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Mixed Q4, subsidiaries recovery remains a key to watch

Carborundum Universal (CUMI) reported a mixed Q4FY26 performance with consolidated revenue growth of 15.4% YoY to driven by broad-based growth across Abrasives (+13.4% YoY), Ceramics (+18.6% YoY) and Electrominerals (+14.0% YoY) while EBITDA margins contracted by 171bps due to weakness Rhodius abrasives, Awuko abrasives and Foskor Zirconia. The Abrasives segment witnessed healthy recovery supported by dealer additions, new product launches, GST-led demand normalization and improving retail and industrial demand, while export competitiveness also improved following reduction in Chinese export incentives. Ceramics continued to benefit from traction in engineered ceramics, SOFC-linked applications and metallized cylinders, whereas Electro Minerals growth was led by exports of treated grain products aided by anti-dumping duties on Chinese imports in Europe. However, consolidated profitability remained impacted by continued losses in overseas subsidiaries including Awuko, Foskor Zirconia and VAW Russia, leading the company to initiate restructuring and closure measures in Awuko and Foskor Zirconia. Going forward, management expects underlying growth momentum to remain stable across core businesses, supported by investments advanced ceramics, semiconductor-related applications and export opportunities, although normalization in overseas subsidiaries and global demand conditions remain key monitorable

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. The stock is trading at a P/E of 51.0x/41.2x on FY27/28E earnings. We revise our FY27/28 EPS estimates by 0.5%/5.7% adjusting for the wind-up of loss-making subsidiaries Awuko and Foskor Zirconia, along with improving broad based recovery across core businesses. We roll forward to Mar’28E and downgrade our rating from ‘Hold’ to ‘Reduce’ given recent rally in stock price with a SoTP-based revised TP of Rs986 (Rs825 earlier) valuing Abrasives/Ceramics/Electrominerals at 33x/40x/15x Mar’28E (30x/34x/15x Sep’27E).

Revenue grew with lower gross margins impacting the profitability:

Consolidated revenue was up 15.4% YoY to Rs13.8bn (Ple: Rs13.0bn). Gross margin contracted by 376bps YoY to 59.0%. (Ple: 61.3%). EBITDA declined by 1.4% YoY to Rs1.4bn (PLe: Rs1.6bn) while EBITDA margin contracted by 171bps YoY to 10.3% (PLe: 12.4%) primarily due to lower gross margin. PBT (ex-extra-ordinaries) increased by 3% YoY to Rs961mn (Ple: Rs1.1bn) aided by higher other income (Rs227mn Vs Rs63mn in Q4FY25). Reported PAT (before Jvs/MIs) loss of Rs486mn ( Vs profit of Rs187mn in Q4FY25) due to written down of assets of CUMI AWUKO business (Rs1.2bn) and Foskor Zirconia (Rs160mn) which we have accounted under exceptional items. Adj. PAT came in at Rs1.0bn vs Rs291mn in Q4FY25.

Margins contracted across segments with healthy growth in topline: Abrasives sales improved 13.4% YoY to Rs6.1bn mainly driven by standalone business. Abrasives EBIT margin contracted by 105bps YoY to 5.2%. Ceramics revenue growth increased by 18.6% YoY to Rs3.5bn driven by standalone business while its EBIT margin contracted by 709bps YoY to 17.8% primarily due to decline in standalone margins Electrominerals sales increased by 14% to Rs4.3bn while its EBIT margin expanded by 206bps YoY to 4.5% likely on account of impact on sanctions on VAW.

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