Monsoon woes over, improvements ahead Usha Martin's (USM) consol. revenue at Rs7.7bn grew 15% YoY due to 33% YoY rise in standalone revenue to Rs6.4bn driven by 70% YoY growth in sales volumes. Operating profit grew by 51% YoY to Rs1.6bn with OPM expanding 487 bps to 20.6% driven by backward integration in coal and metallics. Net profit grew 41% YoY to Rs459mn.

Volume growth from recently commissioned capacities was low due to reduced captive iron ore and coal mining during monsoon. This is expected to improve gradually from Q3FY11 onwards.

OPM of international operations improved to 22.7% vs 14.7% in Q2FY10 and 19.4% in Q1FY11. The company expects OPM for international operations to improve further from these levels driven by operating leverage.

VALUATIONS AND RECOMMENDATION Even though we have lowered our volume estimates for FY11 and FY12 to 0.54mnt and 0.75mnt vs company's guidance of 0.6mn and 0.8mnt respectively, we are positive on company's earning prospects on improving margins. We expect OPM to expand from 19.3% in FY10 to 20.1% in FY11 and 21.9% in FY12 (The company expects to achieve 25% OPM in Q4FY11E). We revise our EPS estimates for FY11E and FY12E to Rs6.4 (Rs5.6) and Rs11.2 (Rs9.5) and expect EPS CAGR of 42% over FY10-FY12E. We believe that at CMP of Rs87, 3.9x FY12E EV/EBITDA, the stock is attractively valued. Maintain 'BUY' with a target price of Rs120 (5x FY12E EV/EBITDA).