Recommendation from Abrasives Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

CARBORUNDUM UNIVERSAL LTD . :PICKING UP MOMENTUM

HERE IS WHY
✓Strong financial position
✓Dominant market position
✓Huge growth opportunities with expansion

Carborundum Universal Limited (CUMI) was founded in 1954 as a tripartite collaboration between the Murugappa Group, The Carborundum Co., USA and the Universal Grinding Wheel Company, UK. The company pioneered the manufacture of coated abrasives and bonded abrasives in India in addition to the manufacture of super refractories, electro minerals, industrial ceramics and ceramic fibres. CUMI is one of the five manufacturers in the world with fully integrated operations that include mining, fusioning, wind and hydro power stations, manufacturing, market- ing and distribution.

The company has strong fundamentals. It reported net sales of ₹ 2,631.7 crore in FY21 compared to ₹ 2,599crore in FY20, indicating a slight growth of nearly 1.25 per cent. The revenues were supported by growth in the electro minerals segment which contributes about 41 per cent to consolidated revenues. The EBIDTA witnessed a strong growth of 12 per cent to reach ₹ 497 crore in FY21 as against ₹ 443.6 crore in the previous year. Also, the PAT inched up by 8.2 per cent to ₹ 278 crore while it stood at ₹ 257.2 crore in FY20. The company had enough liquidity in hands as the cash flows from operating activities increased from ₹ 407 crore in FY20 to ₹ 451 crore in FY21 by 10.8 per cent.

For the latest quarter ended December, it recorded resilient performance in the midst of supply chain challenges and ever buoyant input costs, which was reflected by strong growth in both sales and profitability revenue that grew by 22.57 per cent YoY to ₹ 890.91 crore. On a sequential basis, the top-line was up by 6.83 per cent. PBIDT exclusive of other income was reported at ₹ 157.58 crore, up by 21.43 per cent YoY and the corre- sponding margin was reported at 17.52 per cent, contracting by 17 basis points YoY. PAT was reported at ₹ 106.84 crore, up by 29.77 per cent YoY. The growth was driven by strong performance of all the three business segments and its subsidiaries as well.

On the returns front, the ROE stood at about 14 per cent and ROCE was higher at 18.74 per cent. The stock is trading near the PE level of 39. The company is almost debt-free. CUMI’s constant innovation and product upgradation through in-house research and develop- ment and strategic alliances with global leaders in grinding technology have not only ensured its market leadership in India and abroad but also helped it gain international recognition as a manufac- turer of quality abrasives and a provider of total grinding solutions.

The company has strong manufacturing capabilities with over 10 plants located mainly in India and Russia. It recently made a strategic acquisition of Nether- lands-based PLUSS Advanced Technolo- gies which is expected to reap synergetic benefits going ahead. It also acquired assets of a Germany-based company called AWUKO, which marks its plans of expansion in Europe. The company is witnessing increasing demand across all the segments and has a strong order book. By strengthening its core business, expanding through acquisition and focusing on new developments like clean energy and the electric vehicle space, the company has got a way to go ahead. And hence, by virtue of all these factors, we recommend our reader-investors to BUY the scrip.