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Mixed Q1, Ceramics lead the way ahead

We revise our FY27/28 EPS estimates by +4.2%/+3.0% factoring healthy outlook in ceramics with upward revision in Ceramics growth guidance. Carborundum Universal (CUMI) reported a mixed Q1FY27 performance with consolidated revenue growth of 16.9% YoY, supported by broad-based growth across Abrasives (+20.1%), Ceramics (+16.5%) and Electrominerals (+16.8%) with EBITDA margin contracted by 48bps YoY. Standalone growth was volume-led with only limited price increases, while easing Chinese import competition provided an early positive trend. Electrominerals remained the key growth driver predominantly export-led and supported by higher treatedproduct mix, while exports are progressing towards ~40% of the business. Ceramics witnessed healthy traction across engineered ceramics, metallized cylinders and SOFC ceramics, prompting management to raise FY27 growth guidance to 23-25% (15-15.5% earlier); semiconductor wafer-fab equipment and aerospace & defence applications are expected to scale meaningfully from FY28. However, Abrasives profitability remained under pressure from ~Rs160mn of cost push, primarily due to higher oillinked inputs and fuel costs, although management retained its 9.5-10% margin guidance excluding Awuko losses. Management continues to pursue closure of Awuko and a strategic resolution for Foskor Zirconia, with both processes expected to progress over the next quarter. Management retained its FY27 capex guidance at Rs4bn, focused on advanced ceramics, power electronics, substrates, metallized tubes/rings, thermal spray powders and zirconia furnace grain. Overall, management expects ~15%YoY revenue growth excluding Awuko and Foskor, with improving ceramics, exports and advanced-application opportunities supporting medium-term growth. The stock is trading at a P/E of 49.9x/40.8x on FY27/28E earnings. We upgrade our rating from ‘Reduce’ to ‘Hold’ given healthy outlook in Ceramics division with a SoTP-based revised TP of Rs1,072 (Rs986 earlier) valuing Abrasives/Ceramics/Electrominerals at 35x/41x/15x Mar’28E (33x/40x/15x Mar’28E).

Long term:

While near-term challenges persist due to continued weakness in overseas subsidiaries however we remain constructive on CUMI’s long term outlook supported by

1) healthy domestic demand

2) capacity expansion in Electrominerals and Abrasives

3) value-added product launches in Engineered ceramics

4) strong market reach and exports.

Revenue grew with lower gross margins impacting the profitability:

Consolidated revenue was up ~17% YoY to Rs14.1bn (Ple: Rs12.7bn). Gross margin contracted by 345bps YoY to 59.6%. (Ple: 62.7%) EBITDA increased by 11.4% YoY to Rs1.4bn (PLe: Rs1.3bn) while EBITDA margin contracted by 48bps YoY to 9.5% (PLe: 10.2%) primarily due to lower gross margin and higher Power & fuel expenses (+17.2% YoY). PBT (ex-extra-ordinaries) increased by 7.4% YoY to Rs833mn (Ple: Rs809mn). Adj. PAT declined by 2.7% YoY to Rs602mn (PLe: Rs666mn) due to higher effective tax rate of 35.8% (+305bps YoY) During the quarter, company reported onetime gain of Rs 251.8mn on account of transfer of leasehold rights of immovable property and related building for Sterling Abrasives

Ceramics revenue grew while margin contracted:

Abrasives sales increased by 20% YoY to Rs6.1bn mainly with Abrasives EBIT margin expanded by 425bps YoY to 6.5% (against lower base). Ceramics revenue growth increased by 16.5% YoY to Rs3.5bn driven by standalone business while its EBIT margin contracted by 365bps YoY to 21.3%. Electrominerals sales increased by 17% to Rs4.7bn while its EBIT margin expanded by 355bps YoY to 4.6% (against lower base)

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