Technical Analysis

52-WEEK FLOP: USHA MARTIN

Adarsh Gopalakrishnan | Updated on April 09, 2011 Published on April 09, 2011

The share price of steel wire maker Usha Martin has been on a downward spiral, on rising raw material costs and high interest expenditure , while realisations failed to keep pace. Further, there is a surfeit of domestic capacity for the production of billets and wire rods where the company is present.

Usha Martin produces wire rods and steel products used in the construction and automotive segments. While both segments have grown at a good pace over the last year, the company continues to operate several product lines at utilisation levels which are well below 50 per cent.

The low utilisation rate resulted in rising fixed costs with little gain in revenues or profits.

The nine-month period ending December 2010 saw flat net profits even as net sales grew 17 per cent. This was due to higher raw material and power bills which were up seven and 54 per cent respectively.

Interest costs ballooned to 42 per cent during the same period as the company is expanding its steel capacity and product line.

All of the above, in addition to higher depreciation, took their toll on the company's after-tax margins which were down to 4.6 per cent from 5.3 per cent for the nine month period ended December 2010.



Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





This article is closed for comments.
Please Email the Editor