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UBS Investment Research
Carborundum Universal
Good 3Q results, segmental trends mixed
CUMI 3QFY11 results in line, abrasives business a positive surprise
Carborundum Universal (CUMI) reported PAT of Rs 394mn (-12% QoQ, +39%
YoY) in line with our expectations. EBITDA of Rs 743mn (-11% QoQ, +20%
YoY) and revenues at Rs 4,076mn, up 25% YoY implied robust growth trends.
Key positive surprise was from abrasives business revenue growth +3%QoQ,
+62% YoY and higher margin of 15.4% (up 180bps QoQ).
Muted performance in ceramics & Electrominerals (EM) business
The margins for Ceramics & EM business in this quarter were disappointing at
16.9% and 15.7% respectively. The business was adversely impacted by volatility
in input prices, rising power/petroleum coke prices and currency appreciation.
However, the management remains positive about margins reviving at previous
levels in these two businesses in 4Q and has guided towards a range of 18-20%.
Positive outlook for last quarter of FY11
The company has planned capex estimates of Rs750mn in FY11 and Rs 1750mn in
FY12. CUMI's debottlenecking plans are expected to deliver 15% volume growth
in FY12, as per the company. The company also intends to move from annual
contracts to quarterly contracts in volume terms to manage the volatility in its
minerals business.
Valuation: Reiterate Buy with a PT of Rs296
We base our price target on 14x FY12E PE, supported by our FY10-12 forecasts of
a 39% earnings CAGR and 19%-24% ROE, implying 9.1x FY12E EV/EBITDA
Carborundum Universal
CUMI is the Murugappa Group's flagship company based out of Chennai, India.
CUMI operates through three business segments: 1) abrasives; 2) ceramics; and
3) electrominerals. The abrasives segment mainly comprises bonded and coated
abrasives; the ceramics segment comprises of super refractories, industrial
ceramics, anti-corrosives and bioceramics; while the electrominerals segment
includes abrasive/refractory grains, micro grits for the photovoltaic industry, and
captive power generation from hydel power plant. CUMI exports its products to
North America, Europe, Australia, South Africa and Asia.
Statement of Risk
The key risks facing Carborundum Universal are volatile forex movements,
competition risk from global players, economy slowdown and cyclicality in
demand from its end user industries including auto, industrials and steel
manufacturers.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Carborundum Universal
Good 3Q results, segmental trends mixed
CUMI 3QFY11 results in line, abrasives business a positive surprise
Carborundum Universal (CUMI) reported PAT of Rs 394mn (-12% QoQ, +39%
YoY) in line with our expectations. EBITDA of Rs 743mn (-11% QoQ, +20%
YoY) and revenues at Rs 4,076mn, up 25% YoY implied robust growth trends.
Key positive surprise was from abrasives business revenue growth +3%QoQ,
+62% YoY and higher margin of 15.4% (up 180bps QoQ).
Muted performance in ceramics & Electrominerals (EM) business
The margins for Ceramics & EM business in this quarter were disappointing at
16.9% and 15.7% respectively. The business was adversely impacted by volatility
in input prices, rising power/petroleum coke prices and currency appreciation.
However, the management remains positive about margins reviving at previous
levels in these two businesses in 4Q and has guided towards a range of 18-20%.
Positive outlook for last quarter of FY11
The company has planned capex estimates of Rs750mn in FY11 and Rs 1750mn in
FY12. CUMI's debottlenecking plans are expected to deliver 15% volume growth
in FY12, as per the company. The company also intends to move from annual
contracts to quarterly contracts in volume terms to manage the volatility in its
minerals business.
Valuation: Reiterate Buy with a PT of Rs296
We base our price target on 14x FY12E PE, supported by our FY10-12 forecasts of
a 39% earnings CAGR and 19%-24% ROE, implying 9.1x FY12E EV/EBITDA
Carborundum Universal
CUMI is the Murugappa Group's flagship company based out of Chennai, India.
CUMI operates through three business segments: 1) abrasives; 2) ceramics; and
3) electrominerals. The abrasives segment mainly comprises bonded and coated
abrasives; the ceramics segment comprises of super refractories, industrial
ceramics, anti-corrosives and bioceramics; while the electrominerals segment
includes abrasive/refractory grains, micro grits for the photovoltaic industry, and
captive power generation from hydel power plant. CUMI exports its products to
North America, Europe, Australia, South Africa and Asia.
Statement of Risk
The key risks facing Carborundum Universal are volatile forex movements,
competition risk from global players, economy slowdown and cyclicality in
demand from its end user industries including auto, industrials and steel
manufacturers.
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