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This Industrial Stock Jumps 56.85% In 1 Year, Buy For A Target Price of Rs. 952 Says Sharekhan

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Carborundum Universal Limited (CUMI), a subsidiary of the Murugappa Group, was the first in India to make coated and bonded abrasives, as well as Super Refractories, Electro Minerals, Industrial Ceramics, and Ceramic Fibres. The company has a market cap of Rs 14,807.27 and the stock has jumped 56.85% in 1 year. Although Ukraine is a major supplier of raw materials to Russia's abrasives industry, Sharekhan has issued a buy call on the stock with a target price of Rs. 952, notwithstanding the current war between the two countries. The stock was last seen trading at Rs 776.00 on the NSE.

 

Investment rationale for Carborundum Universal Limited (CUMI)
 

Investment rationale for Carborundum Universal Limited (CUMI)

As per the brokerage "CUMI's ~98% Russian subsidiary, Volzhsky Abrasive Works (VAW) manufactures abrasives, ceramics and electro-minerals. VAW is the largest producer of silicon carbide abrasives in Russia, with an installed capacity of 80,000 tonnes p.a. VAW contributed ~23%/30% to CUMI's consolidated Revenues/PAT during FY2019-FY2021. CUMI had spent around Rs. 40 crore (39% of total capex outlay) for its subsidiary in FY21."

"~60% of VAW's production is shipped to Europe and other countries while 40% is consumed in Russia CIS (including Ukraine). VAW also buys some of its raw materials from Ukraine for its abrasives business in Russia. VAW's high exposure towards Russia and European countries is likely to get affected due to the current Russia-Ukraine battle. In addition, it may face logistics issue on shipping products from VAW to such countries, which may stop importing goods from Russia in the near term. Hence, we expect its consolidated net earnings to be impacted in the near term until the situation gets resolved," Sharekhan has claimed.

The brokerage has further noted "CUMI is expanding capacities in India (by 25-30% in electro-minerals division (EMD) by a year or a year-and-a-half and de-bottlenecking in metallized cylinders) and Germany (Rhodius and Awuko acquisitions which would provide entry into new products, raw material security and distribution reach in Europe). Hence, we expect a healthy growth from domestic market and from overseas subsidiaries (ex-Russia) going ahead."

Buy for a revised price target (PT) of Rs. 952

Buy for a revised price target (PT) of Rs. 952

Sharekhan has highlighted "CUMI's near-term performance could be impacted by the Russia-Ukraine crisis given that the Russian subsidiary contributes meaningfully to its revenues and profits. However, as and when things stabilise, we expect CUMI's growth momentum to pick up driven by demand across segments such as abrasives and EMD along with a strong product line-up for overseas operations."

According to the brokerage "CUMI stands to benefit from multiple factors such as a broad-based recovery in industrial capex, China +1 strategy, strong government initiatives to support domestic manufacturing and healthy demand prospects for regular and specialty products. The stock currently trades at a P/E of 27x on FY2024E earnings, which we believe leaves further room for an upside, considering its strong earnings growth outlook and a healthy balance sheet. Hence, we retain Buy on CUMI with a revised PT of Rs. 952."

If the Russia Ukraine crisis is prolonged, it could impact its mid-term performance, weak economic environment both domestic and globally, and delay in sale of its loss-making Fosker Zirconia unit are the key risks of the stock, Sharekhan says.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Read more about: stocks to buy
Story first published: Wednesday, March 9, 2022, 15:57 [IST]
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