Company Background:

Usha Martin Limited. (UML), is a leading producer of speciality steel and one of the largest wire rope manufacturers globally. Its manufacturing facilities are located in Ranchi, Jamshedpur, Hoshiarpur, UK, Thailand, UAE and USA. Its worldwide distribution, service and marketing network is spread across US, UK, Europe, Africa, The Middle East, South East Asia and Australia.

Business Profile:

The company has three main manufacturing divisions of Wire & Wire Ropes, Steel and Cables.

Wire & Wire Rope Division:

The wire division situated at Ranchi with a capacity of 100,000 TPA is among the world’s top four wire producers. Steel wires manufactured by this division find wide application in Mining, Construction, Oil exploration, Cranes, load transportation and Engineering Sectors.

Steel Division:

Located at Jamshedpur, Steel division is one of the largest amongst the secondary steel manufactures of speciality steel long products in the country. Products manufactured are in the form of wire rods and Straight Bars. It uses mini blast furnace - arc furnace route to manufacture steel.

Cables Division:

Cable Division is the leading manufacturer of the jelly filled underground telecommunications cables in India. Manufacturing facilities are located at Tatisilwai in the state of Jharkhand. State of art equipments coupled with technical expertise produces International Quality jelly filled Telecommunication cables.

Expansion Details :

The company has planned a capex of Rs13.5bn within next three – and a half year to expand its capacity in Speciality Steel and Value added products. The company plans to fund the expansion with Rs.5,750m of debt and Rs.7,750m of equity and internal accruals. Post expansion, Speciality steel production will reach 1 million Tonne from 360,000 Tonnes and value added to 400,000 Tonnes. Expansion also includes setting up a sinter plant with a capacity of 8 lac Tonnes per annum. The process of expansion from 3.6 lac Tonnes to 1 million Tonnes will be implemented in two phases. The first phase would increase the capacity to 600,000 TPA from 360,000 TPA by september 2008 and further to 1 million TPA by FY10.

Mineral Linkages:

UML, has started its captive mining. It has been allotted two coalmines at Kathotia and Lohari. The estimated coal deposits is around 40 million Tonnes is of superior quality with a calorific value in the range of 6,750. Commercial production is expected to start from fourth quarter of the current financial year. Usha martin is one of the cheapest steel producer, will further reduce the cost once the mines ( iron and coal) allotted to them are fully operational. The company’s iron ore mines are located in the Jharkhand with an estimated reserve of 100 million Tonnes and an iron ore quality of 62% to 63% purity. At present , 60% of the iron ore requirement is met through its captive mines, however by the end of this year entire requirement will be met captively.

Valuation:

The company has reported good set of numbers for Q4FY07. Net sales grew by 12.7% YoY at Rs. 4,019m. EBIDTA margins expanded by 50 basis points and EBIDTA grew by 16% YoY at Rs. 793m. PAT was up by 42% YoY at Rs.290m. The CMP discounts FY07 EPS of Rs.21.1 by 11.8x.