Buy Carborundum Universal; target of Rs 1482: Prabhudas Lilladher

Prabhudas Lilladher's research report on Carborundum Universal

Carborundum Universal (CU) reported healthy quarterly performance with consolidated revenue growth of 5.6% YoY and EBITDA margin expansion of 290bps YoY to 14.1%. All major subsidiaries except RHODIUS reported healthy performance in Q1FY24. VAW reported healthy revenue growth (up ~14% YoY to Rubble2.4bn in Q1FY24), driven by better realization across segment, higher capacity utilization level and healthy demand in Russia (~60% of VAW sales). In abrasives, RHODIUS was impacted due to slowdown in European markets and higher energy cost, standalone abrasives witnessed competition in retail portion (~35%). Industrial ceramics reported strong performance (up ~18% YoY) and expect ~20% revenue CAGR, driven by new product launches and high value technical ceramics. Management guided standalone revenue growth of ~15% and consolidated revenue growth of ~10% in FY24. We believe CU will benefit from new products launches across segment, better market reach, strong exports and likely improvement in recently acquired subsidiaries. The stock is trading at PE of 49.2x/37.5x/30.5x FY24/25/26E. We change our FY24/25/26E estimates by -5.9%/-5.3%/-5% factoring in muted performance in RHODIUS.

Outlook

We maintain ‘Buy’ with revised SoTP of Rs1,482 (Rs1,501 earlier), valuing Abrasives /Ceramics /Electrominerals at 35x/48x/25x Sep’25E EPS.