth will come from Europe, U.S., 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.

[Operator]

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

[Rajeev Jhawar, executive]

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 free -- 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.

[Operator]

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