Aug 22, 2011, 12.14 PM IST | Source: Moneycontrol.com

Buy Usha Martin; target of Rs 67: Sushil Finance

Sushil Finance is bullish on Usha Martin and has recommended buy rating on the stock with a target of Rs 67 in its August 18, 2011 research report.

Sushil Finance is bullish on Usha Martin and has recommended buy rating on the stock with a target of Rs 67 in its August 18, 2011 research report.

Usha Martin Limited is involved in manufacture of specialty steel and Wire and wire ropes. UML is Indias largest and the worlds second largest steel wire rope manufacturer. With the recent capacity expansion, UML is expected to witness expansion in sales volumes. UMLs performance has been below par since last few quarters. UML has been impacted by onetime events including power plant break down, shut down of DRI plant and transportation related issues of key raw materials including coal. Global meltdown has been affecting the performance of UMLs international subsidiaries. Usha Martin Limited (UML) has reported consolidated topline and bottomline which was below par due to plant shut down during the quarter. We attended the conference call held by the Management of the Company to discuss its financial performance during Q1 FY12 and future outlook.

Standalone Net sales for Q1 FY12 grew 10.6% y-o-y to Rs  6,084.8 mn. Standalone EBITDA for Q2 FY11 stood at Rs  1,123.4 mn. The subdued growth in Revenue and y-o-y decrease of 6.7% in EBITDA was primarily due to fire at Steel Melting Shop (SMS-III) in Jamshedpur Steel Plant during end of March 2011. The operations have been now been restored. Interest costs increased by 45.1% in Q1 FY12 to Rs  525.6 mn. Depreciation costs for Q1 FY12 increased by 20.1% y-o-y to Rs  489.9 mn. EPS for the quarter stood at Rs  0.25 as against Rs  1.00 achieved during Q1 FY11. Consolidated Net sales grew by 13.4% y-o-y to Rs  7,633.8 mn. Consolidated EBITDA for Q1 FY12 stood flat at Rs  1,445.6 mn. EBITDA margins declined to 18.9% as against 21.5% achieved during Q1 FY11. Interest costs increased by 42.4% in Q1 FY12 to Rs  546.0 mn. Depreciation costs for Q1 FY12 increased by 17.8% y-o-y to Rs  548.6 mn. EPS for the quarter stood at Rs  0.84 as against Rs  1.37 achieved during Q1 FY11. During Q1 FY12, UMLs contribution from high value Wire rope segment stood at 47.0% of total revenues. Wire rope production grew by 10.4% y-o-y. UMLs International business performed well during the period.

During Q1 FY12, UMLs performance was affected due to fire at Steel Melting Shop (SMS-III) in Jamshedpur Steel Plant. This affected billet production by approximately 26,000 tonnes. The operations have now been restored. We have reduced our estimates for FY12 and FY13 as UML has been affected by onetime events coupled with weak global demand. We now expect its Consolidated Revenues to grow by 15.0% in FY12E & by 12.0% in FY13E respectively. We expect its APAT to grow by 18.3% y-o-y in FY12E & by 41.4% y-o-y in FY13E. At CMP of Rs  34, UML is trading at valuation of 4.5x FY13E EPS of Rs  7.5. We maintain our BUY rating on the stock with revised target of Rs  67 (9.0x FY13E EPS), says Sushil Finance research report.

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