IIFL has the following report on Usha Martin Ltd,
UML capex program of Rs21bn ends this year and will increase its crude steel making capacity by 2.5x and metallic capacity by 3x. Value-added products like wire ropes were the growth drivers for UML’s topline in the past. While wire division sales volume are set to witness a CAGR of 14.7%, steel division would witness a CAGR of 85.7% over the next two years. Overall sales volume in FY11 is expected to increase 75.5% yoy and we see a further increase of 30.8% yoy in FY12E.
UML commissioned its 0.2mtpa DRI in December 2009 and has been running at 95% utilization over the last three months. Pig iron production too has increased with the mini-blast furnace becoming operational after the refractory realignment in Q4 FY10
Topline is expected to jump 55% yoy in FY11E and 25% in FY12E. With the increase in captive consumption of both metallic and raw materials, OPM for the
company is set to increase 412bps yoy to 23.4% in FY11. UML trades at a P/E of 5.3x and EV/EBIDTA of 3.8x FY12E, which is at a huge discount to larger players. We recommend a BUY rating on Usha Martin for a target price of Rs102, an upside of 25%.
