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Cumi
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.

Analyst
Ajay Shethiya+(91 22) 2685 0101 (shethiya@indiainfoline.com)

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!

COMPANY RESEARCH

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
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