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  • Stock Recommendation: Carborundum Universal Ltd (CUMI) – BUY – TP Rs.420

    Publish date: 16th July, 2018

    We interacted with the management of Carborundum Universal Ltd (CUMI) to get an update on various business verticals in India and overseas. Overall the outlook of the management remains consistent with the earlier commentary in the analyst call post Q4FY18 result. Volumes continue to grow across verticals. Industrial ceramics and EMD division have been witnessing rising demand across geographies. Company's Russian subsidiaries VAW is likely to report high capacity utilization in FY19/FY20.

    Key Highlights

    • Management stated that the volumes in abrasives segment have started to improve at a reasonable pace led by uptick in economic activity. In the international abrasives business, momentum in company's Russian subsidiary VAW is expected to flow into FY19.
    • Demand for value added/engineered ceramics including Metz (metalized cylinders) continues to drive ceramics sales. We believe that EBIT margin in the segment would further improve on back of operating leverage and higher capacity utilization levels in FY19/20.
    • Valuation & outlook

    • Given the recent poor share price performance (-12% returns post Q4 result), we believe that the market in building limited growth in 1HFY19.
    • Our investment thesis is predicated on expected turnaround/pickup across all the divisions led by global recovery for company's products.
    • 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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