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UBS Investment Research
Carborundum Universal
S olid 1Q results, maintain BUY
1Q EBITDA/PAT beat estimates on stronger growth and higher margins
CUMI 1QFY11 adjusted PAT of Rs 523mn (+6% QoQ, +95% YoY) came in
sharply ahead of UBS and consensus estimates, led by strong revenue growth of
32% YoY and higher than expected EBITDA margins at 21.4% (up 90bps/430bps
QoQ/YoY). Improvement in EBITDA margins came from higher sales volumes,
price increases taken in last quarter, better product mix and lower interest expense.
Impressive performance across the board
CUMI’s abrasives business grew strongly by 34% YoY and margins recovered
sharply by 470bps to 16.2%. The Ceramics business also did well with 27% YoY
revenue growth and 510bps improvement in margins sequentially. The
Electrominerals business (37%/39% of revenue/EBIT in 1Q) continues to be the
strategic focus of CUMI and grew strongly by 33% YoY coupled with 470bps
improvement in margins at 20.3%. ROCEs were also up QoQ/YoY in all segments.
Maintain estimates, management positive on 2QFY12 too
1Q continued to indicate strong growth trends across segments despite rising input
prices. The management expects this momentum to be maintained in 2Q but
believes that 2HFY12 will depend more on global macro outlook. The mgmt’s
strategy is underpinned by an increased focus on its higher margin generating
EMD business, one of the key factors to our +ve investment view on the stock.
Valuation: Maintain Buy rating and price target of Rs360
We value CUMI on a PE basis with a PT of Rs360, implying FY13E PE of 14x
and EV/EBITDA of 8.5x.
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
S olid 1Q results, maintain BUY
1Q EBITDA/PAT beat estimates on stronger growth and higher margins
CUMI 1QFY11 adjusted PAT of Rs 523mn (+6% QoQ, +95% YoY) came in
sharply ahead of UBS and consensus estimates, led by strong revenue growth of
32% YoY and higher than expected EBITDA margins at 21.4% (up 90bps/430bps
QoQ/YoY). Improvement in EBITDA margins came from higher sales volumes,
price increases taken in last quarter, better product mix and lower interest expense.
Impressive performance across the board
CUMI’s abrasives business grew strongly by 34% YoY and margins recovered
sharply by 470bps to 16.2%. The Ceramics business also did well with 27% YoY
revenue growth and 510bps improvement in margins sequentially. The
Electrominerals business (37%/39% of revenue/EBIT in 1Q) continues to be the
strategic focus of CUMI and grew strongly by 33% YoY coupled with 470bps
improvement in margins at 20.3%. ROCEs were also up QoQ/YoY in all segments.
Maintain estimates, management positive on 2QFY12 too
1Q continued to indicate strong growth trends across segments despite rising input
prices. The management expects this momentum to be maintained in 2Q but
believes that 2HFY12 will depend more on global macro outlook. The mgmt’s
strategy is underpinned by an increased focus on its higher margin generating
EMD business, one of the key factors to our +ve investment view on the stock.
Valuation: Maintain Buy rating and price target of Rs360
We value CUMI on a PE basis with a PT of Rs360, implying FY13E PE of 14x
and EV/EBITDA of 8.5x.
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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