Please find enclosed Antique's Morning Presentation (AMP)

Key Highlights

We recently met the management of Carborundum Universal Ltd (CUMI) in Chennai.

Started in 1954, CUMI is part of the Murugappa Group and has over the years emerged as a manufacturer and supplier of industrial consumables with 3 distinct business verticals viz. abrasives, ceramics and electro-minerals (EM). In addition to India, it also has international manufacturing locations in Russia, Australia, China and South Africa.

Future Plans

·        Plans are afoot to ramp up the utilisation in the abrasives business where low utilisation levels in Europe and the US have alomost halved the division's EBIT margins from 16% in FY07.

·        For the ceramics business, CUMI is trying to break into the domestic coal washeries sector. Apart from that, it plans to ramp the output of metallised cylinders, to cater to the imminent jump in demand from the power sector.

·        With supplies of key raw materials secured, CUMI is now planning to expand operations of its EM division, by developing new applications for these products. Simultaneously, a ramp up in the utilisation levels of abrasives and ceramics operations will enable higher captive consumption of raw material, thereby boosting operational profitability.

·        We believe that CUMI's imminent ramp up across verticals is timely, given the gradual upswing in its existing addressable markets. Given the scale of operations and level of integration, we expect operating leverage to significantly boost OPM over the next 4-6 quarters. This should also aid in higher asset sweating and we expect its ROCE to revert to historical levels of 22% over the next 24 months.

·        Simultaneously, the CUMI's cash flows should match cash outflows of INR1.4bn for capex (excluding Volzhsky) over the next 12 months. We expect the capex for Russian operations (~INR1bn pa for the next three years) to be met by leveraging Volzhsky's balance sheet in the near term.

·        Given its dominant position in domestic and global markets in its respective product segments, CUMI is an an attractive play on the increasing momentum in various frontline industries. We are positive on the company's prospects and plan to initiate coverage on CUMI in the coming weeks.