The Murugappa group company, which is into abrasives and electro-minerals, has strong integration and expansion plans

Moneylife Digital Team

Carborundum Universal (CUMI) is a Murugappa group company which is into coated and bonded abrasives in India, super refractories, electro-minerals, industrial ceramics and ceramic fibres. An abrasive is a hard substance used for grinding & polishing and removing metal. Electro-minerals are used as raw material in making abrasives and refractories. They are also used for surface preparation and in the tiles and paints industries for silicon wafer slicing in solar cell manufacture, dental care and skin therapy. Abrasives are the company’s largest business segment. Electro-minerals, the second-largest business, has three major product groups—silicon carbide, brown-fused alumina and white-fused alumina.

CUMI makes over 20,000 varieties of products manufactured at around 25 locations across India, Russia, South Africa, Australia, China, Thailand and Canada. It exports its products to about 43 countries. About 44% of the company’s total revenues come from international sales. For FY11-12, CUMI expects around 47% of revenue to be from outside India and 53% from within India. Its subsidiaries include Volzhsky Abrasive Works in Russia and Foskor Zirconia Pty Ltd in South Africa. The acquisition of Volzhsky Abrasive Works and Foskor Zirconia gave CUMI access to key and scarce raw materials—silicon carbide and zirconia used in high-end abrasives and ceramics.



For the financial year ended 31 March 2011, CUMI recorded a standalone net profit of Rs124.25 crore against Rs58.01 crore in FY09-10 with a rise in total income to Rs936.25 crore from Rs751 crore. In FY10-11, its standalone earnings per share (EPS) stood at Rs13.29 compared to Rs6.21 in FY09-10.

In FY10-11, CUMI’s abrasives segment (on a standalone basis) registered net revenues of Rs515.53 crore compared to Rs428.20 crore for the corresponding period last year, while net revenues of its ceramics segment rose to Rs246.82 crore from Rs199.05 crore. In the same period, the electro-minerals segment recorded net revenues of Rs209.99 crore from Rs156.56 crore. All its business segments are doing well.

For FY10-11, CUMI recorded a consolidated net profit of Rs170.79 crore compared to Rs101.73 crore in FY09-10 on consolidated net revenues of Rs1,600.74 crore, up from Rs1,279.75 crore. In FY10-11, on a consolidated basis, the company’s abrasives segment registered net revenues of Rs699.01 crore compared to Rs550.73 crore for the corresponding period last year, while net revenues of its ceramics segment increased to Rs347.61 crore from Rs285.71 crore. In the same period, the electro-minerals’ segment recorded net revenues of Rs597.88 crore from Rs478.91 crore. All its business segments grew by more than 20%.

CUMI’s standalone net profit for the quarter ended 31 March 2011 increased to Rs38.02 crore from Rs14.53 crore in the corresponding period last year. Its standalone total income for the March 2011 quarter stood at Rs259.01 crore compared to Rs208.14 crore in the corresponding period last year.

CUMI’s consolidated net profit for the March 2011 quarter rose to Rs49.43 crore from Rs32.43 crore in the corresponding period last year. In the same period, its consolidated total income for the March 2011 quarter stood at Rs434.42 crore compared to Rs365.35 crore in the corresponding period last year, while its consolidated net revenues grew to Rs433.01 crore from Rs351.38 crore. The company is entering the renewable energy materials manufacturing industry. It is planning to supply material parts for renewable energy generators including silicon wafers, along with material for processing these wafers. It is in the process of finalising three joint ventures (JVs) for its proposed renewable energy materials manufacturing plants. The company expects to announce the formation of two of these three JVs by August 2011.

The JVs would be set up in a 25-acre Central government-approved renewable energy SEZ (special economic zone) in Kochi, Kerala. On a consolidated basis, CUMI has planned capex of Rs150 crore for 2011-12. This does not include the investment in the JVs.

Over the past five quarters, CUMI has reported an average growth in revenues and operating profit of 24% and 38%, respectively. Its average operating margin is 19% and return on net worth is 24%. Its market-cap to revenues is 2.56, while its market-cap to operating profit is 12.36 times. Buy it at the current price.