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  • Stock recommendation: Carborundum Universal Ltd - BUY - TP Rs.420

    Publish date: 7th August, 2018

    Result Update

    CUMI Q1FY19 result is in line with our estimate but higher than the consensus estimate. Encouraged by the volume growth across divisions (highlight that industrial ceramics and EMD division continues to report traction across geographies), we maintain our positive view on the company.

    Key Highlights

    • CUMI consolidated revenue reported at Rs 6.3 Bn in Q1FY19 (+22.1% y/y) is driven by all the three divisions- abrasives, EMD (Electrominerals Division) and ceramics divisions.
    • EBITDA margin, expanded to 16.9% in the quarter vis-à-vis 13.9% in Q1FY18 (standalone EBITDA margin at 16.5% in Q1FY19).
    • Management sounded confident of delivering two years sales guidance of Rs 32 Bn in FY20.

    Valuation & Outlook

    • Our investment thesis is predicated on continued volume pickup across geographies; margin improvement led by 1/ operating leverage and 2/ increased prices (mainly in value engineered products). We also believe that the company will be able to push compelling price increase (in the range of 7% to 10%) in 9MFY19/FY20.
    • We take notable comfort in the demand outlook for the company's products and potential capacity ramp up across divisions. In view of upside to our unchanged target price of Rs 420, we maintain 'BUY' (ascribe PER 22x FY20 estimated earnings) rating on CUMI stock.


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