>USHA MARTIN LIMITED (PINC RESEARCH)

We recently held the conference call with the Management of Usha Martin Ltd. (UML) to get an
understanding of the company’s ongoing capacity expansion programme to increase capacity to ~1mn mt and also to review the status of the captive coal mines. The key takeaways from the interaction were as follows UML is nearing completion of the ongoing capacity expansion to augment capacity by ~2.5x to ~1mn tpa. The same will also be supported by metallic capacity in the form of pig iron and sponge iron and other related infrastructure. The expansion also entails increasing the value added product capacity to maintain its share at ~45-50%. The entire expansion is progressing satisfactorily and is expected to be fully commissioned by Mar’10 (except certain power capacities).

However, delay in commencement of the captive coal mines present an area of concern as the same was scheduled to start production in Q4FY09 and are now expected to start extraction by the end of Q3FY10. UML’s management expects 25% and 100% coal integration in FY10 and FY11 respectively.

VALUATIONS AND RECOMMENDATION
At the CMP of Rs54, the stock trades at a P/E of 4.6x and EV/EBITDA of 3.1x, discounting its FY11E earnings. In our view, these valuations do not factor in the degree of value chain post the completion of the ongoing expansions and the commencement of the coal mines. We remain positive on the overall business of UML, and value the stock at 4x EV/EBITDA to arrive at a price target of Rs81/share. We reiterate our ‘BUY’ recommendation on the stock.

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