Usha Martin Limited, a Rs. 3600 cr conglomerate with presence in Europe, Southeast Asia, Middle East and the US, is the largest in India and one of the top five steel wire rope manufacturers in the world. It is into the business of manufacture of steel, wire, strands and wire ropes with backward integration into captive mineral resources and forward integration into global warehousing, distribution and services on end-use of wire ropes. The company enjoys a significant international presence as a bulk of the exports is concentrated around ASEAN and the Middle East. Nearly 54% of the sales are made within the Company to provide for downstream production lines (domestic and abroad), whereas only 46% of sales are made to third parties. The strength of the business model lies in its ability to consume a significant part of its steel production for the manufacture of wire, wire ropes, bright bars and other products. Sale to third parties is mainly the value added products like ropes.
At present, the company is well positioned to reap benefits from the capex plans undertaken by it over the last three years. The company is set to increase its volumes over the next two years with an increase in its crude steel making capacity by 2.5x and metallic capacity by 3x. Moreover, its captive metallic production would be sufficient to meet its internal requirements, thereby reducing its external purchases.
For the quarter ended 30 June’10, the company reported a net profit of Rs.304.30million, a phenomenal increase from the corresponding previous quarter. Net sales stood at Rs 5,502.10 million and the total income was Rs 5,506.10 million. Going ahead the company is expected to report a CAGR of 75% YoY in sales and a decent increase in its operating profit margins. Since exports constitute a major part of the earnings forex fluctuations remain a key concern.
The stock currently trading at Rs.83, is at attractive valuations and keeping in mind its growth and strong fundamentals, we recommend a buy for medium and long term with a target price of Rs.100.
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