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USHA MARTIN: BUY, TP-Rs82 (41% upside)
What’s the theme?
We expect Usha Martin to benefit from 32% volume CAGR over FY10-FY12E and improved cost structure
with completion of capacity expansion of metallics by 0.4mtpa and steel by 0.6mtpa and full integration
from mineral resources to value-added products. Though there are concerns over execution of volumes
mainly due to one-time events (breakdown of a 30MW CPP, inadequate power from the grid and captive
coal logistics issues) in Q3FY11, we believe that these are factored-in the price. At CMP of Rs58 we find
the risk-reward favorable. On a consolidated level we estimate 29% EBITDA CAGR and 26% EPS CAGR
over FY10-FY12.
What will move the stock?
1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mntpa blast
furnace (aided by feed from 0.8mntpa sinter plant) and 0.6mntpa SMS respectively; 2) Better performance
of international subsidiaries; and 3) Increased output from captive iron ore and coal mines post monsoon
Where are we stacked versus consensus?
Our earnings estimates are almost in line with the consensus estimates.
What will challenge our target price?
1) Delay in stabilization of recently-commissioned projects impacting volumes and margin expansion; 2)
Weak recovery in Europe, which contributes >10% to consolidated revenue; 3) Impact on mining operation
either due to regulatory changes or naxalite activities; and 4) Severe decline in steel profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
USHA MARTIN: BUY, TP-Rs82 (41% upside)
What’s the theme?
We expect Usha Martin to benefit from 32% volume CAGR over FY10-FY12E and improved cost structure
with completion of capacity expansion of metallics by 0.4mtpa and steel by 0.6mtpa and full integration
from mineral resources to value-added products. Though there are concerns over execution of volumes
mainly due to one-time events (breakdown of a 30MW CPP, inadequate power from the grid and captive
coal logistics issues) in Q3FY11, we believe that these are factored-in the price. At CMP of Rs58 we find
the risk-reward favorable. On a consolidated level we estimate 29% EBITDA CAGR and 26% EPS CAGR
over FY10-FY12.
What will move the stock?
1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mntpa blast
furnace (aided by feed from 0.8mntpa sinter plant) and 0.6mntpa SMS respectively; 2) Better performance
of international subsidiaries; and 3) Increased output from captive iron ore and coal mines post monsoon
Where are we stacked versus consensus?
Our earnings estimates are almost in line with the consensus estimates.
What will challenge our target price?
1) Delay in stabilization of recently-commissioned projects impacting volumes and margin expansion; 2)
Weak recovery in Europe, which contributes >10% to consolidated revenue; 3) Impact on mining operation
either due to regulatory changes or naxalite activities; and 4) Severe decline in steel profitability.
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