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Carborundum Universal Ltd

Abrasives Ceramics Electrominerals
ACE of Abrasives!
We initiate coverage on Carborundum Universal Ltd (CUMI), a part of Rs42bn, Murugappa group with a Long Term Buy recommendation at Rs241. Market leadership, quality management, growth in end user-industries and economic revival coupled with attractive valuations makes this company a very good play on the overall growth in Indian economy.

Ajay Shethiya+(91 22) 2685 0101 (

December 2003

Dealing (+91 22)2685 0505
Sandeepa Arora Biren Patel 5540 9033 5540 8601

It’s all about money, honey!

Carborundum Universal Ltd: Ace of Abrasives!


Investment Rationale
Overall growth in the economy leading to spurt in user-segment is likely to drive demand growth for CUMI’s product profile. Market leadership in Indian abrasive segment, which contributes 74% to its total revenue. Joint Venture with Wendt Gmbh, enabled CUMI to offer both conventional and super abrasive, leaving virtually a duopoly in the industry, with only competition from Grindwell Norton. Being a part of Murugappa group, CUMI enjoy the group’s professional style of working, leadership status and its high standard of corporate governance. The stock is trading at 7.7 times FY05E EPS of Rs30.9 and 1.36 times its FY05E Book Value of Rs177.

Recommendation BUY CMP 52 week H/L Market Cap Rs 241 Rs 245/100 Rs 2.25bn

Share Holding Pattern Promoters Institutional Investors Other Investors General Public

% 45.54 23.97 2.90 27.59

Share Price Chart

Key Financials
(Amt in Mn) Net Sales % yoy Net profit % yoy EPS % yoy Equity Capital employed OPM (%) RONW (%) Debt-Equity (x) Book NAV (Rs) FY01 2488.9 232.0 24.9 93.4 2362.0 19.2 16.6 0.7 149.7 FY02 2479.8 (0.4) 215.2 (7.3) 23.1 (7.3) 93.4 2383.6 17.9 15.7 0.7 146.5 FY03 2475.7 (0.2) 365.5 69.8 39.2 69.8 93.4 2188.0 13.6 23.9 0.4 163.9 FY04E 2723.2 10.0 242.7 (33.6) 26.0 (33.6) 93.4 2091.8 13.9 15.5 0.3 167.9 FY05E 3050.0 12.0 288.9 19.0 30.9 19.0 93.4 2134.3 14.2 17.5 0.3 176.8

December 18, 2003


Carborundum Universal Ltd: Ace of Abrasives!

Investment Rationale

CUMI, a flagship company of the Rs42bn, Murugappa Group was founded in 1954 as a tripartite collaboration between Ajax Products Ltd., India The Carborundum Co., USA and the Universal Grinding Wheel Co. Ltd., U.K. With technical assistance from its collaborators, CUMI undertook the ambitious project of manufacturing India’s first Coated and Bonded Abrasive products. Besides this, CUMI also pioneered the manufacture of Super Refractories, Electro-Cast Refractories, Electro-Minerals, Industrial Ceramics, Ceramic Fibres and Ceramic Colours in India.CUMI, a pioneer and market leader in the manufacture of abrasives in India has one of the widest ranges of bonded abrasives in the world

Quality Management
Being a part of Murugappa group, CUMI enjoys the group’s professional style of working and its leadership status. Mr. M V Murugappan, Chairman of CUMI is leading the top management. He has over 20years of managerial experience with Murugappa group and has been instrumental in CUMIs expansion and diversification plans. Mr. Ramesh Agarwal, President and Wholetime Director has been associated with the same Industry and has varied experience with top companies. We believe that CUMI has a well knit team.

End user-segments to fuel growth
Automobile The Indian Automobile sector grew at 16.53% in FY03 contributed by export growth of 65.35% and domestic growth of 14.80% as compared to FY02.Infrastructure has received a fillip in last 2 years through N-S-E-W corridor and Golden Quadrilateral projects. The transformation of road transport through these initiatives as well as higher economic growth would lead to higher demand for commercial vehicle industry. Passenger Cars continue to grow in double digit driven by rising aspirations and cheap and easy availability of...
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