We expect Usha Martin to benefit from 32% volume CAGR over FY10-FY12E and improved cost structure with completion of capacity expansion of metallics by 0.4mtpa and steel by 0.6mtpa and full integration from mineral resources to value-added products. Though there are concerns over execution of volumes mainly due to one-time events (breakdown of a 30MW CPP, inadequate power from the grid and captive coal logistics issues) in Q3FY11, we believe that these are factored-in the price. At CMP of Rs58 we find the risk-reward favorable. On a consolidated level we estimate 29% EBITDA CAGR and 26% EPS CAGR over FY10-FY12.

Volume growth on higher metallics and billet output from the recently-commissioned 0.4mntpa blast furnace (aided by feed from 0.8mntpa sinter plant) and 0.6mntpa SMS respectively;

Better performance of international subsidiaries; and Increased output from captive iron ore and coal mines post monsoon

Our earnings estimates are almost in line with the consensus estimates.

Delay in stabilization of recently-commissioned projects impacting volumes and margin expansion;

Weak recovery in Europe, which contributes 10% to consolidated revenue;

Impact on mining operation either due to regulatory changes or naxalite activities; and Severe decline in steel profitability.