Buy Carborundum Universal; target of Rs 1408: Prabhudas Lilladher

Prabhudas Lilladher's research report on Carborundum Universal

Carborundum Universal (CU) reported mixed quarterly performance with consolidated revenue growth of 1.6% YoY, owing to forex impact and Chinese product dumping leading to lower price realization in ~30% of the business (despite healthy growth in remaining businesses). EBITDA margin remained broadly flat at 14.6% YoY. Domestic Abrasives is witnessing challenges in retail segment (~30-35% of abrasives business) with increased dumping by Chinese players and competition from new players (eg. Paint players) leveraging their distribution network. Amongst subsidiaries, VAW reported healthy revenue of Ruble 2.5bn (up ~39% YoY on CC basis), partly impacted by adverse currency translations. While, Rhodius and AWUKO performance guidance has been retained for FY24. Consequently, management revised its guidance downwards for 1) Consolidated revenue growth of ~5% vs 10% guided earlier and 2) Standalone growth of ~10-12% vs ~15% guided earlier. We believe CU will perform better in the long run given 1) new products launches across segments, 2) better market reach, 3) strong exports and 4) likely improvement in recently acquired subsidiaries. The stock is trading at PE of 43.9x/33.7x/27.5x FY24/25/26E. We change our FY24/25/26E estimates by -4.3%/-5%/-5.4% factoring in forex translation impact, slowdown in European markets delaying subsidiaries performance recovery and Chinese product dumping impacting realizations, particularly retail abrasives (~30%) segment.

Outlook

Maintain ‘Buy’ with revised SoTP of Rs1,408 (Rs1,482 earlier), valuing Abrasives /Ceramics /Electrominerals at 35x/48x/25x Sep’25E EPS.