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UBS Investment Research
Carborundum Universal
Management confident on growth
„ Event: management discussion reaffirms positive growth/margin outlook
Management does not foresee any slowdown in India or global markets and
remains confident of achieving growth of 14%+. It highlights that despite concerns
on EU macro, the company’s markets (Scandinavia, France, Germany) are doing
well. Its Australian and USA markets also remain strong. Orderflow and the
pricing environment remain benign. Management expects, at the least, to maintain
margins in the ceramics and EMD business, with some improvement in abrasives
in FY12.
„ Impact: maintain estimates, electro minerals (EMD)—strategic focus
Carborundum Universal’s (CUMI) strategy is underpinned by an increased focus
on EMD (raw materials for abrasives / ceramics, strategic and scarce minerals used
in high-end applications). CUMI’s EMD business made up 36%/40% of its
revenue/EBIT in FY11. Its EMD business has higher margins (18% EBIT margin
in FY11 compared to 14%/18% for abrasives/ceramics) and ROCE (32% in FY11
compared to 22%/20% for abrasives/ceramics). CUMI’s EMD capacity already
significantly exceeds its captive requirements; it has four new expansion projects.
„ Action: reiterate Buy rating
We forecast FY11-13E earnings CAGR of 19% and ROCE/ROEs of 23%/24% in
FY12. Higher capacity utilisation in abrasives and better product mix should help
increase ROCE to 25%+ over the medium term, in our view.
„ Valuation: raise price target from Rs296 to Rs360
We value CUMI on a PE basis and raise our price target from Rs296 to Rs360 as
we roll it over to FY13 estimates, implying FY13E PE of 14x and EV/EBITDA of
8.5x.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Carborundum Universal
Management confident on growth
„ Event: management discussion reaffirms positive growth/margin outlook
Management does not foresee any slowdown in India or global markets and
remains confident of achieving growth of 14%+. It highlights that despite concerns
on EU macro, the company’s markets (Scandinavia, France, Germany) are doing
well. Its Australian and USA markets also remain strong. Orderflow and the
pricing environment remain benign. Management expects, at the least, to maintain
margins in the ceramics and EMD business, with some improvement in abrasives
in FY12.
„ Impact: maintain estimates, electro minerals (EMD)—strategic focus
Carborundum Universal’s (CUMI) strategy is underpinned by an increased focus
on EMD (raw materials for abrasives / ceramics, strategic and scarce minerals used
in high-end applications). CUMI’s EMD business made up 36%/40% of its
revenue/EBIT in FY11. Its EMD business has higher margins (18% EBIT margin
in FY11 compared to 14%/18% for abrasives/ceramics) and ROCE (32% in FY11
compared to 22%/20% for abrasives/ceramics). CUMI’s EMD capacity already
significantly exceeds its captive requirements; it has four new expansion projects.
„ Action: reiterate Buy rating
We forecast FY11-13E earnings CAGR of 19% and ROCE/ROEs of 23%/24% in
FY12. Higher capacity utilisation in abrasives and better product mix should help
increase ROCE to 25%+ over the medium term, in our view.
„ Valuation: raise price target from Rs296 to Rs360
We value CUMI on a PE basis and raise our price target from Rs296 to Rs360 as
we roll it over to FY13 estimates, implying FY13E PE of 14x and EV/EBITDA of
8.5x.
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