Building on economies of scale: Usher Agro has a cumulative rice milling capacity of 252,000 MTPA and wheat milling capacity of 75,000 MTPA. Additional 291,600 MTPA capacity expansion is under way at Chatta and is expected to commence by February 2011. This will drive volumes and economies of scale will facilitate future financials of the company.

Project Status: The company is expanding its storage capacity by installing 12 silos at its Chatta plant. Capacity of individual silo is 2500 MT. About 5 silos have already been installed and it takes about 1 week to install a single silo.

Production ramp-up: The additional rice milling capacity will add about 50,000 MT in the current financial year. The utilization levels will increase to 70% in the next financial year.

Power plant: The company already has 1 MW of operational power capacity at its Mathura plant which caters to its internal requirement. Apart from this, the company is setting up 16 MW husk-based power plant at Chatta which will cater to both captive requirement as well as external sales. Around 5MW will be internally consumed.

Funds tie-up: The company has recently raised Rs. 1000mn at Rs. 92.62 per share through QIP. Investors included some of the well known financial institutions like IDBI bank and Dhanlakshmi Bank. These funds will not be used for ongoing expansion program but for future expansion plans.

Future expansion on cards: The company is having land of about 10 acres outside Chatta plant. The company is mulling to use the land for future storage and capacity expansion. Also further expansion of wheat milling by 50,000 MTPA and rice milling capacity by 50,000 MTPA is also on cards. Modernization of Buxar plant has also been planned.

Agri-industry on a turn-around: The country posted strong Q2, FY11 GDP numbers at 8.9% which was ably supported by robust growth in the farm sector which stood at 4.4% backed by good monsoon this year. This will lead to bumper rice crop this year which will positively impact large rice milling companies like Usher Agro.

The agricultural and the food processing industry is buoyant given good monsoon this year complemented with increasing government focus on the sector. With expansion program getting completed by February 2011, the company is poised for robust growth in the next 2 years. At 7x FY12E EPS of Rs. 17.5, we recommend BUY on the counter with a price target of Rs. 122 for a 12 month investment horizon. This presents 30% upside from the current levels.

Usher agro is a leading rice and wheat milling company promoted by Mr. Vinod Kumar Chaturvedi and Mr. Manoj Pathak. Rice milling capacity includes 10,800 MT at Mathura, 194,400 MT at Chatta, and 46,800 MT at Buxar. Wheat milling capacity includes 75,000 MT at Mathura. Additional 291,600 MTPA rice milling capacity is expected to be commissioned at Chatta by February 2011. It has 1 MW of husk based captive power plant at Mathura and 16MW power plant at Chatta is under construction and expected to be operational by July 2011.