Fundamental Analysis of Carborundum Universal – Future Plans
Fundamental analysis of Carborundum Universal: Manufacturing is emerging as an essential pillar of the country’s economic growth thanks to the performance of key sectors such as automotive, engineering, chemicals, pharmaceuticals and consumer durables. One of the main machines used by almost all manufacturing and engineering companies is abrasives.
Abrasives are used for grinding, polishing and sanding of materials. Abrasives are equipped with sharp particles that use friction to shape wood, metal, and other materials. Let’s get to know the manufacturer of such abrasives, find out more about what its business is, and understand the company financially.
Fundamental Analysis of Carborundum Universal – Company Overview
Carborundum Universal (CUMI) is part of the 120-year-old Murugappa Group, one of India’s leading conglomerates. CUMI began as an abrasives company in 1954. Abrasives are materials used in grinding, polishing, sanding, and other similar processes used to harden or sharpen objects.
As an abrasives manufacturer, CUMI has expanded its value chain from mining and power generation to fusion, manufacturing, marketing and distribution. With over 60 years of experience in the abrasives business, CUMI is a global leader with a presence on more than six continents and a market leader in the abrasives business in India and Russia.
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Carborundum Universal’s business can be divided into four segments: Abrasives is CUMI’s largest segment, generating approximately 41% of FY23 revenue. The second largest segment was Electronic Minerals, which accounted for 34% of sales, while the Ceramics segment accounted for 23% of total revenue earned from operations.
The company’s products have a wide range of applications, especially in industries such as aerospace and defense, electric vehicles, energy, steel and railways. For example, the aerospace industry uses advanced ceramic fasteners, ceramics for human ballistic protection, grinding solutions for fasteners and refractories for launch pads.
Advanced ceramics are also used in making EV fuses, and ceramic fibers are used in fire protection in batteries to prevent thermal runaway. Ceramic electrical insulators are used in high-speed rail networks, railway bearing grinding and track grinding.
Industry Overview
FY23 was marked by challenges across the world, including layoffs, wars, and the economy. environmental issues. As soon as the world recovered from the pandemic, war broke out in Ukraine in February 2022. Prices of raw materials, food, energy and fertilizers have soared.
As inflation rates accelerated, central banks responded with tight monetary policy to curb inflation. The negative impacts of rising import costs, currency depreciation, rising cost of living, and a strong dollar have left many developing countries experiencing extreme economic hardship.
The global economy grew by 3.4% in 2022 and is expected to grow by 2.8% in 2023, then show a moderate rise and settle at 3%. India’s economy has rebounded strongly, driven by continued recovery in domestic demand, government spending on infrastructure and rising exports. Additionally, the ‘China Plus One’ strategy has made India a global supplier to many international companies.
The annual inflation rate is below 6%, with the average inflation rate expected to be 5.2% in FY24, according to the World Bank. Exports of goods and services increased by 16% in the first nine months of the fiscal year (April to December) compared to the same period in 2021-22.
India’s current growth remains resilient despite some signs of easing. Overall growth remains strong and is estimated to be between 6.5% and 7% for the full year. Strong investment activity and robust private consumption, driven by the government’s capital spending drive, laid the foundation for growth.
The Index of Industrial Production (“IIP”) grew by 5.5% during 2021-22 and the growth was widespread. Global geopolitical turmoil has led to rising commodity prices and rising input costs, leading to increased inflation and a depreciation of the rupee against the US dollar.
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Fundamental Analysis of Carborundum Universal – Finance
Sales and Net Profit
Carborundum Universal reported revenue of Rs. 4654 Cr in FY23, up 40% from Rs. 3325 Cr in FY22. CUMI has seen unprecedented growth, with revenue growing 33% since FY21. However, due to the slowdown in growth in FY20-21, the long-term growth rate has normalized to a CAGR of 14.7% since FY19.
Last year’s net profit increased from 500 billion won to 100 billion won. 350 Cr in FY22 to Rs. 442 Cr in FY23, a growth of 26%. Although sales growth declined during an exceptional year, net income remained positive. Since FY21, the company’s net profit has grown at a CAGR of 16%.
profit
Over the past five years, the company’s operating margin has been just over 10%. Carborundum Universal’s operating margin declined 200 bps from 15% in FY22 to 13% in FY23. The five-year average remains at 14.4%.
Net profit also decreased by 10 bps from 10% in FY22 to 9% in FY23. It has achieved double-digit margins in only three of the past five years. The five-year average was 9.8%.
rate of return
Carborundum Universal recorded a return on equity of 16% in FY23, up 100bps from 15% in FY22. The five-year average return on equity was calculated to be 15%. CUMI maintains higher profits compared to spending it back into the business or paying out cash, so the company maintains a somewhat lower ROE.
return on capital employed It has been consistently maintained at 20% for the past three years. Due to somewhat slower revenues in FY20, the company’s ROCE fell to a five-year low of 19% in FY20.
debt analysis
The company has virtually no debt, with a debt-to-equity ratio of only 0.1x. It has remained this way for the past five years, and even the debt-to-equity ratio has come down to zero in FY21. Since our company is a debt-free company, the interest coverage ratio is not a problem.
Fundamental Analysis of Carborundum Universal – Future Plans
- The company continues to explore and identify alternative opportunities to expand into various product sectors, including clean energy, semiconductors, defense, digital, and more.
- During the year, CUMI acquired RHODIUS, AWUKO and PLUSS, all financed with internal accruals. The company expects to realize the benefits of these investments within the next three to five years.
- For the upcoming FY24, the company is targeting revenue growth of 12-14%. At the standalone level, we are targeting 15-18% revenue growth.
- The company expects growth in its ceramics business to slow after very strong growth in FY2023. However, the ceramics business is expected to grow at a CAGR of around 20% over the next three years.
- In the electronic minerals business, domestic operations are expected to face competition from imports as raw material prices decline globally. However, the favorable performance of its Russian subsidiary VAW is expected to continue.
Fundamental Analysis of Carborundum Universal – Key Indicators
key indicators Carborundum Universal They are listed below.
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conclusion
Carborundum Universal (CUMI) delivered impressive financial performance in FY23, including 40% growth in revenue and 26% increase in net profit, driven by a diverse portfolio of products catering to a variety of industries.
The company maintains a strong balance sheet with virtually no debt and boasts healthy returns. CUMI has been pursuing growth opportunities through acquisitions and expects to realize the benefits over the next several years.
For FY24, the company gave a cautiously optimistic outlook, targeting consolidated revenue growth of 12-14% and standalone growth of 15-18%, with a correction expected in its ceramics business.
While the electronic minerals segment may face competition, its Russian subsidiary VAW is expected to continue to perform well. With strong financials, growth initiatives, and a diverse business model, CUMI appears well-positioned for the future, although it will need to navigate potential challenges effectively.
Written by Nasir Hussein
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