Carborundum Universal: A Sleeping Giant

Carborundum Universal Ltd comes under the Chennai-based Murugappa group and primarily deals with the manufacturing of refractories, ceramics, electro-minerals, and abrasives. 

• Industrial Ceramics: This sector contains advanced ceramics in Zirconia, Silicon Carbide, Alumina, and Zirconia Toughened Alumina. For the Ceramics Business, the significant user industries include Cement, Automatic, Mining and Ore processing, Food Grain handling, Ceramic Tiles industries, Glass, Battery, Ferrous, Paper, and Petrochemicals.
  
  
• Electro Minerals: This segment of Carborundum Universal Ltd has good geographical presence units in Russia, India, and South Africa alongside eight manufacturing facilities. Its products include Silicon Carbide (crude, macro, and fine), Alumina Zirconia, and Fused Alumina (comprising Brown and its variants and White Fused Alumina). To protect itself from changes in power prices, this section also runs its own sand and bauxite mines as well as a 12 MW Hydel power plant.
  
  
• Abrasives: The company’s abrasives sector is engaged in manufacturing and distributing flexible and rigid abrasives. The main products it offers are Metal Working Fluid, Bonded Abrasives, Super Abrasives, and Coated Abrasives. The company also plays in the big leagues in the Indian abrasives industry occupying over 30% market share in the bonded abrasives segment. 
  
  

Management Outlook:

Future improvement in margins: Going forward, the company’s margin expansions are going to be aided by the growing operational efficiencies, multiple price hikes, softening of input cost, economies of scales, increasing demand for customized products (high margin), and cost saving initiatives. The company;s EBITDA margins saw an increase from 15.5% in FY16 to 16.1% in FY22 which was primarily caused by backward integration and increasing share of value added products.

Enhancement in product offerings by recent acquisitions: Recently, CUMI purchased AWUKO Abrasives Wandmacher for €8 million (Euro) and RHODIUS Abrasives (Germany) for €55 million. These acquisitions will assist the company diversify its user application industries, boost technology, and grow its global distribution. By FY24, management anticipates AWUKO Abrasives to break even.

Segment wise growth drivers: Future demand from the construction and other durable goods industries, as well as a recovery in the automotive sector, are projected to propel the expansion of the abrasives category. Vehicles and the expansion of Solid Oxide Fuel Cells (SOFC) technology are projected to be the main drivers of Ceramics growth, while the resuscitation of the auto, construction, and steel industries are likely to be the main drivers of Electro Minerals growth. During the period between FY16 and FY22, CUMI reported a strong revenue CAGR of 9.4%.

Scenario of strong demand: The Atmanirbhar Bharat project, the PLI scheme, rising manufacturing activity, the China +1 strategy, and cutting-edge industries like EV, Batteries, alternative energy (Solar, Hydrogen), etc. are all contributing to the growth in demand which is expected to continue, going forward.  Regions including America, China, the Middle East, and Russia have high levels of demand on the global market.