Carborundum Universal ceramics outlook improves as advanced applications scale from FY28

Investment View and Recommendation

In its August 10, 2026 Q1FY27 result update, PL Research upgraded Carborundum Universal (CUMI) from Reduce to Hold and raised its target price to Rs1,072 from Rs986. The broker revised its FY27E and FY28E EPS estimates upward by 4.2 per cent and 3.0 per cent, respectively, primarily reflecting a healthier outlook and increased growth guidance for the Ceramics division.

PL remains constructive on CUMI's long-term outlook despite near-term weakness in overseas subsidiaries. The positive factors include healthy domestic demand, capacity expansion in Electrominerals and Abrasives, value-added engineered-ceramics launches, and the company's market reach and exports.

Q1FY27 Financial Performance

CUMI reported mixed Q1FY27 consolidated results. Revenue increased 17.0 per cent year-on-year to Rs14,266 million, 12.0 per cent above PL's estimate of Rs12,733 million. EBITDA rose 11.4 per cent year-on-year to Rs1,351 million, 4.0 per cent ahead of estimate, but the EBITDA margin fell 48 basis points year-on-year to 9.5 per cent and was 70 basis points below estimate.

Gross margin declined 345 basis points year-on-year to 59.6 per cent, while power and fuel expenses rose 17.2 per cent year-on-year. Adjusted PAT declined 2.7 per cent year-on-year to Rs602 million, 10.0 per cent below PL's estimate, owing to a higher effective tax rate of 35.8 per cent. Reported PAT was Rs764 million, including a one-time gain of Rs251.8 million from the transfer of leasehold rights and a related building for Sterling Abrasives.

Segment Performance

All major segments delivered revenue growth in Q1FY27. Abrasives revenue rose 20.1 per cent year-on-year to Rs6,098 million and EBIT margin expanded 425 basis points to 6.5 per cent, aided by a low base. However, management indicated about Rs160 million of cost pressure, mainly from oil-linked inputs and fuel costs, and maintained Abrasives margin guidance of 9.5-10.0 per cent excluding Awuko losses.

Ceramics revenue grew 16.5 per cent to Rs3,490 million, driven by the standalone business, although EBIT margin contracted 365 basis points to 21.3 per cent. Electrominerals revenue grew 16.8 per cent to Rs4,728 million and EBIT margin expanded 355 basis points to 4.6 per cent from a low base. Standalone growth was volume-led, with only limited price increases, while easing Chinese import competition was an early positive development.

Growth Outlook and Management Guidance

Management raised FY27 Ceramics growth guidance to 23-25 per cent from 15-15.5 per cent, supported by traction in engineered ceramics, metallised cylinders and SOFC ceramics. Semiconductor wafer-fab equipment and aerospace and defence applications are expected to scale meaningfully from FY28.

Electrominerals is expected to benefit from exports and a higher treated-product mix, with exports progressing towards about 40 per cent of the business. Management expects about 15 per cent FY27 revenue growth excluding Foskor Zirconia and Awuko, compared with earlier guidance of about 11-12 per cent.

Abrasives growth guidance remains about 5.5-6.0 per cent, or 11-12 per cent adjusted for Awuko, while Electrominerals growth guidance is about 9-10 per cent excluding Foskor's impact.

Capex and Strategic Priorities

Management retained FY27 capex guidance of Rs4,000 million. The planned investments cover advanced ceramics, power electronics, substrates, metallised tubes and rings, thermal-spray powders and zirconia furnace grain.

Closure of Awuko and a strategic resolution for Foskor Zirconia were expected to progress over the following quarter.

Key Concerns

• Continued weakness in overseas subsidiaries.
• Input-cost pressure and margin pressure in Abrasives.
• Execution of the Awuko and Foskor Zirconia resolutions.

Valuation

PL values CUMI on a sum-of-the-parts basis using March 2028E earnings multiples of 35 times for Abrasives, 41 times for Industrial Ceramics and 15 times for Electrominerals. The valuation assigns Rs335 per share to Abrasives, Rs655 to Industrial Ceramics, Rs85 to Electrominerals and negative Rs4 to other businesses, resulting in the Rs1,072 target price.

Ceramics represents about 61 per cent of the sum-of-the-parts value. At the report CMP of Rs1,121, the stock traded at 49.9 times FY27E and 40.8 times FY28E earnings.