Carborundum stock may go up by 20% in six months

Carborundum stock may go up by 20% in six months

By Rajiv Kapoor | 11 November, 2017

The global abrasives market is segmented, based on regions, with Asia Pacific representing the largest and fastest growing market for the abrasives industry and China being the largest producer of abrasive products and materials. The growing demand for various types of abrasives for the transportation, building and the construction industry is expected to drive the abrasives market in the future. In India, the bonded and coated abrasives are an important segment, contributing maximum revenue to this industry. Carborundum Universal Ltd or CUMI is the largest player in this industry in the country. Carborundum Universal Ltd is a Murugappa Group company, manufacturing coated and bonded abrasives, super refractories, electro minerals and industrial ceramics and ceramic fibres. Carborundum Universal is one of the five manufacturers in the world, with fully integrated operations of manufacturing, marketing and distribution that include mining, fusion, hydro and gas based power stations. Amid a struggling global economy, the company has posted improved financial results and further expects to see a pick-up in manufacturing and trading of its products on the back of favourable global financing conditions and stabilising commodity prices. The Goods and Services Tax implementation has been a significant reform in the indirect tax structure for the country, which will usher in a harmonised national market for goods and services. This will have a favourable impact on the abrasives industry and the economy as a whole, in spite of implementation challenges. Carborundum Universal also expects GST to have a positive impact on the abrasives segment, as 25% of the market comprises unorganised players. Also, with global shortage of alumina and a strong existing client relationship, the company management expects a strong growth in revenue and profitability in FY18. The company’s consolidated revenue went up by 10% owing to better performance across all divisions and the net debt position being very marginal, it signified the strength of its overall positive cash flow position. The major strategic initiative in terms of relocation of plants from South Africa and China and their subsequent re-commissioning in different parts of the country were successfully completed and the benefits are expected to accrue in the current financial year. At the current market price of Rs 375, the stock price earnings ratio stands at Rs 34 for the current financial year and most analysts and fund managers expect the stock price to appreciate by 20% in six months’ time.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.


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