Bharat Wire Ropes Ltd Q4 FY2023 Concall Summary

Key Takeaways

• First-ever call, margin-heavy story: Q4 EBITDA margin hit 28.16%, and management is confident this level is sustainable, driven by product mix, operating leverage, and collapsing energy costs.
• Volume growth is the multi-year engine: FY23 volumes grew 13% YoY to ~39,000 tons, and management targets a 15–20% volume CAGR over the next 2–3 years to fill the 72,000-ton installed capacity, requiring only negligible balancing CAPEX.
• Realization jumped 30% on mix and steel: ASP improvement was sharp, driven by steel price pass-through and a deliberate shift into higher-value products, which rose from 5–6% to 8–10% of revenue.
• Energy cost tailwind is material: LNG prices collapsed from ₹140/kg to ₹70/kg, and a new outsourced solar PPA at ₹4.40/unit is expected to save 30–40% on power costs from FY24, potentially adding ~3–3.5% to EBITDA margin.
• What to watch next quarter: Whether the 15–20% volume growth trajectory materializes in H1 FY24, the pace of value-added product mix expansion toward the 20% target, and any update on the CCPS resolution plan.

Margin Structure & Sustainability

• EBITDA per ton doubled: EBITDA per ton rose from ₹18,000 in FY22 to ₹36,000 in FY23, driven by a 13% volume increase, a 30% realization improvement, and a 5–10% contribution from newly inducted value-added products.
• Gross margin expanded sharply: Gross margin jumped from 37% to 44% on three factors: improved product mix with value-added products, increased productivity from higher production, and entry into newer geographies like the US that improved sales realization.
• Raw material cost advantage: The company buys raw material with immediate cash payment, securing a substantial discount on purchase price compared to earlier years, a structural cost edge that supports margin resilience.
• Energy cost collapse: Energy cost spiked to ₹51.12 crore in FY23 from ₹39 crore in FY22 due to the Russia-Ukraine war driving LNG to ₹140/kg, but LNG has since fallen to ~₹70/kg, and FY24 energy cost is expected around ₹25 crore.
• Solar power adds structural savings: A 5.5 MW solar plant is already operational, with an additional 3.5 MW under installation to be completed within 2 months; the entire solar arrangement is outsourced via PPAs at ₹4.40–₹4.60 per unit with zero CAPEX, though a ₹1.20/unit government tariff increase from April 2023 partially offsets the benefit.
• Operating leverage mechanics: Management argues that incremental volume carries high marginal realization because costs other than raw material and a small portion of power remain largely unchanged, making margin expansion a function of volume growth.

M.L. Mittal: "It is possible to sustain in the coming years also it is possible that is why we are committing that yes we are able to get this margin in future also."

Volume Growth & Capacity Utilization

• Installed capacity is 72,000 tons, but 100% is unachievable: The rope industry cannot hit full rated capacity due to balance equipment gaps, process timing, and loading/unloading constraints; management compares it to a car rated for 240 km/h that cannot achieve that speed immediately.
• FY23 utilization was 60–62%: The company produced ~39,000 tons against the 72,000-ton installed base, and targets reaching the rated capacity in 2–3 years through 15–20% annual volume growth.
• Maximum achievable utilization is 80–85% with current SKU mix: Mayank Mittal estimates a ceiling around 80–85% utilization given the current product portfolio, but adding balancing equipment can increase this number, and the company is targeting 90–95% within 3 years.
• CAPEX required is negligible: Only ~1–2% of gross block (~₹10 crore per year) for 2–3 years is needed for balancing equipment wherever shortfalls exist; no major CAPEX plan is required to reach rated capacity.
• Brownfield space available: Additional land is available at the Chalisgaon site for future expansion beyond the current installed capacity.

M.L. Mittal: "This is installed capacity and the rope industries 100% of the installed capacity cannot be achieved. There are lot of if and buts are there for balance equipment, for the process, loading, unloading in time lot of things happens."

Product Mix & Realization

• ASP improved ~27–28% per an analyst's math: Realization gains came from steel price increases, productivity improvements, and a deliberate shift toward more sophisticated products where the company competes with global giants.
• Value-added product contribution rose from 5–6% to 8–10%: High-margin products were successfully inducted into the market in FY23, and the target is to add a couple of new value-added products every quarter to fill portfolio gaps versus global majors.
• FY24 value-added mix target is ~20% of revenue: This projection is subject to customer trials and feedback, so the pace of adoption remains a key variable.
• US market entry boosted realization: The US market was captured in the last 12–15 months; previously the company served only Europe and other countries, and certain products launched successfully in the US delivered higher returns.
• Elevator rope entry barriers are high: Elevator manufacturers have stringent, multi-year approval processes with testing done abroad, creating a moat that the company is working to cross.
• Realization ceiling acknowledged: Management pushed back on a ₹50,000/ton ASP expectation as too high, noting that 10–15% higher realization is a bonus given transparent global steel pricing.

Mayank Mittal: "We have almost the same machines that German manufacturer can have and Input quality of rods is again at world stage. So, the kind of value proposition that we can give in is again one of the best in the world."

Export Model & Competitive Positioning

• 85% of revenue is exports, executed entirely through overseas distributors: The company invoices in INR on the date of dispatch, carrying zero FOREX exposure; distributors handle all currency coordination.
• Export markets offer better realization and payment security: Management explicitly prioritizes exports over domestic sales for these reasons, and sees a big opportunity as an Indian manufacturer with competitive production costs, German-equivalent machines, and world-stage input rod quality.
• Market share is being taken from Koreans and Europeans: Growth is expected to come from displacing international players, rising replacement market demand, India's infrastructure boom, and capacity shifts out of Europe where high energy costs are forcing shutdowns.
• Bridon Group relationship: A MoU signed 4 years back now contributes around 5–6% of revenues, representing an anchor customer in the export portfolio.
• No plans for own distribution overseas: The company currently has no plans to set up its own distribution in Europe or other countries and will inform stakeholders if that changes.

M.L. Mittal: "We can say regarding wire rope we are in better position globally because there are very few industries globally which can produce good quality ropes at right price and this is replacement market... if the global there is a problem with energy cost or other cost is going higher. Europe and other things are salary, wage is going higher we are at a very competitive position."

Subsidy & Tax

• PSI scheme subsidy is part of revenue from operations: ₹38 crores was accounted in March 2023 pertaining to FY19-20 and FY20-21, and the scheme has been extended by 2 years due to COVID, now valid until October 2025.
• Subsidy contributed ~20% of FY23 EBITDA: Out of ₹140 crore EBITDA, subsidy was only ₹30–35 crore, not the dominant driver of profitability.
• Receipt lag is 15–18 months: Subsidy is accounted on an accrual basis but cash receipt from the Government of Maharashtra takes 15–18 months from filing; ~75% of claims up to March 2022 have been received, with the balance 25% expected in the next 3 months.
• FY24 subsidy expected around ₹40 crore plus: Management says it is too early for a complete breakup and will have better visibility after 2–3 quarters.
• Post-subsidy confidence: Management is confident the company will perform well without subsidy after October 2025 due to increased turnover volume and improving sales realization, which is expected to increase more than 15–20% by FY26.
• Deferred tax provision drove Q4 net profit decline: An additional ₹8.4 crore deferred tax provision was taken in Q4, causing a 16% QoQ net profit drop despite revenue growth; ₹285 crore of income tax losses remain, and the company expects to become taxpaying in ~2 years.

Balance Sheet & Capital Allocation

• Promoter infused ₹42 crore to repay ICD: The infusion reduced debt by ₹42 crore, and management has committed that total debt shall not exceed approximately one year's EBITDA going forward.
• CCPS resolution is being worked on: Management is closely monitoring and working to address the CCPS conversion issue much earlier without affecting existing shareholders' interest, and will revert to investors once plans are finalized; the company holds a call option to buy out the instrument at a 9% deep discount anytime after April 1, 2023.
• Cash deployment discipline: Any cash spent is expected to generate 20–30% returns, and new product developments will be targeted at ROC of at least 25–30%, with business plans to be shared in the next 2 quarters and implementation over the next 2 years.
• Working capital is comfortable at ~3 months: Receivables are ~45 days, payables ~10 days (steel and zinc are cash purchases, other materials get 30–35 days credit), and inventory is ~2 months; scope for optimization is limited to ±5–10 days.

M.L. Mittal: "I have forgotten the past which I was in ICU which doctors which medicines I use I do not want to remember, but very clear that now we have very healthy balance sheet. We are healthy working and that will continue I can assure you my all the investor community that this will be a healthy balance sheet healthy company."

Guidance & Commitments

Key Metrics