Midcap Conglomerates Stock Ticked 34% Revenue Growth, Buy Stock For 24% Return:ICICI Securities Revises Target

Top brokerage firm ICICI Securities has given a buy rating to the stock of Carborundum Universal Ltd. the company's consolidated revenue growth of 34% YoY in Q2FY23 was led by steady performance across electro-minerals (EMD) and ceramics segments and additional sales of Rs. 1.41bn from the newly-acquired subsidiaries, Rhodius, AWUKO and PLUSS.

Stock To Buy: Target Price

The Current Market Price (CMP) of Carborundum Universal Ltd. is around Rs. 846. ICICI Securities has estimated a Target Price for the stock at Rs. 1048. This stock has the potential to give a 23.87% return, in the upcoming 1 year. It is a mid-cap stock with a market capitalization of around Rs. 16,025 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 846
Target Price	Rs. 1048
Potential Upside	23.87%
52-week high share price	Rs. 1,035
52-week low share price	Rs. 652

Financials

Carborundum Universal (CUMI) has reported a mixed set of numbers with in-line revenue performance while profitability was hit due to higher RM cost and consolidation of new acquisitions. Consolidated revenue grew 34% YoY to Rs. 11.3bn led by 49% / 21% / 27% YoY growth in abrasives/ceramics/electrominerals (EMD), respectively. The recent acquisitions, Rhodius and AWUKO, contributed Rs. 1.28bn in Q2FY23 vs Rs. 1.8bn in Q1FY23 to sales. The consolidated EBITDA margin came in lower at 14.5%.

Stock Valuation

Giving a buy rating, ICICI Securities mentioned, "The geographical expansions and high-value customised solutions are likely to drive growth in both abrasives and ceramics. The recent acquisitions are expected to strengthen the core portfolio and expand the end-user industry base. Maintain Buy on the stock as we remain long-term believers in industrial recovery and transience of cost pressures, with a revised target price of Rs. 1,048."

Highly diversified product portfolio

Management indicated that losses are likely to continue in the near to medium-term for both subsidiaries. Ceramics and EMD segments reported strong EBIT margins, which partly offset the decline in abrasives segment. We consider CUMI a strong play on industrial capex, and remain optimistic on it due to its highly diversified product portfolio, and net cash balance sheet. Strong domestic demand and China+1 policy internationally augur well for the company's EMD business.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. 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.