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USHA MARTIN LTD: Promising Q4FY11; Can it revive confidence?
We interacted with the management of Usha Martin to get an
update on company’s operations. Following are the key
takeaways from our interaction:
Operations normalised: The company has resumed operation of
the 30MW CPP (90% PLF) impacted by blade failure in Q3. Further,
transportation of captive coal from Kathuria mine has been resumed
to normal level of 40kt/mth, although freight cost has increased by
Rs350/t, raising the landed cost of captive coal to Rs1,850/t. The
company is confident of increasing DRI and billet output for Q4 to
~70kt (52kt in Q3) & 150kt (113kt in Q3) respectively.
RM inventory: The company has >2.0mn tonnes of iron ore fines
inventory, which would be used in captive sinter (already operational)
and pellet plant (expected FY13). Further, the company has procured
enough coking coal @ USD225/t to meet requirement for Q4 as well
as built ~0.1mnt inventory to be used in Q1FY12.
Commissioning of 20MW CPP has been delayed by one quarter
and now expected to be commissioned in Q1FY12.
Financial leverage: USM has gross debt of Rs22bn with D/E of
1.24 as of Dec’10.
VALUATIONS AND RECOMMENDATION
Despite full integration from captive resources to value-added
products, continual result disappointments by Usha Martin on various
one-off impacts have dented investors’ confidence in the stock,
leading to stock under-performance. However, we believe that
sequential improvement in Q4FY11 performance, on volume growth
and margin expansion, could revive some confidence in the stock.
Further, coking coal inventory of ~0.1mnt would help the company
in keeping coal cost under check in Q1FY12, for which contract
prices have increased 46% QoQ to USD330/tonne.
On our revised estimates (to factor in higher coal cost and steel
prices), the stock is attractively valued at 3.3x FY12E EV/EBITDA
and adequately factors in the disappointments. We believe that the
risk-reward of investment in the stock is favorable. We maintain
‘BUY’ with a target price of Rs82 (4.5x FY12E EV/EBITDA).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
USHA MARTIN LTD: Promising Q4FY11; Can it revive confidence?
We interacted with the management of Usha Martin to get an
update on company’s operations. Following are the key
takeaways from our interaction:
Operations normalised: The company has resumed operation of
the 30MW CPP (90% PLF) impacted by blade failure in Q3. Further,
transportation of captive coal from Kathuria mine has been resumed
to normal level of 40kt/mth, although freight cost has increased by
Rs350/t, raising the landed cost of captive coal to Rs1,850/t. The
company is confident of increasing DRI and billet output for Q4 to
~70kt (52kt in Q3) & 150kt (113kt in Q3) respectively.
RM inventory: The company has >2.0mn tonnes of iron ore fines
inventory, which would be used in captive sinter (already operational)
and pellet plant (expected FY13). Further, the company has procured
enough coking coal @ USD225/t to meet requirement for Q4 as well
as built ~0.1mnt inventory to be used in Q1FY12.
Commissioning of 20MW CPP has been delayed by one quarter
and now expected to be commissioned in Q1FY12.
Financial leverage: USM has gross debt of Rs22bn with D/E of
1.24 as of Dec’10.
VALUATIONS AND RECOMMENDATION
Despite full integration from captive resources to value-added
products, continual result disappointments by Usha Martin on various
one-off impacts have dented investors’ confidence in the stock,
leading to stock under-performance. However, we believe that
sequential improvement in Q4FY11 performance, on volume growth
and margin expansion, could revive some confidence in the stock.
Further, coking coal inventory of ~0.1mnt would help the company
in keeping coal cost under check in Q1FY12, for which contract
prices have increased 46% QoQ to USD330/tonne.
On our revised estimates (to factor in higher coal cost and steel
prices), the stock is attractively valued at 3.3x FY12E EV/EBITDA
and adequately factors in the disappointments. We believe that the
risk-reward of investment in the stock is favorable. We maintain
‘BUY’ with a target price of Rs82 (4.5x FY12E EV/EBITDA).
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