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Sowmya Sundar

EXPOSURES can be considered in the Carborundum Universal (CUMI) stock. At Rs 241, the stock trades at five times its 2003-04 per share earnings.

From a relative valuation perspective too the stock appears attractive. At a sustainable dividend rate of Rs 10 per share, the dividend yield works out to 4 per cent. Moreover, the recent stock split announced will enhance the liquidity and, hence, the activity in the stock.

Business prospects: CUMI manufactures products that are used for grinding, polishing and smoothening applications for auto, auto-ancillaries and general engineering industry. The uptrend in these sectors is reflected in the company's financial performance.

CUMI operates in three broad business segments — abrasives (bonded, coated and super), ceramics and electro minerals. In the abrasives business, it is the leader in the domestic, coated and bonded abrasives market. The competition, however, is severe from imports and the unorganised sector and, hence, growth prospects could be limited in this segment, which grew by 11 per cent in 2003-04 despite the robust industrial activity. At the higher end of the market, however, CUMI has a good presence in the super-abrasives segment through its joint venture Wendt (India).

This gives CUMI a presence across the abrasive product range with good prospects for growth. In 2003-04, its profits from its joint ventures (including the one with Wendt) almost doubled to Rs 7.9 crore. CUMI also gained ground overseas in the coated abrasives market. Exports rose 24 per cent for the year. CUMI has rationalised its product range over the past couple of years and is concentrating on the high-end market.

The focus on the super-refractory business translated into a 30 per cent growth for the ceramics division. As the margins are higher, the division's contribution to earnings has increased from 8.5 per cent to 18 per cent. The strategy has also worked for its electro-minerals division, which turned around in the latest quarter.

The upgradation and the resultant better realisations have improved its operating margins.

Apart from these businesses, CUMI invested in an IT-enabled services company a couple of years ago. The subsidiary is into e-publishing. The contribution of this business has risen significantly over the past couple of years and now contributes close to 10 per cent of the consolidated earnings.

Despite the limited prospects for its abrasives business, the growth in its high-end products should drive CUMI's earnings.

Though contributing to profitability, and margins, the IT-enabled services can only be a cushion to the earnings during an industrial downturn.

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