We expect Usha Martin to benefit from 33% volume CAGR over FY10-FY12E and an 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. We estimate 36% EBITDA CAGR and 42% EPS CAGR over FY10-FY12.

What will move the stock?
1) 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; 2) Better performance of international subsidiaries; and 3) Increased output from captive iron ore and coal mines post monsoon

Where are we stacked versus consensus? Our operating profit estimates are slightly lower than consensus as we remain cautious on volume estimates (our FY12E sales volume at 0.67mnt vs. guidance of 0.8mnt) and margin expansion (FY12E OPM of 21.9% vs. guidance of 25% to be achieved by Q4FY11).

What will challenge our target price?
1) Delay in stabilization of recently-commissioned projects impacting volumes and margin expansion; 2) Weak recovery in Europe, which contributes 10% to consolidated revenue; 3) Impact on mining operation either due to regulatory changes or naxalite activities; and 4) Severe decline in steel profitability.