PL Stock Report: Carborundum Universal (CU IN) - Q1FY24 Result Update - Healthy performance; strong demand outlook - BUY

Carborundum Universal (CU IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,259 | TP: Rs1,482

Q1FY24 Result Update - Healthy performance; strong demand outlook

Quick Pointers:

♦ Better product mix and improving operational efficiency resulted in EBITDA margin expansion (up 290bps YoY).

♦ Softening demand in European market impacted RHODIUS performance.

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

Margins expansion across segment drives profitability: Consolidated revenue came in at Rs12bn, up 5.6% YoY (PLe ~Rs12.7bn) driven by strong growth in Ceramics segment (up 18% YoY to Rs2.9bn), while Abrasives segment grew 1.1% YoY to Rs5.2bn. EBITDA grew 32.9% YoY to Rs1.7bn (PLe ~Rs1.6bn), with EBITDA margin expanding by 290bps YoY to 14.1% (PLe ~12.7%), mainly due to lower other expenses (down 8.8% YoY). Segment wise EBIT margin- Abrasives margins expanded to 6% vs 3.5% in Q1FY23, Industrial Ceramics margins expanded to 28.2% vs 24% in Q1FY23 and Electrominerals margins expanded to 17.7% vs 14.5% in Q1FY23.PAT grew ~43.7% YoY to Rs1.1bn (PLe ~Rs1.1bn) aided by higher other income (up 24.3% to Rs309mn).

Performance of recent acquisitions: RHODIUS revenue declined to ~€15.5mn vs ~€18mn in Q1FY23, owing to softening demand in European markets. Revised FY24 guidance for RHODIUS to flat revenue growth (vs ~8-10% growth expected earlier) and to report loss (in same range as in FY23 -loss of ~€4.7mn). AWUKO sales came in flat at ~€2.5mn with loss of ~€0.7mn in Q1FY24. Maintained loss guidance for AWUKO at ~€2.5mn in FY24 and to breakeven in FY25.

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