PINC Research has maintained buy rating on Usha Martin Ltd stock with a price target of Rs 120 in its report dated Dec 15, 2010.

As per reports, Usha Martin will achieve 33% volume CAGR over FY10-12 on an improved cost structure, with completion of expansion of metallics capacity by 0.4mtpa and that of steel by 0.6mtpa and full integration from mineral resources to value-added products.

PINC Research estimates 36% EBITDA CAGR and 42% EPS CAGR over FY10-12.

What will move the stock?

1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mtpa blast furnace (aided by feed from 0.8mtpa sinter plant) and 0.6mtpa steel melting shop respectively;
2) Better performance of international subsidiaries; 3) Increased output from captive iron ore and coal mines after the monsoon season.

The operating profit estimates are slightly lower than consensus as we remain cautious on volumes and margin expansion (FY12E OPM of 21.9% vs. guidance of 25% by Q4FY11).

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 will challenge the target price.