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Thursday, October 15, 2009

Carborundum Universal Ltd:Future prospects and outlook

Scripscan:Carborundum Universal Ltd

Story:CUMI is fairly shielded from the impact of an economic slowdown and that may justify the ‘premium’ valuation accorded to it. For one, it has a highly fragmented user industry base, which may cushion it from the fallout of any significant slowdown in a particular user industry. That despite the slowdown in the auto industry, CUMI has managed to put in modest growth numbers is a case in point.Two, CUMI’s access to low-cost funds for sustaining its capacity expansion and working capital requirements (at an average of 9 per cent) also allays concerns regarding funding constraints, the reason oft cited for marking down manufacturing companies.Three, a chunk of the demand for CUMI’s products is ‘maintenance and repair’ driven. So, to that extent the demand for its products will continue to remain healthy.Another factor in CUMI’s favour is access to rich yet cheaper reserves of minerals (alumina and SiC), essential raw materials for all its products. The company has strategically set up manufacturing facilities in countries such as China and Russia, which not only hold rich reserves of minerals but are also the target market for some of its products; Russian presence also holds significance in terms of providing proximity to CUMI’s clients in Europe. Strong growth in revenues, a highly diversified geographical base and increasing focus on the high-growth solar wafer business spell long-term potential for Carborundum Universal (CUMI), a leading player in the abrasives and industrial ceramics space. Those with a two-three year investment horizon can consider buying this stock.

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