The quarter's standout achievement was the significant improvement in operating margins, with PBDIT margin (excluding other income) expanding to 19.06% from 16.30% in Q1 FY26, marking the highest quarterly margin in recent periods. However, the stock has faced headwinds, declining 2.07% to ₹406.75 in the latest trading session, reflecting broader market concerns about valuation and near-term growth momentum.
The September quarter results underscore Usha Martin's ability to extract operational efficiencies from its six global manufacturing facilities spanning Ranchi, Hoshiarpur, Silvassa, Dubai, Bangkok, and the United Kingdom. With the company maintaining its position as a global leader in wire rope manufacturing, the margin expansion signals effective cost management and favourable product mix optimisation during a period of subdued volume growth.
Financial Performance: Profitability Outpaces Revenue Growth
Usha Martin's Q2 FY26 financial performance revealed a tale of margin expansion compensating for modest topline growth. Net sales in Q2 FY26 reached ₹907.56 crores, representing a sequential increase of 2.30% from Q1 FY26's ₹887.19 crores. On a year-on-year basis, revenue growth remained muted at 1.84%, reflecting challenging market conditions in the steel products segment globally.
The standout achievement was the dramatic improvement in profitability metrics. Operating profit (PBDIT excluding other income) surged to ₹173.00 crores in Q2 FY26, up from ₹144.61 crores in the previous quarter, translating to an impressive operating margin of 19.06% compared to 16.30% in Q1 FY26. This 276 basis points sequential expansion in operating margin demonstrates the company's pricing power and operational efficiency gains.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Net Sales | ₹907.56 Cr | ₹887.19 Cr | ₹891.17 Cr | +2.30% | +1.84% |
| Operating Profit (Excl OI) | ₹173.00 Cr | ₹144.61 Cr | ₹160.77 Cr | +19.64% | +7.60% |
| Operating Margin % | 19.06% | 16.30% | 18.04% | +276 bps | +102 bps |
| PAT Margin % | 14.06% | 11.36% | 12.27% | +270 bps | +179 bps |
| Consolidated Net Profit | ₹109.71 Cr | ₹100.93 Cr | ₹109.72 Cr | +8.70% | -0.01% |
Employee costs showed discipline, declining to ₹111.10 crores in Q2 FY26 from ₹113.20 crores in Q1 FY26, contributing to the margin expansion. Interest costs also declined sequentially to ₹5.09 crores from ₹6.25 crores, reflecting the company's improving debt profile. Other income surged to ₹22.66 crores in Q2 FY26 from ₹15.46 crores in Q1 FY26, providing additional support to the bottom line.
The consolidated net profit of ₹109.71 crores in Q2 FY26 represented an 8.70% sequential improvement, though year-on-year growth was negligible at -0.01%. The tax rate remained stable at 23.96% in Q2 FY26, slightly higher than the 22.23% in Q1 FY26 but within the company's historical range.
Margin Expansion Highlight
Operating margin (excluding other income) reached a multi-quarter high of 19.06% in Q2 FY26, up from 16.30% in Q1 FY26 and 18.04% in Q2 FY25. This 276 basis points sequential improvement reflects effective cost management, favourable product mix, and operational leverage despite modest revenue growth. PAT margin similarly expanded to 14.06%, the highest quarterly margin recorded in recent periods.
Operational Excellence: Capital Efficiency Drives Returns
Usha Martin's operational metrics reveal a company that has successfully enhanced capital efficiency over the past five years. The company's return on equity (ROE) averaged 16.59% over recent periods, with the latest ROE at 14.09%, demonstrating strong profitability relative to shareholder capital. This robust ROE positions Usha Martin favourably among its steel sector peers, reflecting management's ability to generate attractive returns on invested capital.
Return on capital employed (ROCE) averaged 17.49% over the assessment period, with the latest ROCE at 16.69%, indicating efficient utilisation of the company's total capital base. The EBIT to interest coverage ratio averaged an impressive 14.63 times, providing substantial cushion for debt servicing and highlighting the company's financial stability.
The balance sheet strength is particularly noteworthy, with Usha Martin maintaining a net cash position. The average net debt to equity ratio stood at -0.01, classifying the company as essentially debt-free on a net basis. The debt to EBITDA ratio averaged just 0.92 times, well below concerning levels and providing significant financial flexibility for growth investments or shareholder returns.
| Balance Sheet Metric | Mar'25 | Mar'24 | Mar'23 | Trend |
|---|---|---|---|---|
| Shareholder Funds | ₹2,751.88 Cr | ₹2,379.67 Cr | ₹2,030.76 Cr | Growing ✓ |
| Long-Term Debt | ₹145.40 Cr | ₹200.18 Cr | ₹197.29 Cr | Declining ✓ |
| Cash & Equivalents | ₹260.00 Cr | ₹149.00 Cr | ₹150.00 Cr | Increasing ✓ |
| Fixed Assets | ₹1,327.78 Cr | ₹1,086.49 Cr | ₹884.25 Cr | Expanding ✓ |
| Book Value per Share | ₹90.17 | — | — | — |
Cash flow generation remained robust, with operating cash flow for FY25 reaching ₹421.00 crores, demonstrating the company's ability to convert profits into cash. The company invested ₹219.00 crores in capital expenditure during FY25, expanding its fixed asset base from ₹1,086.49 crores in FY24 to ₹1,327.78 crores in FY25, positioning for future growth.
Monitoring Point: YoY Growth Deceleration
Year-on-year growth metrics warrant attention. Net sales growth of 1.84% YoY in Q2 FY26 represents a significant deceleration from the company's historical growth trajectory. Consolidated net profit showed virtually flat YoY growth at -0.01%, despite strong sequential performance. Investors should monitor whether this represents temporary headwinds or signals structural challenges in the wire rope and speciality steel markets.
Industry Context: Navigating Steel Sector Headwinds
Usha Martin operates in the iron and steel products sector, which has faced mixed conditions over the past year. The company's 1-year stock return of 19.93% has underperformed the broader Iron & Steel Products sector return of 25.57%, resulting in a relative underperformance of 5.64 percentage points. This underperformance reflects investor concerns about valuation multiples and near-term growth visibility.
However, taking a longer-term perspective reveals Usha Martin's exceptional value creation. The stock has delivered a staggering 1,267.23% return over five years, dramatically outperforming the Sensex's 78.38% return by 1,188.85 percentage points. The 10-year return of 4,602.31% versus the Sensex's 231.98% underscores the transformational journey the company has undertaken over the past decade.
The company's 5-year sales CAGR of 12.78% and EBIT CAGR of 25.61% demonstrate sustained operational improvement. This growth trajectory, combined with margin expansion and balance sheet strengthening, positions Usha Martin as a quality player in the speciality steel segment, though near-term growth rates have moderated.
Competitive Positioning
Usha Martin's global footprint with manufacturing facilities across India, UAE, Thailand, and the UK provides geographic diversification and proximity to key markets. As one of the world's largest wire rope manufacturers, the company benefits from specialisation and scale advantages. The focus on speciality steel products and value-added wire ropes provides better margin profiles compared to commodity steel producers, though this also exposes the company to project cycles and capital expenditure trends in end-user industries.
Peer Comparison: Premium Valuation Versus Sector
Usha Martin's valuation metrics reveal a premium positioning relative to its iron and steel products peers, reflecting its speciality product focus and historical growth trajectory. The company trades at a P/E ratio of 29.67x, higher than peers such as Welspun Corp (11.06x), Shyam Metalics (25.07x), and Godawari Power (23.31x), though in line with Ratnamani Metals (23.67x) and Gallantt Ispat (25.35x).
| Company | P/E (TTM) | P/BV | ROE % | Div Yield % | Debt/Equity |
|---|---|---|---|---|---|
| Usha Martin | 29.67 | 4.18 | 16.59% | 0.74% | -0.01 |
| Shyam Metalics | 25.07 | 2.21 | 15.72% | 0.71% | 0.02 |
| Welspun Corp | 11.06 | 2.39 | 15.24% | 0.67% | 0.02 |
| Godawari Power | 23.31 | 3.31 | 27.09% | 0.39% | -0.09 |
| Ratnamani Metals | 23.67 | 3.71 | 16.88% | 0.68% | -0.12 |
| Gallantt Ispat | 25.35 | 4.02 | 11.56% | 0.23% | 0.12 |
The price-to-book value ratio of 4.18x stands at the higher end of the peer group, with only Gallantt Ispat (4.02x) trading at a comparable multiple. This premium valuation reflects Usha Martin's ROE of 16.59%, which exceeds most peers except Godawari Power's exceptional 27.09%. The company's net cash position (debt to equity of -0.01) provides a financial strength advantage over peers.
Usha Martin's dividend yield of 0.74% ranks among the highest in the peer group, with the company paying ₹3 per share as its latest dividend. The dividend payout ratio of 19.81% suggests scope for potential increases whilst maintaining adequate capital for growth investments. With a market capitalisation of ₹12,726 crores, Usha Martin ranks fifth among the peer group in terms of size.
Valuation Analysis: Premium Multiples Reflect Quality But Limit Upside
Usha Martin's current valuation metrics position the stock at the expensive end of its historical range and relative to peers. Trading at a P/E ratio of 30x and an EV/EBITDA multiple of 20.62x, the stock reflects market recognition of the company's quality fundamentals, strong balance sheet, and speciality product positioning. However, these premium multiples leave limited room for multiple expansion.
The company's valuation grade has fluctuated between "Expensive" and "Very Expensive" over recent months, currently classified as "Expensive" as of the latest assessment. The price-to-book value of 4.18x represents a significant premium to book value, justified by the ROE of 16.59% but limiting margin of safety for new investors.
| Valuation Metric | Current Value | Assessment |
|---|---|---|
| P/E Ratio (TTM) | 30.00x | Premium to sector average |
| Price to Book Value | 4.18x | High premium to book |
| EV/EBITDA | 20.62x | Elevated multiple |
| EV/Sales | 3.48x | Premium valuation |
| Dividend Yield | 0.74% | Modest yield |
The stock currently trades at ₹406.75, down 18.24% from its 52-week high of ₹497.50 but up 45.89% from its 52-week low of ₹278.80. This positioning suggests the stock has corrected from peak valuations but remains above long-term averages. The recent price decline of 2.07% in the latest session reflects profit-booking after the strong multi-year run.
From a technical perspective, the stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day), with only the 200-day moving average at ₹389.04 providing support below current levels. This technical setup suggests near-term consolidation, though the stock's high beta of 1.35 indicates continued volatility potential.
Shareholding Pattern: Institutional Confidence Building
The shareholding pattern reveals a gradual shift in Usha Martin's investor base, with declining promoter holding offset by increasing institutional participation. Promoter holding declined to 40.52% in Dec'25 from 43.48% in Dec'24, with the most recent quarter showing a 1.24 percentage point sequential decline. This reduction reflects strategic stake sales rather than distress, given the company's strong financial position.
| Investor Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 40.52% | 41.76% | 42.45% | 43.89% | -1.24% |
| FII | 14.62% | 14.14% | 14.29% | 14.25% | +0.48% |
| Mutual Funds | 12.17% | 10.90% | 10.44% | 8.36% | +1.27% |
| Insurance | 0.09% | 0.03% | 0.03% | 0.04% | +0.06% |
| Other DII | 1.85% | 1.36% | 0.59% | 0.85% | +0.49% |
| Non-Institutional | 30.75% | 31.81% | 32.20% | 32.59% | -1.06% |
The most encouraging trend is the consistent increase in mutual fund holdings, which rose to 12.17% in Dec'25 from 7.32% in Dec'24, with a significant 1.27 percentage point increase in the latest quarter alone. This growing institutional interest from 24 mutual funds signals professional investor confidence in the company's fundamentals and growth prospects.
FII holdings increased marginally to 14.62% from 14.14% in the previous quarter, with 123 foreign institutional investors holding stakes. Other DII holdings surged to 1.85% from 1.36%, indicating broader domestic institutional interest. Total institutional holdings now stand at 28.74%, providing a stable investor base and reducing stock volatility from retail trading.
Importantly, the company maintains zero promoter pledging, a positive signal of financial health and promoter confidence. The promoter group is led by Umil Share & Stock Broking Services Ltd (13.48%), Kenwyn Overseas Limited (8.06%), and Usha Martin Ventures Limited (6.21%), amongst others.
Stock Performance: Near-Term Pressure Amidst Long-Term Outperformance
Usha Martin's stock performance presents a study in contrasts between exceptional long-term returns and recent near-term pressure. The stock has delivered a remarkable 1-year return of 19.93%, outperforming the Sensex's 7.88% by a healthy 12.05 percentage points. However, this performance lags the Iron & Steel Products sector return of 25.57%, resulting in sector underperformance of 5.64 percentage points.
| Period | Stock Return | Sensex Return | Alpha | Assessment |
|---|---|---|---|---|
| 1 Week | -3.21% | +0.31% | -3.52% | Underperforming |
| 1 Month | -9.77% | -2.51% | -7.26% | Weak |
| 3 Months | -12.10% | -2.86% | -9.24% | Correcting |
| 6 Months | +7.19% | +1.51% | +5.68% | Outperforming |
| 1 Year | +19.93% | +7.88% | +12.05% | Strong Alpha |
| 3 Years | +125.66% | +39.16% | +86.50% | Exceptional |
| 5 Years | +1,267.23% | +78.38% | +1,188.85% | Outstanding |
The near-term picture shows significant correction, with the stock down 3.21% over one week, 9.77% over one month, and 12.10% over three months, all underperforming the Sensex during these periods. Year-to-date, the stock has declined 10.52% compared to the Sensex's 3.11% fall, indicating heightened selling pressure.
However, extending the time horizon reveals the stock's true wealth creation potential. The 3-year return of 125.66% (alpha of 86.50%), 5-year return of 1,267.23% (alpha of 1,188.85%), and 10-year return of 4,602.31% (alpha of 4,370.33%) demonstrate extraordinary long-term performance. This positions Usha Martin amongst the top wealth creators in the Indian steel sector over the past decade.
The stock's risk-adjusted return of 0.57 for the 1-year period, compared to the Sensex's 0.70, reflects higher volatility (35.23%) relative to the market (11.23%). With a beta of 1.35, Usha Martin is classified as a high beta stock, amplifying both upside and downside moves relative to the broader market.
"Usha Martin's transformation from a troubled steel company to a speciality wire rope leader has created exceptional long-term value, though near-term valuation concerns and growth deceleration warrant a cautious stance for fresh investments."
Investment Thesis: Quality Business At Premium Valuation
Usha Martin's investment case rests on four key pillars that together paint a picture of a quality business trading at premium valuations with mixed near-term momentum. The company's overall Mojo score of 67/100 places it in the "HOLD" category, reflecting this balanced assessment.
Quality Grade: GOOD. The company has earned a "Good" quality rating based on its strong long-term financial performance. Key quality indicators include a 5-year sales CAGR of 12.78%, EBIT CAGR of 25.61%, average ROE of 16.59%, average ROCE of 17.49%, and a net cash position with debt to EBITDA of just 0.92x. Zero promoter pledging and institutional holdings of 28.74% further validate the quality assessment.
Financial Trend: POSITIVE. The short-term financial trend turned positive in Sep'25, supported by highest-ever quarterly net sales, operating profit, PAT margins, and operating cash flows. The company achieved record operating margins of 19.06% and PAT of ₹123.24 crores in Q2 FY26, demonstrating operational momentum despite modest revenue growth.
Valuation: EXPENSIVE. This represents the primary constraint on the investment case. Trading at a P/E of 30x, P/BV of 4.18x, and EV/EBITDA of 20.62x, the stock reflects substantial premium to historical averages and most peers. The valuation grade has oscillated between "Expensive" and "Very Expensive" in recent months, limiting upside potential from multiple expansion.
Technical Trend: MILDLY BULLISH. Despite recent corrections, the technical setup shows mildly bullish characteristics, though the stock trades below all major moving averages in the near term. The 200-day moving average at ₹389.04 provides support, whilst the 52-week range of ₹278.80 to ₹497.50 frames the trading boundaries.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Margin Leadership: Operating margin of 19.06% in Q2 FY26 highest in recent quarters, demonstrating pricing power and operational efficiency
- Capital Efficiency: Average ROE of 16.59% and ROCE of 17.49% reflect strong returns on invested capital
- Balance Sheet Strength: Net cash position with debt to EBITDA of 0.92x provides financial flexibility
- Zero Pledging: No promoter pledging signals financial health and confidence
- Institutional Confidence: Rising mutual fund holdings (12.17%) and total institutional ownership of 28.74%
- Cash Generation: Operating cash flow of ₹421 crores in FY25 demonstrates strong cash conversion
- Global Presence: Six manufacturing facilities across India, UAE, Thailand, and UK provide geographic diversification
⚠️ KEY CONCERNS
- Growth Deceleration: YoY revenue growth of 1.84% and flat profit growth signal slowing momentum
- Premium Valuation: P/E of 30x and P/BV of 4.18x leave limited room for multiple expansion
- Recent Underperformance: Stock down 12.10% over 3 months, underperforming sector and market
- Sector Headwinds: 1-year return of 19.93% lags sector return of 25.57%
- High Volatility: Beta of 1.35 and volatility of 35.23% indicate significant price swings
- Declining Promoter Stake: Promoter holding reduced to 40.52% from 43.48% over past year
- Cyclical Exposure: Wire rope demand tied to capital expenditure cycles in infrastructure and mining
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Margin Sustainability: Ability to maintain 19%+ operating margins would drive earnings growth
- Volume Recovery: Uptick in infrastructure and mining activity could boost wire rope demand
- Institutional Buying: Continued mutual fund accumulation (up 1.27% QoQ) provides support
- Speciality Product Mix: Shift towards higher-margin speciality products enhances profitability
- Capacity Utilisation: Improved utilisation of expanded fixed asset base (₹1,327 crores)
RED FLAGS TO MONITOR
- Sustained Growth Slowdown: Continuation of sub-5% revenue growth would pressure valuations
- Margin Compression: Reversal of Q2 margin gains due to raw material or competitive pressures
- Promoter Stake Dilution: Further significant reductions in promoter holding beyond 40%
- Valuation Correction: P/E compression towards sector average of 22-25x would impact stock price
- Working Capital Deterioration: Negative cash flow from operations or rising receivables
The outlook for Usha Martin hinges on the company's ability to sustain the margin improvements demonstrated in Q2 FY26 whilst reigniting revenue growth. The infrastructure push in India and global mining activity recovery could provide demand tailwinds for wire ropes. However, the premium valuation leaves little room for disappointment, making execution critical.
Investors should monitor quarterly revenue growth trends, operating margin sustainability above 18%, and institutional shareholding patterns. The company's capital allocation decisions, particularly regarding dividend increases or strategic acquisitions, will also influence the investment case. With the stock trading below all major moving averages, a technical bounce could provide better entry opportunities for those taking a long-term view.
The Verdict: Quality Business Warranting Patience
Score: 67/100
For Fresh Investors: Not recommended for fresh purchases at current valuations. The premium P/E of 30x and P/BV of 4.18x, combined with decelerating YoY growth (1.84% revenue, flat profit), offer limited margin of safety. Await either a meaningful valuation correction (target entry P/E below 25x) or sustained acceleration in revenue growth above 10% YoY before initiating positions. The stock's 12.10% correction over three months may extend further given expensive valuations.
For Existing Holders: Continue to hold given the company's strong fundamentals, improving margins (19.06% in Q2 FY26), robust balance sheet (net cash position), and quality rating. The 8.70% QoQ profit growth and positive financial trend justify retention. However, consider partial profit booking if the stock rallies back towards ₹450-470 levels, as valuations would become stretched. Use any further weakness below ₹380 to add to positions for long-term wealth creation, given the company's demonstrated ability to generate multi-bagger returns over 5-10 year periods.
Fair Value Estimate: ₹380-400 based on sustainable P/E of 25-26x on FY26 estimated earnings, representing limited upside of 0-2% from current levels of ₹406.75. The stock appears fairly valued to slightly expensive at current prices, warranting a patient approach.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Stock investments carry inherent risks, including the potential loss of principal.
