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Carborundum Universal (CU)
Others
Outperforms on all counts. CUMI outperformed on all counts in 1QFY12. EBITDA at
Rs995 mn was significantly ahead of our estimates at Rs801 mn. 1QFY12 consolidated
EBITDA margins at 20.8% were the highest in the past three years as the company
derived operating leverage on incremental sales. Going forward, it would be difficult for
the company to maintain the current margins. Also, being an exports dependant
company (25% of revenues in Euros and another 20% in US dollars) and linkage with
the manufacturing sector could mean medium-term risks on growth. We would adjust
our rating and estimates post the conference call. We are positively biased on account
of stellar 1QFY12.
Outperforms on all counts
CUMI reported 1QFY12 revenue at Rs4.78 bn (+33% yoy; +10% qoq) versus our estimate at
Rs4.21 bn. Reported PAT at Rs523 mn (+20% yoy; +5%qoq) was ahead of our estimate at Rs411
mn. EBITDA margins at 20.8% (+400 bps yoy; +40 bps qoq) were higher than our estimate at
19%. We are positively surprised on two counts:
Revenues are 10% higher qoq. As the company was operating at near full capacity utilization in
4QFY11, we were assuming flat revenues qoq.
EBIT margins are higher qoq across all product segments. In the past, EBIT margins in the
electro-mineral (EM) business have had an inverse relationship with margins in abrasives and
ceramics. In our view, benefits related to product mix have aided margins. Specifically in EMs,
margins are up on account of price increase taken at VAW, Russia and better operating
performance at Foskor, South Africa.
Other highlights are:
EBITDA margins in the standalone business at 21.8% (+400 bps yoy; highest in the past 3 years)
were ~100 bps higher qoq due to operating leverage on account of fixed expenses (employee +
other expenses) having remained the same in the past few quarters whereas sales have been
increasing.
EBIT margin in the abrasive segment (consolidated) at 16.2% (+470 bps yoy; +240 bps qoq)
was the highest in the past three years. EBIT margin in the ceramics segment improved
significantly to 22% (+250 bps yoy; +510 bps qoq). EBIT margin in EMs segment was 20.3%
(+470 bps yoy; +180 bps qoq). Margins in the EM segment have been on an uptrend for the
past 3 quarters as the proportion of high value-added products has improved.
Operating leverage to the fore
CUMI is deriving benefit on account of operating leverage on incremental revenues. The
fixed expenses in the business (employee expense + other expenditure) have remained
broadly constant in the past three quarters whereas sales have been increasing. This has led
to the company reporting EBITDA margins which are higher than normalized. Going forward,
it would be difficult for the company to maintain current margins due to limited incremental
operating leverage as it is operating at near full utilizations across product segments. In our
view, operating leverage has peaked out as the capacity utilizations would trend lower from
here as the company increases capacity across all business segments.
Employee costs lower qoq due to one-off adjustments in 4QFY11
Employee costs decreased to Rs504 mn from Rs980 mn in 4QFY11. In the last quarter, the
company had started line by line accounting for proportionate expenses of the JVs (earlier
the expenses across JVs were clubbed under one item in the P&L) on account of which
employee expenses had increased. Also, there were one-off expenses of US $1 mn on
account of golden jubilee payments to employees at VAW, Russia. We would get a clarification
from the management on the reason for a sharp reduction in employee costs qoq.
Raw material cost (as % of sales) higher due to one-off adjustments in 4QFY11
Raw material as proportion of net sales increased to 33.7% versus 22.6% in 4QFY11. In the
last quarter, the company had made year-end adjustments to RM cost (in 4QFY11) for
substantial increase in stock in two large subsidiaries. Also, for valuation of finished stock,
the company takes into account the revised prices for raw materials, power and fuel only
once in 4Q. On account of these adjustment, RM/sales were lower in 4QFY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Carborundum Universal (CU)
Others
Outperforms on all counts. CUMI outperformed on all counts in 1QFY12. EBITDA at
Rs995 mn was significantly ahead of our estimates at Rs801 mn. 1QFY12 consolidated
EBITDA margins at 20.8% were the highest in the past three years as the company
derived operating leverage on incremental sales. Going forward, it would be difficult for
the company to maintain the current margins. Also, being an exports dependant
company (25% of revenues in Euros and another 20% in US dollars) and linkage with
the manufacturing sector could mean medium-term risks on growth. We would adjust
our rating and estimates post the conference call. We are positively biased on account
of stellar 1QFY12.
Outperforms on all counts
CUMI reported 1QFY12 revenue at Rs4.78 bn (+33% yoy; +10% qoq) versus our estimate at
Rs4.21 bn. Reported PAT at Rs523 mn (+20% yoy; +5%qoq) was ahead of our estimate at Rs411
mn. EBITDA margins at 20.8% (+400 bps yoy; +40 bps qoq) were higher than our estimate at
19%. We are positively surprised on two counts:
Revenues are 10% higher qoq. As the company was operating at near full capacity utilization in
4QFY11, we were assuming flat revenues qoq.
EBIT margins are higher qoq across all product segments. In the past, EBIT margins in the
electro-mineral (EM) business have had an inverse relationship with margins in abrasives and
ceramics. In our view, benefits related to product mix have aided margins. Specifically in EMs,
margins are up on account of price increase taken at VAW, Russia and better operating
performance at Foskor, South Africa.
Other highlights are:
EBITDA margins in the standalone business at 21.8% (+400 bps yoy; highest in the past 3 years)
were ~100 bps higher qoq due to operating leverage on account of fixed expenses (employee +
other expenses) having remained the same in the past few quarters whereas sales have been
increasing.
EBIT margin in the abrasive segment (consolidated) at 16.2% (+470 bps yoy; +240 bps qoq)
was the highest in the past three years. EBIT margin in the ceramics segment improved
significantly to 22% (+250 bps yoy; +510 bps qoq). EBIT margin in EMs segment was 20.3%
(+470 bps yoy; +180 bps qoq). Margins in the EM segment have been on an uptrend for the
past 3 quarters as the proportion of high value-added products has improved.
Operating leverage to the fore
CUMI is deriving benefit on account of operating leverage on incremental revenues. The
fixed expenses in the business (employee expense + other expenditure) have remained
broadly constant in the past three quarters whereas sales have been increasing. This has led
to the company reporting EBITDA margins which are higher than normalized. Going forward,
it would be difficult for the company to maintain current margins due to limited incremental
operating leverage as it is operating at near full utilizations across product segments. In our
view, operating leverage has peaked out as the capacity utilizations would trend lower from
here as the company increases capacity across all business segments.
Employee costs lower qoq due to one-off adjustments in 4QFY11
Employee costs decreased to Rs504 mn from Rs980 mn in 4QFY11. In the last quarter, the
company had started line by line accounting for proportionate expenses of the JVs (earlier
the expenses across JVs were clubbed under one item in the P&L) on account of which
employee expenses had increased. Also, there were one-off expenses of US $1 mn on
account of golden jubilee payments to employees at VAW, Russia. We would get a clarification
from the management on the reason for a sharp reduction in employee costs qoq.
Raw material cost (as % of sales) higher due to one-off adjustments in 4QFY11
Raw material as proportion of net sales increased to 33.7% versus 22.6% in 4QFY11. In the
last quarter, the company had made year-end adjustments to RM cost (in 4QFY11) for
substantial increase in stock in two large subsidiaries. Also, for valuation of finished stock,
the company takes into account the revised prices for raw materials, power and fuel only
once in 4Q. On account of these adjustment, RM/sales were lower in 4QFY11.
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