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Carborundum Universal (CU)
Others
Silicon carbide prices are declining. Black Sic prices have corrected by ~18% from
average prices in 2QFY12. Industry sources indicate current export price for Black Sic in
China at US$1,400 per ton versus average price of US$1,800 per ton in 2QFY12. Black
Sic is (partially) used for making micro-grits used in cutting silicon wafers for solar
photovoltaic cells. High inventories of solar cells have reduced off-take of Sic. It could
take 2-3 quarters to clear inventories and hence subdued pricing should continue. We
retain REDUCE rating with a target price of Rs150 (12X FY2013E EPS).
Black Sic export prices (China) have corrected by ~18% from average levels of 2QFY12
As per industry sources, Chinese export prices of Black Sic have corrected by 18% in the past few
weeks, from average levels of US$1,800 per ton in 2QFY12 to US$1,400 per ton currently. The
trend is same across all grades. Current correction could make the coming quarters tougher for
CUMI in the light of European Union having withdrawn anti-dumping duties of 52% on Chinese
Sic with effect from August 2011. We see lower risks on volumes as the company is among the
lowest-cost producers of crude Sic; nevertheless pricing risks can’t be wished away. Lower
realizations could affect both VAW (crude Sic) and standalone business (micro-grits) which
together accounted for ~Rs4.5 bn of sales out of total consolidated sales of Rs16.5 bn in FY2011.
Lower off-take by solar cell manufacturers has led to price correction
Crude Black Sic, manufactured by VAW Russia (100% Sub), is used (partially) to manufacture
micro grits, used for slicing silicon ingots to wafers. Solar cell market has entered a period of
oversupply on account of which inventories are at high levels. Hence, till the time inventories are
not brought down, production rates won’t increase and hence demand for Sic (crude and microgrits)
will remain subdued. Industry sources indicate it could take 2-3 quarters for inventories to
return to normalized levels. We highlight the same by discussing financials of Suntech; one of the
largest manufacturers of solar cells in China. The company has given a guidance of 20% lower
volumes qoq in 4QCY11. It is carrying inventory (as of 3QCY11) which is almost twice the levels of
the last year and receivables of the company have also increased substantially on account of
delayed payments from clients.
Maintain REDUCE with a target price of Rs150
We have maintained our earning estimates as there are offsetting levers available with the
company, particularly depreciating Rupee (outside India forms ~40% of consolidated revenues)
which should benefit the company. We maintain REDUCE with a revised target price of Rs150
(Rs155 earlier) at 12X FY2013E EPS. We have marginally reduced (from 12.5X) earnings multiples
on account of incremental risks to our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Carborundum Universal (CU)
Others
Silicon carbide prices are declining. Black Sic prices have corrected by ~18% from
average prices in 2QFY12. Industry sources indicate current export price for Black Sic in
China at US$1,400 per ton versus average price of US$1,800 per ton in 2QFY12. Black
Sic is (partially) used for making micro-grits used in cutting silicon wafers for solar
photovoltaic cells. High inventories of solar cells have reduced off-take of Sic. It could
take 2-3 quarters to clear inventories and hence subdued pricing should continue. We
retain REDUCE rating with a target price of Rs150 (12X FY2013E EPS).
Black Sic export prices (China) have corrected by ~18% from average levels of 2QFY12
As per industry sources, Chinese export prices of Black Sic have corrected by 18% in the past few
weeks, from average levels of US$1,800 per ton in 2QFY12 to US$1,400 per ton currently. The
trend is same across all grades. Current correction could make the coming quarters tougher for
CUMI in the light of European Union having withdrawn anti-dumping duties of 52% on Chinese
Sic with effect from August 2011. We see lower risks on volumes as the company is among the
lowest-cost producers of crude Sic; nevertheless pricing risks can’t be wished away. Lower
realizations could affect both VAW (crude Sic) and standalone business (micro-grits) which
together accounted for ~Rs4.5 bn of sales out of total consolidated sales of Rs16.5 bn in FY2011.
Lower off-take by solar cell manufacturers has led to price correction
Crude Black Sic, manufactured by VAW Russia (100% Sub), is used (partially) to manufacture
micro grits, used for slicing silicon ingots to wafers. Solar cell market has entered a period of
oversupply on account of which inventories are at high levels. Hence, till the time inventories are
not brought down, production rates won’t increase and hence demand for Sic (crude and microgrits)
will remain subdued. Industry sources indicate it could take 2-3 quarters for inventories to
return to normalized levels. We highlight the same by discussing financials of Suntech; one of the
largest manufacturers of solar cells in China. The company has given a guidance of 20% lower
volumes qoq in 4QCY11. It is carrying inventory (as of 3QCY11) which is almost twice the levels of
the last year and receivables of the company have also increased substantially on account of
delayed payments from clients.
Maintain REDUCE with a target price of Rs150
We have maintained our earning estimates as there are offsetting levers available with the
company, particularly depreciating Rupee (outside India forms ~40% of consolidated revenues)
which should benefit the company. We maintain REDUCE with a revised target price of Rs150
(Rs155 earlier) at 12X FY2013E EPS. We have marginally reduced (from 12.5X) earnings multiples
on account of incremental risks to our estimates.
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