Carborundum Universal - Translation Losses Dents Profitability; Result Update Q3FY15 ::Edelweiss

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Carborundum Universal’s (CUMI) Q3FY15 consolidated revenue decline of 3% was 9% below our estimate and EBITDA surge at 21% YoY was 11% below our estimate. Key positives were: (1) pick up in EBIT margin in electrominerals (EMD) division to 10.4% (up 270bps YoY) after incurring restructuring expenses in Q2FY15; (2) ceramics delivered decent 11% YoY growth; and (3) EBITDA margin expanded 228bps YoY to 11.4% led by fuel cost decline. Key negatives were: (1) flat growth in abrasives at the consolidated level due to Russia slowdown; and (2) EMD reported 16% YoY decline in sales due to translation loss in Volzshky (VAW) led by Rouble depreciation (~50%). Led by strong translation loss of Russian operations due to Rouble depreciation and restructuring of South African operations, we cut our earnings estimates. However, we expect the restructuring to yield positive results and estimate 54% PAT CAGR over FY15-17.

Russia slowdown dents sales

CUMI’s consolidated sales declined 3% YoY, 9% lower than estimates. This was led by flat growth in abrasives due to Russia slowdown, mere 11% YoY growth in ceramics and 16% YoY decline in EMD due to translation loss in VAW led by Rouble depreciation (50%). For 9mFY15, the company reported 1%YoY decline in sales led by 2% YoY growth in abrasives, 4% YoY growth in ceramics and 7% YoY decline in electrominerals.

EBIT margin in EMD improves QoQ

Consolidated operating profit grew a strong 21% YoY and EBITDA margin catapulted 228bps YoY to 11.4% primarily led by fuel cost decline of 337bps to 13.7% of sales. However, gross margin fell 102bps YoY to 64.8% reflecting lack of price hikes. For 9mFY15, the company reported 2%YoY growth in EBITDA led by 12% YoY decline in abrasives EBIT, 33% YoY growth in ceramics EBIT and 25%YoY decline in EMD EBIT.

LINK

https://www.edelweiss.in/research/Carborundum-Universal--Translation-Losses-Dents-Profitability;-Result-Update-Q3FY15/28216.html