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Mumbai-based Rs 342-crore Usher Agro

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Mumbai-based Rs 342-crore Usher Agro, a rice and wheat processor that came out with a QIP recently, has procured license for silica precipitation technology developed at the combustion, gasification & propulsion laboratory (CGPL) at the Indian Institute of Science , Bangalore.

The company, which has already planned to increase it power generation capacity 16 times by using rice husk as fuel, will be the first power plant to extract powder silica. It will begin extracting precipitated silica from rice husk ash from its existing 1 mw power plant at Mathura.

The project, expected to go on steam by May 2011, is also entitled for carbon credits under the clean development mechanism. “In rice milling, we have one great by-product called rice husk. It has the best biomass. One kilo rice husk contains 3,300 KCL as like in per kg of coal, which has 3,700 KCL. Compare it with the next competing biomass, one kilo sugar bagasse has only 2,200 KCL,” said Vinod Kumar Chathurvedi, founder and managing director of Usher Agro.

His company, which began producing 1 mw green power from rice husk in 2008, has invested around `85 crore for a 16 mw project near Mathura. It has also entitled Ernst and Young to explore project for silica extraction in the newer power plant, which is expected to be rolled out in June 2011.

Usher Agro has already stuck a power purchase agreement with Tata to sell 12 MW as merchant power at `4.5 per unit. The remaining 4 to 5 mw will be used for captive purposes, said Mr Chathurvedi. The company, which is on expansion mode, will have 5.5 lakh tonne per annum rice milling capacity by January 2011. Usher Agro’s plant will be the first in India to start extracting silica from rice husk ash for commercial purpose, said DN Subbu Krishna, fellow at Advanced
Bioresidue Energy Technology Society, CGPL, IISc. “IISc holds the global patent for this technology and a Finnish company has already taken license for extracting bio-silica in Japan,” he added
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.