Carborundum Universal share price: Buy rating with a target price of Rs 491
Carborundum Universals consolidated revenue (Rs 7.3 bn) surpassed expectations (Rs 6.9 bn), up 13% yoy. This reflects a better (standalone) performance. Overseas operations saw lower volumes, hit by the second wave of Covid-19 and container shortages. The EBITDA margin was a robust 17.7%, led by prudent cost control and a favourable product mix.
Carborundum Universal’s consolidated revenue (Rs 7.3 bn) surpassed expectations (Rs 6.9 bn), up 13% yoy. This reflects a better (standalone) performance. Overseas operations saw lower volumes, hit by the second wave of Covid-19 and container shortages. The EBITDA margin was a robust 17.7%, led by prudent cost control and a favourable product mix.
With greater utilisation, focus on operational efficiencies, a favourable product mix and quitting the loss-making Foskor, management is confident of steady margins ahead. It talked of strong coming industrial demand, opportunities from the government’s PLI scheme. Factoring in the strong demand and margin expansion, Anand Rathi raised their earnings estimates and maintained a Buy on Carborundum Universal with a higher target price of Rs 491 (25x FY23e).
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Abrasives, electro-minerals (EMD) bouncing back faster:
Abrasives revenue was up 15% yoy, led by significantly improved demand from construction and auto and ancillaries, aided by festival demand. EMD revenue was up 19% yoy driven by healthy growth in standalone EMD and international subsidiaries. Ceramics revenue was up 5% yoy as demand was only from repairs and maintenance, while project orders were muted.
Government’s increased impetus to infrastructure:
In the latest Union Budget, significant allocations were announced to infrastructure and many sectors to boost local manufacturing. This will boost related sectors like cement, steel and automobiles. The PLI scheme for 13 sectors would further increase investments in India. We believe such increased investments in India would give a fillip to demand for all the company’s divisions.
Carborundum Universal Valuation:
Carborundum Universal Management iterated its positive stance on all its businesses. With a better-than-expected 9M FY21, we believe it is back to growth. Accordingly, Anand Rathi raised their revenue and margin estimates, led by higher demand and increased operational efficiencies. The stock trades at 28x/25x/22x FY21e/FY22e/ FY23e. Anand Rathi maintains their Buy rating, with a revised target price of Rs 491 (25x FY23e EPS).
Carborundum Universal Key Risks:
Drag in industrial production for a long time and delay in the sale of Fosker Zirconia.
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