Hold Carborundum Universal Ltd for the Target Rs. 894 By Prabhudas Liladhar Capital Ltd
Soft quarter amid VAW impact; guidance intact
Quick Pointers:
* Management retained its guidance of consolidated revenue of 5.5%-6.5% with PBIT margin decline of 250-300bps YoY in FY26.
* CUMI incurred capex of ~Rs1.6bn in H1FY26 and expect to incur a total capex of ~Rs3.5bn in FY26
Carborundum Universal (CU) reported a moderate 6.0% YoY growth in consolidated revenue, while EBITDA margin contracted by 388bps YoY to 12.0%. In the Abrasives segment, logistics disruptions at Rhodius have been resolved, and festive-driven demand helped clear dealer inventories, supporting stronger volume prospects for H2FY26. The Ceramics segment continues to be driven by Metalized Cylinders and Engineered Ceramics, with management focusing on diversification into high-growth industries such as semiconductors, data centers, defence, and aerospace through new product development. Meanwhile, the Electrominerals segment remains under pressure due to an expected ~25% volume decline at VAW amid ongoing sanctions, partially offset by robust performance at Foskor Zirconia. Considering nearterm headwinds, management has maintained its FY26 consolidated revenue growth guidance at 5.5–6.5% YoY, with an expected EBIT margin contraction of 250–300 bps. We roll forward to Sep’27E and maintain ‘Hold’ rating with a SoTP-based revised TP of Rs894 (Rs835 earlier) valuing Abrasives/Ceramics/Electrominerals at 30x/35x/15x Sep’27E (30x/35x/15x Mar’27E earlier)
Long-term View:
We remain cautious in the short-term given the continued challenges in VAW along with Chinese dumping impacting Abrasives. However, CU may perform well in the long run given 1) healthy domestic demand, 2) capacity expansion in Electrominerals and Abrasives 3) value-added product launches in Engineered ceramics, and 4) strong market reach and exports. The stock is trading at a P/E of 39.3x/34.0x on FY27/28E earnings.
Margins declined amid weaker revenue growth:
Consolidated revenue was up 6.0% YoY to Rs13.0bn (Ple: Rs12.3bn). EBITDA declined by 19.8% YoY to Rs1.6bn (PLe: Rs1.3bn) while EBITDA margin declined by 388bps YoY to 12.0% primarily due to lower gross margin and higher employee costs (+20.7% YoY to Rs2.4bn). PBT declined 29.2% YoY to Rs1.1bn (Ple: Rs761mn) due to weaker operational performance partially offset by higher other income (+49.1% YoY to Rs169mn). PAT declined by 35.7% YoY to Rs745mn (PLe: Rs632mn).
Continued challenges in VAW impact Electrominerals:
Abrasives sales improved 7.4% YoY to Rs5.8bn mainly driven by Rhodius and Standalone business. Abrasives EBIT margin declined by 67bps YoY to 5.7%. Ceramics revenue grew 7.8% YoY to Rs3.0bn while its EBIT margin declined by 775bps YoY to 20.7% primarily due to decline in standalone margins. Electrominerals sales were fattish at Rs4.0bn while its EBIT margin dropped by 612bps YoY to 8.2% primarily on account of impact on sanctions on VAW.
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