Usha Martin-q2fy10 Update

8/9/2019 Usha Martin-q2fy10 Update

1/6

Usha Martin Ltd. has come out with Q2and H1 FY10 result. The company continues

to report dismal performance on YoY basis, however on QoQ basis the company

witnessed some growth. The company reported a standalone net sales of Rs.

482.26 crore compared to Rs.593.85 crore in the corresponding quarter last year,

signifying a drop of 18.8% on YoY basis. Consolidated net sales came at Rs.669.68

crore which is 17% lower compared to the Rs.807 crore reported in the same

quarter last year. Profit after tax is down YoY by 65% and 38% on standalone and

consolidated basis respectively.

Result Highlight

RESEARCH

COMPANY DETAILS

Stock Price Movement (Rs.)

EUREKA RESEARCH www.eurekasecurities.com

02 NOVEMBER, 2009

REDUCE

Q2 FY10 AND H1FY10

RESULT UPDATE

USHA MARTIN

: 63.05CMP

RECOMMENDATION

Standalone (Rs. in Cr.)

2008-09

Annual

2307.21

2127.23

207.34

142.29

5.95

Growth

(%)

-21.5

-18.2

-59.8

-71.5

Growth

%

-22.4

-18.8

-45.4

-65.0

2009-10

Qtr II

508.83

482.25

32.22

14.65

0.59

2009-10

H 1

939.21

887.38

57.97

28.05

1.12

Particulars

Turnover

Net Sales

PBT

PAT

EPS (FV Rs 1/-)

(in Rs.)

Consolidated (Rs. in Cr.)

2008-09

Annual

3146.79

2949.85

280.59

185.34

7.41

Growth

(%)

-18.1

-15.1

-40.8

-45.0

Growth

%

-20.2

-17.0

-28.8

-37.9

2009-10

Qtr II

697.61

669.68

56.13

32.53

1.30

2009-10

H 1

1333.33

1278.22

106.37

64.56

2.58

Particulars

Turnover

Net Sales

PBT

PAT

EPS (FV Rs 1/-)

(in Rs.)

BSE Code

NSE Symbol

Bloomberg

Market Cap. (Rs. Crs)

Free Float

52 Week High

52 Week Low

Dividend Yield -%

P/E Ratio

P/BV

Beta

Share Holding Pattern (%)

Promoter Group

FII

Other Institutions

Others

Total

Financial Details (Rs. Crs)

Share Capital

Net Sales (Cons)

Net Sales (Standalone)

PAT (Cons)

PAT (Standalone)

EPS (Cons) (in Rs.)

EPS (Standalone) (in Rs.)

Ratios

PBIDTM (%)

APATM (%)

ROCE (%)

RONW (%)

517146

USHAMART

USM IN

1577.51

53.84

80

18

1.59

20.74

1.55

0.97

46.16

19.03

19.01

13.58

100

25.09

2949.85

2127.23

185.34

142.29

7.41

5.95

16.42

3.04

10.1

11.4


2/6

Performance Review

During the quarter the realization for wire rods and bars have firmed up marginally by 3% compared to the previous quarter. Therealization for the quarter has been in the vicinity of Rs. 37,000 per ton compared to Rs. about 47,000 per ton a year ago and about 36,000

per ton last quarter. Wire rope contributes 35% of the company's revenue, which is a 5% drop from the year ago level. In the wire rope

front the company has witnessed a QoQ drop in realization to approx. Rs. 84,000 per ton compared to Rs. 95,000/ton in Q1FY10 and

about 91,000 in Q2FY09.

On the other hand the realization of the wire strands and bright bars have remained more or less stable with wire strand realization

dropping on QoQ basis by 1% and bright bar realization remaining the same.

EUREKA RESEARCH 2

USHA MARTIN

02 NOVEMBER, 2009

www.eurekasecurities.com

Source: Company, Eureka Research

Source: Company, Eureka Research


3/6

EUREKA RESEARCH 3

USHA MARTIN

02 NOVEMBER, 2009


INDIA OPERATION

Particulars

Production (Qty in MT)

Sponge Iron

Hot Metal

Billets

Wire Rod & Bars

Wire Ropes (including

conveyor belt)

Wire & Strand

Bright Bar

Sales (Qty in MT)

Wire Rod & Bars

Wire Ropes

Wire & Strand

Bright Bar

Q2 FY 09

25,884

38,537

80,825

82,071

18,778

22,609

3,650

35,212

18,762

20,867

3,703

Q2 FY 10

35,045

36,247

77,071

82,893

17,831

24,244

3,284

35,876

17,365

21,806

3,523

% Change

35%

-6%

-5%

1%

-5%

7%

-10%

2%

-7%

4%

-5%

H1 FY 09

50,390

85,845

174,633

165,292

36,117

45,198

7,052

68,666

34,011

38,658

6,957

H1 FY 10

63,260

78,160

164,806

149,689

32,740

48,811

6,439

65,401

31,577

42,755

6,596

% Change

26%

-9%

-6%

-9%

-9%

8%

-9%

-5%

-7%

11%

-5%

FOREIGN SUBSIDIARIES

USSIL - Thailand

Particulars

Production Qty

- Wire Ropes

- Wire & Strand

Sales Qty

- Wire Ropes

- Wire & Strand

BSUK

Particulars

Production Qty

- Wire Ropes

Sales Qty

- Wire Ropes

BWWR - Dubai

Particulars

Production Qty

- Wire Ropes

Sales Qty

- Wire Ropes

Q2 FY 09

4474

4896

4448

4968

Q2 FY 09

2015

1973

Q2 FY 09

2415

2564

Q2 FY 10

4207

4557

4492

4383

Q2 FY 10

1466

1705

Q2 FY 10

2149

2194

% Change

-6%

-7%

1%

-12%

% Change

-27%

-14%

% Change

-11%

-14%

H1 FY 09

9704

8657

10269

8800

H1 FY 09

3814

3834

H1 FY 09

4804

5208

H1 FY 10

7808

8114

7800

7837

H1 FY 10

2533

3173

H1 FY 10

3965

3963

% Change

-20%

-6%

-24%

-11%

% Change

-34%

-17%

% Change

-17%

-24%

The production and sales volume of the company for both its intermediary and finished products have been as per the following table:


4/6

EUREKA RESEARCH 4

USHA MARTIN

02 NOVEMBER, 2009


Slow down in the global economy continues to take toll on the business of the company. Moreover, the company has been testing its

newly commissioned MBF for which its existing MBF were shut down mainly due to power management. The debugging process is still on

and hence has been adversely affecting the production of the company.

The company, however, have been able to commission its 2nd DRI Kiln, 30 MW thermal power and Wire rod mill successfully. This would

enable the company to augment its sponge iron and wire rod production in the days ahead. The management expects its turnover to

touch Rs 900 to Rs 950 crore in the fourth quarter of the current fiscal at the existing steel prices. For the 2nd half of the current fiscal, the

management has set a volume target as follows:

As per the management guidance the sales volume for the company in the 3rd quarter is going to remain subdued mainly on the back of

demand concerns and more so because of the fact that the production from the new facilities are not going to get stabilized during the

coming quarter.

Traditionally, it has been observed that 3rd quarter happens to be the worst quarter for the company attributable to the fact that the

company exports more than 50% of its finished products in the international market, especially, in the Western European and North

American countries. During this time the demand slows down in these regions mainly because of two reasons, viz., sever cold wave,

which makes construction work nearly impossible and the festive season. The coming quarter is not going to be an exception in this

regard

The company has also commissioned SMS III and Blooming Mill on trial basis, however, the production from these facilities have not yet

been stabilized mainly on account of the fact that the de-bugging process is on. The management is confident about the fact that by the

end of the 4th quarter, these facilities would stabilize and start to make positive contribution to the company's overall production.

In the quarter gone by, the share of value added products in overall steel production has been 58%

During the quarter under review the tax expenses were higher at 51.6% due to provisioning of deferred tax liability of 34.4% because of

higher tax depreciation compared to book depreciation arising because of the timing difference.

Gross debt in the book of the company for the quarter has been Rs. 1800 crore on consolidated basis and Rs. 1650 crore on standalone

basis, and the cost of this debt is around 7.2%. Out of this, the company has plans to pay back Rs. 250 crore within 1 year. The company has

cash (and cash equivalent) balance of Rs. 200 crore as of date.

The production of coal from its coal block has not yet started. This, as per the management, can be attributed to the fact that the block it

has been allotted is an open cast mine and there has been a significant amount of water logging that has taken place during the monsoon.

However, the company plans to start commercial production from its coal mine during the 3rd quarter from November and during the

quarter, i.e. during November and December the company plans to produce about 25,000 tons which would eventually be augmented to

50,000 tons. After the coal mine is fully commissioned, the company plans to produce about 2,00,000 tons of coal on annual basis. During

the quarter under review the company consumed 2,70,000 tons of coal which has been purchased from the open market at an average

cost of Rs. 1900 per ton. Though the company has been enjoying coal linkages previously, the government has discontinued that facility,

post the mine allocation. This has resulted in high cost of production for the company causing its EBITDA margin to come down to about

16% from 19% in the same quarter last year.

Volume Target

Steel

Rolled products

Rope (consolidated)

Qty (in MT)

390000

340000

105000


5/6

EUREKA RESEARCH 5

USHA MARTIN

02 NOVEMBER, 2009


During the quarter under review the company produced about 3,60,000 tons of iron ore out of which 1,50,000 tonnes of iron ore has

been sold in the open market which generated a turnover of Rs. 15 crore signifying a realization of Rs. 1000 per ton.

The company would be completing most of its Rs. 2100 crore expansion plan during the current fiscal, however the capex target for FY10-

11 has been earmarked at Rs. 100 crore. The company has capital work in progress of Rs. 1200 crore and plans to capitalize Rs. 800 crore

during the H2 of the current fiscal.

FINANCIALS

STANDALONE

Gross Sales

Excise Duty

Net Sales

Other Operating Income

Other Income

Total Income

Total Expenditure

PBIDT

Interest

PBDT

DepreciationPBT

Tax

Fringe Benefit Tax

Deferred Tax

Reported Profit After Tax

Extra-ordinary Items

Adjusted Profit After

Extra-ordinary item

PBITD margin (in %)

PBDT margin (in %)

PBT margin (in %)

APAT margin (in %)

2nd Qtr

2009-09

508.83

26.57

482.26

3.49

0.77

486.52

407.35

79.17

22.47

56.7

24.4832.22

7.05

-0.3

10.82

14.65

0

14.65

16.42

11.76

6.68

3.04

2nd Qtr

2008-09

655.95

62.1

593.85

2.94

1.9

598.69

485.62

113.07

32.9

80.17

21.1559.02

32.77

0.3

-15.9

41.85

0

41.85

19.04

13.50

9.94

7.05

VAR

[%]

-22.4

-57.2

-18.8

18.7

-59.5

-18.7

-16.1

-30

-31.7

-29.3

15.7-45.41

-78.5

-200

168.1

-65

0

-65

1st Qtr

2009-06

430.38

25.25

405.13

6.57

2.66

414.36

338.79

75.57

25.9

49.67

23.9225.75

2.91

0.3

9.14

13.4

0

13.4

18.65

12.26

6.36

3.31

QoQ

%

18.2

5.2

19.0

-46.9

-71.1

17.4

20.2

4.8

-13.2

14.2

2.325.1

142.3

-200.0

18.4

9.3

9.3

RATIOS

ROCE (Incl.CWIP)

ROCE (Excl.CWIP)

RONW

Debt Equity

Gross Profit/Debt

EPS Basic

Interest cover

StandaloneParticulars Consolidated

Mar-09

12.80%

23.70%

6.30%

1.40

28.80%

5.86

3.40

Sep-09

7.50%

13.00%

5.50%

1.64

18.40%

1.12

3.20

Sep-09

10.10%

16.30%

11.40%

1.57

23.80%

2.58

4.00

Mar-09

14.20%

23.90%

19.20%

1.47

31.80%

7.41

3.70


6/6

Recommendation

The 2nd quarter has been quite dismal for the company similar to the performance of other steel companies as the realization has beenon the lower side on a yoy basis. The company receives more than 50% of its revenue from the international market, and considering the

fact that the demand situation in the western Europe and America has been quite bleak despite the fact that these countries have been

receiving huge amount of government stimulus, it did not get reflected in revenues of steel producers. So far the steel prices in the

international market have been driven by restocking and destocking phenomenon coupled with US dollar weakness. The real upsurge in

demand has not been very visible. Even in China, steel prices have been under pressure. Bao Steel has recently slashed prices of finished

steel by 500 yuan, after the record production of steel during the month of August. Given this fluid condition in the international markets,

we are a bit skeptical about the ambitious production and sales target set forth by the company for the next year. Though the company is

trading at a PEx of 12 and 8.5 based on FY10 and FY11 estimated EPS of Rs. 5.19 and Rs. 7.39 respectively, we believe that on account of

huge exposure in the international market the company faces a huge downside risk as such we recommend Reduce on the company.

USHA MARTIN

02 NOVEMBER, 2009

EUREKA RESEARCH 6 www.eurekasecurities.com

Registered Office :

Corporate Office :

Mumbai Office :

7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001

B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184

e: [email protected]

909 Raheja Chamber, 213 Nariman Point, Mumbai-400021Phone : 91-22-2202 5941 / 5942e: [email protected]

AKP

-983000

5273

Usha Martin-q2fy10 Update

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