02 NOVEMBER, 2009 Q2 FY10 AND H1FY10

RESULT UPDATE
USHA MARTIN

CMP : 63.05
RESEARCH
RECOMMENDATION REDUCE

COMPANY DETAILS
Usha Martin Ltd. has come out with Q2and H1 FY10 result. The company continues BSE Code 517146
to report dismal performance on YoY basis, however on QoQ basis the company NSE Symbol USHAMART
Bloomberg USM IN
witnessed some growth. The company reported a standalone net sales of Rs. Market Cap. (Rs. Crs) 1577.51
482.26 crore compared to Rs.593.85 crore in the corresponding quarter last year, Free Float 53.84
signifying a drop of 18.8% on YoY basis. Consolidated net sales came at Rs.669.68 52 Week High 80
crore which is 17% lower compared to the Rs.807 crore reported in the same 52 Week Low 18
Dividend Yield -% 1.59
quarter last year. Profit after tax is down YoY by 65% and 38% on standalone and P/E Ratio 20.74
consolidated basis respectively. P/BV 1.55
Beta 0.97

Result Highlight Share Holding Pattern (%)

Promoter Group 46.16
Consolidated (Rs. in Cr.) FII 19.03
Other Institutions 19.01
Particulars 2009-10 Growth 2009-10 Growth 2008-09 Others 13.58
Qtr II % H1 (%) Annual Total 100
Turnover 697.61 -20.2 1333.33 -18.1 3146.79
669.68 -17.0 1278.22 -15.1 2949.85 Financial Details (Rs. Crs)
Net Sales
Share Capital 25.09
PBT 56.13 -28.8 106.37 -40.8 280.59
Net Sales (Cons) 2949.85
PAT 32.53 -37.9 64.56 -45.0 185.34 Net Sales (Standalone) 2127.23
EPS (FV Rs 1/-) PAT (Cons) 185.34
(in Rs.) 1.30 2.58 7.41 PAT (Standalone) 142.29
EPS (Cons) (in Rs.) 7.41
EPS (Standalone) (in Rs.) 5.95

Standalone (Rs. in Cr.) Ratios

PBIDTM (%) 16.42
Particulars 2009-10 Growth 2009-10 Growth 2008-09 APATM (%) 3.04
Qtr II % H1 (%) Annual ROCE (%) 10.1
Turnover 508.83 -22.4 939.21 -21.5 2307.21 RONW (%) 11.4
Net Sales 482.25 -18.8 887.38 -18.2 2127.23
PBT 32.22 -45.4 57.97 -59.8 207.34 Stock Price Movement (Rs.)
PAT 14.65 -65.0 28.05 -71.5 142.29
EPS (FV Rs 1/-)
(in Rs.) 0.59 1.12 5.95

EUREKA RESEARCH www.eurekasecurities.com

USHA MARTIN
02 NOVEMBER, 2009

Performance Review

During the quarter the realization for wire rods and bars have firmed up marginally by 3% compared to the previous quarter. The
realization 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.

Source: Company, Eureka Research

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.

Source: Company, Eureka Research

EUREKA RESEARCH 2 www.eurekasecurities.com

USHA MARTIN
02 NOVEMBER, 2009

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

INDIA OPERATION
Particulars Q2 FY 09 Q2 FY 10 % Change H1 FY 09 H1 FY 10 % Change

Production (Qty in MT)

Sponge Iron 25,884 35,045 35% 50,390 63,260 26%
Hot Metal 38,537 36,247 -6% 85,845 78,160 -9%
Billets 80,825 77,071 -5% 174,633 164,806 -6%
Wire Rod & Bars 82,071 82,893 1% 165,292 149,689 -9%
Wire Ropes (including 18,778 17,831 -5% 36,117 32,740 -9%
conveyor belt)
Wire & Strand 22,609 24,244 7% 45,198 48,811 8%
Bright Bar 3,650 3,284 -10% 7,052 6,439 -9%

Sales (Qty in MT)

Wire Rod & Bars 35,212 35,876 2% 68,666 65,401 -5%
Wire Ropes 18,762 17,365 -7% 34,011 31,577 -7%
Wire & Strand 20,867 21,806 4% 38,658 42,755 11%
Bright Bar 3,703 3,523 -5% 6,957 6,596 -5%

FOREIGN SUBSIDIARIES
USSIL - Thailand
Particulars Q2 FY 09 Q2 FY 10 % Change H1 FY 09 H1 FY 10 % Change

Production Qty
- Wire Ropes 4474 4207 -6% 9704 7808 -20%
- Wire & Strand 4896 4557 -7% 8657 8114 -6%

Sales Qty
- Wire Ropes 4448 4492 1% 10269 7800 -24%
- Wire & Strand 4968 4383 -12% 8800 7837 -11%

BSUK
Particulars Q2 FY 09 Q2 FY 10 % Change H1 FY 09 H1 FY 10 % Change

Production Qty
- Wire Ropes 2015 1466 -27% 3814 2533 -34%

Sales Qty
- Wire Ropes 1973 1705 -14% 3834 3173 -17%

BWWR - Dubai
Particulars Q2 FY 09 Q2 FY 10 % Change H1 FY 09 H1 FY 10 % Change

Production Qty
- Wire Ropes 2415 2149 -11% 4804 3965 -17%

Sales Qty
- Wire Ropes 2564 2194 -14% 5208 3963 -24%

EUREKA RESEARCH 3 www.eurekasecurities.com

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:

Volume Target Qty (in MT)

Steel 390000
Rolled products 340000
Rope (consolidated) 105000

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.

EUREKA RESEARCH 4 www.eurekasecurities.com

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

2nd Qtr 2nd Qtr VAR 1st Qtr QoQ

2009-09 2008-09 [%] 2009-06 %
Gross Sales 508.83 655.95 -22.4 430.38 18.2
Excise Duty 26.57 62.1 -57.2 25.25 5.2
Net Sales 482.26 593.85 -18.8 405.13 19.0
Other Operating Income 3.49 2.94 18.7 6.57 -46.9
Other Income 0.77 1.9 -59.5 2.66 -71.1
Total Income 486.52 598.69 -18.7 414.36 17.4
Total Expenditure 407.35 485.62 -16.1 338.79 20.2
PBIDT 79.17 113.07 -30 75.57 4.8
PBITD margin (in %) 16.42 19.04 18.65
Interest 22.47 32.9 -31.7 25.9 -13.2
PBDT 56.7 80.17 -29.3 49.67 14.2
PBDT margin (in %) 11.76 13.50 12.26
Depreciation 24.48 21.15 15.7 23.92 2.3
PBT 32.22 59.02 -45.41 25.75 25.1
PBT margin (in %) 6.68 9.94 6.36
Tax 7.05 32.77 -78.5 2.91 142.3
Fringe Benefit Tax -0.3 0.3 -200 0.3 -200.0
Deferred Tax 10.82 -15.9 168.1 9.14 18.4
Reported Profit After Tax 14.65 41.85 -65 13.4 9.3
Extra-ordinary Items 0 0 0 0
Adjusted Profit After 14.65 41.85 -65 13.4 9.3
Extra-ordinary item
APAT margin (in %) 3.04 7.05 3.31

RATIOS

Particulars Standalone Consolidated

Sep-09 Mar-09 Sep-09 Mar-09
ROCE (Incl.CWIP) 7.50% 12.80% 10.10% 14.20%
ROCE (Excl.CWIP) 13.00% 23.70% 16.30% 23.90%
RONW 5.50% 6.30% 11.40% 19.20%
Debt Equity 1.64 1.40 1.57 1.47
Gross Profit/Debt 18.40% 28.80% 23.80% 31.80%
EPS Basic 1.12 5.86 2.58 7.41
Interest cover 3.20 3.40 4.00 3.70

EUREKA RESEARCH 5 www.eurekasecurities.com

USHA MARTIN
02 NOVEMBER, 2009

Recommendation

The 2nd quarter has been quite dismal for the company similar to the performance of other steel companies as the realization has been
on 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.

Registered Office : 7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001
Corporate Office : B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001
AKP - 9830005273

Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184

e: helpdesk@eurekasecurities.com
Mumbai Office : 909 Raheja Chamber, 213 Nariman Point, Mumbai-400021
Phone : 91-22-2202 5941 / 5942
e: mumbai@eurekasecurities.com

EUREKA RESEARCH 6 www.eurekasecurities.com