Buy Carborundum; target of Rs 347: Firstcall Research

“Carborundum Universal, popularly known as CUMI, is engaged in manufacturing of coated and bonded abrasives, super refractories, electro minerals, industrial ceramics and ceramic fibres in India. Incorporated in 1954, the company was formed as a collaboration between Murugappa Group, Carborundum Inc, USA, and the Universal Grinding Wheel Co of the UK. CUMI manufactures over 20,000 different types of abrasives, refractory products and electro minerals. Globally, the company has a presence in 43 countries with retail network of 200,000 outlets. The company's manufacturing facilities are situated in 14 locations. Most of CUMI's manufacturing plants have received ISO 9002 certification for its quality management. The company operates its in-house research and development operations and collaborative research with foreign institutions in order to sustain its position in India and aboard.”

“During the quarter, the company disclosed a consolidated profit of Rs. 494.30 million as against of Rs.324.30 million for the quarter ended March 31, 2010. Net sales are increased by 19% to Rs. 4344.20 million from Rs. 3653.50 million in the same quarter previous year. In the same period, consolidated operating profit of the company was at Rs. 895.00 million, a rise of 33% over the prior year period. Company EPS is stood at Rs.5.29 for the quarter ended March 2011.”

“Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 25% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 8.75 x for FY12E and 8.74 x for FY13E. Price to Book Value of the stock is expected to be at 3.08 x and 2.51 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.20.19 and Rs.22.76 respectively. At the current market price of Rs.307.00, the stock is trading at 15.21 x FY12E and 13.49 x FY13E respectively. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 347 for medium to long term investment,” says Firstcall Research report.