Usha Martin, a leading manufacturer of specialty steel wire ropes, has witnessed a remarkable upward trend in its shares over the past year. From trading at ₹107.70 apiece a year ago, the stock has surged by an astounding 153% to reach the current level of ₹275.65 per share.
Investors who held the stock for the long term saw significant gains, as it generated a return of almost 1271% over the past three years, rallying from ₹20.10 apiece to the current position. During this period, an investment of ₹one lakh would have turned into over ₹13.6 lakh currently.
In addition, the stock has demonstrated a consistent track record of delivering positive annual returns over the past four years. In CY20, CY21, and CY22, it yielded a return of 36%, 144%, and 91%, respectively.
The trend continued with a remarkable rally of 60.39% in the current year so far, showcasing the stock's impressive performance over time.
Usha Martin (UML) is primarily engaged in the manufacture and sale of steel wires, strands, wire ropes, cords, and related accessories. The company is the market leader in the Indian wire and wire rope space and is among the top five leading manufacturers globally.
It caters to various non-correlated end-user industries, including elevators, mining, container port cranes, fishing, and construction, among others, with a considerable market share in each industry.
In the late 2000s, UML faced challenges when it invested unfavourably in the steel business and subsequently fell into a debt trap during the downcycle of 2015–17, resulting in a significant erosion of net worth.
To overcome this, in 2019, the company divested its steel business to Tata Sponge, reducing its debt substantially and shifting its focus entirely to the profitable steel wire rope business, as stated by brokerage firm B&K Securities.
UML is now focusing on higher-value speciality grade wire to increase its margin in the near term. The wire rope segment's contribution to overall revenues has increased to 67% in FY23 from 61% in FY22, and within wire rope, the share of value-added segments such as crane, oil & offshore, elevator, mining, and fishing has risen to 65% in FY23 from 59% in FY22, said the brokerage.
The company has just a 3% market share in the international market, which is extremely fragmented, with the top 5 players accounting for just 19% of the market share. With more focus on international business through strategic tie-ups, hiring of key personnel, and focusing on cost advantages from India, the brokerage expects the company to expand its market share slowly.
According to the brokerage, the company is likely to benefit from export opportunities in this fragmented market, improving its overall business outlook. It projected that the company will achieve a topline growth with a CAGR of 15% (FY23–26) and EBITDA margins of approximately 18%.
Return on capital employed (RoCE) is expected to improve from 20% in FY23 to 23.1%, supported by significant capital investments that have already been made, it added.
With the company’s steady business now showing gradual improvement, valuations have been improving on the stock. Despite the recent sharp increase in the stock price, the brokerage believes the stock still has upside potential due to management focus, industry outlook, low gearing, and ongoing improvement in ratios and margins, and the market is likely to focus on UML's long-term potential within the industry context.
Therefore, the brokerage initiated coverage on the stock with a ‘buy’ rating and a target price of ₹336 apiece, based on a P/E of 20x on FY25E EPS. This target price indicates an all-time high for the stock and implies a 22.18% upside from its current trading price.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
