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Carborundum Universal (CU)
Others
Electro-minerals spoil the day. CUMI’s 3QFY12 results were lower than estimates led
by sharp qoq decline in margins in the electro-minerals (EMs) business. We have long
highlighted the unsustainable margins and commodity nature of the EMs business:
3QFY12 brought that to the fore. The management inputs in its post-results call should
help in deciding whether 3QFY12 margins should form the base case for the future,
which would mean a significant cut in the Street’s earning estimates. Maintain REDUCE.
EBITDA margins drop qoq
CUMI reported 3QFY12 consolidated revenue of Rs5 bn (+19% yoy;-4% qoq) which was 6%
lower than our estimates. Reported consolidated EBITDA of Rs896 mn (+20.6% yoy;-24.4% qoq)
was 20% lower than our estimates. Reported PAT (consol) of Rs474 mn (+29% yoy;-28% qoq)
was much lower than our estimates. Reason: EBITDA margins (consol) at 17.8% in 3QFY12 (+20
bps yoy;-480 bps qoq) fell to levels observed in FY2010. 3QFY12 marked a break from the trend of
increasing margins over the past four quarters.
Electro-mineral margins decline significantly: highlights commodity nature of the business
PBIT margins (consol) in the EM division declined significantly from 23.9% in 2QFY12 (adj. for
forex gains; reported margins at 28.9%) to17.5% in 3QFY12 (+180 bps yoy). The volatility in
margins highlights the commodity nature of bulk of the business (EMs) which we have been
highlighting. Some of the reasons could be a decline in crude Sic prices, which we have
highlighted in our note dated January 9, 2012 and also increased competition in the European
market post scrapping of anti-dumping duties on Chinese players. Standalone PBIT margins in the
EM business at 16.2% were the lowest since FY2009 even as standalone business represents the
value added part of the EM business.
PBIT margins (consol) in the ceramics business at 19.1% (+220 bps yoy) declined sequentially 380
bps qoq. Standalone ceramics business reported PBIT at 19.3% (+470 bps yoy;+130 bps qoq)
Does 3QFY12 indicate a downward shift in margins profile going forward into FY2013E?
We are looking forward to the conference call, scheduled on February 6, to get clues from the
management so as to determine sustainable margins for the company going into FY2013. In case
lower margins in 3QFY12 become base case for FY2013, it would mean a substantial cut in the
Street’s earnings estimates for FY2013 and FY2014. We had always doubted sustainability of
EBITDA margins which were at all-time highs and modeled margins at 21.5% in FY2012 and
19.3% in FY2013 and FY2014. We maintain our REDUCE rating with TP of Rs150 (12X FY2013E
EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Carborundum Universal (CU)
Others
Electro-minerals spoil the day. CUMI’s 3QFY12 results were lower than estimates led
by sharp qoq decline in margins in the electro-minerals (EMs) business. We have long
highlighted the unsustainable margins and commodity nature of the EMs business:
3QFY12 brought that to the fore. The management inputs in its post-results call should
help in deciding whether 3QFY12 margins should form the base case for the future,
which would mean a significant cut in the Street’s earning estimates. Maintain REDUCE.
EBITDA margins drop qoq
CUMI reported 3QFY12 consolidated revenue of Rs5 bn (+19% yoy;-4% qoq) which was 6%
lower than our estimates. Reported consolidated EBITDA of Rs896 mn (+20.6% yoy;-24.4% qoq)
was 20% lower than our estimates. Reported PAT (consol) of Rs474 mn (+29% yoy;-28% qoq)
was much lower than our estimates. Reason: EBITDA margins (consol) at 17.8% in 3QFY12 (+20
bps yoy;-480 bps qoq) fell to levels observed in FY2010. 3QFY12 marked a break from the trend of
increasing margins over the past four quarters.
Electro-mineral margins decline significantly: highlights commodity nature of the business
PBIT margins (consol) in the EM division declined significantly from 23.9% in 2QFY12 (adj. for
forex gains; reported margins at 28.9%) to17.5% in 3QFY12 (+180 bps yoy). The volatility in
margins highlights the commodity nature of bulk of the business (EMs) which we have been
highlighting. Some of the reasons could be a decline in crude Sic prices, which we have
highlighted in our note dated January 9, 2012 and also increased competition in the European
market post scrapping of anti-dumping duties on Chinese players. Standalone PBIT margins in the
EM business at 16.2% were the lowest since FY2009 even as standalone business represents the
value added part of the EM business.
PBIT margins (consol) in the ceramics business at 19.1% (+220 bps yoy) declined sequentially 380
bps qoq. Standalone ceramics business reported PBIT at 19.3% (+470 bps yoy;+130 bps qoq)
Does 3QFY12 indicate a downward shift in margins profile going forward into FY2013E?
We are looking forward to the conference call, scheduled on February 6, to get clues from the
management so as to determine sustainable margins for the company going into FY2013. In case
lower margins in 3QFY12 become base case for FY2013, it would mean a substantial cut in the
Street’s earnings estimates for FY2013 and FY2014. We had always doubted sustainability of
EBITDA margins which were at all-time highs and modeled margins at 21.5% in FY2012 and
19.3% in FY2013 and FY2014. We maintain our REDUCE rating with TP of Rs150 (12X FY2013E
EPS).
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