Carborundum Universal Expects electromineral price to increase in Q3 FY 11(72884)

Nov. 3, 2010 - Carborundum Universalheld conference call on 29^th Oct 2010 to discuss its performance for the quarter ended Sep 2010. The meeting was addressed by Mr. K Srinivasan, Managing Director and Mr. Ramesh V. CFO of the company.
Key points from the discussion

For Sep'10 quarter, all the three segments of the company reported strong growth. Abrasives continued to grow with the growth in its user industries largely automobiles, bearings, steel, auto components, capital goods etc. Ceramics also registered strong growth with refractoriness, monolithic and industrial ceramics doing well. With the increase in industrial activities, electro mineral division also was strong.
For Abrasives, 25% growth for the quarter continued from strong domestic sales and international recovery. The growth was largely volume driven and the price growth was about 3-5%. The company expects the momentum to continue in the H2 FY'11 as well.
Russia and EU continued to show positive growth for Abrasives market. While US continued to be extremely disappointing and nothing is working over that market.
In Ceramics, fired refractory and monolithic continued to do well since there was strong industrial growth in India.. Metalized cylinders capacity will be doubled by the year end to 1.5 M and with power T&D sector looking promising, the segment will do well in future. In Australia there were some pricing pressure visible due to increase in Chinese competition, but the company is hopeful for strong comeback for the rest of the year.
There were price increases in Electro mineral business both in Russia and in South African subsidiary which resulted in better margins for the quarter. The price hike was for all the customers across the board, to offset the increase in high coal and other costs.
Had seen strong growth in Q2 FY 11 with most plants running nearly full capacity. It expects the Q3 and Q4 to bring only additional volumes of 5-10% over Q2 FY 11 through debottlecnecking etc. The company had not anticipated such a strong recovery and hence the incremental volume growth of over Q2 volumes would be only through debottlenecking for the rest of the year.
China is worry for Q3 FY 11 due to Chinese government reducing the exports of electro minerals from China to meet the emission norm standard. This in turn could impact the availability of electro minerals for CUMI's business but are better protected, as have own captive raw materials. Due to limited availability of electro minerals, the prices could go up for electro minerals but would impact the abrasives and refractories.
For FY11, the standalone capex is Rs. 75 crore and consolidated capex is Rs. 100 crore. It includes two new small projects approved by the Board in July 2010 which would be implemented in FY 11 in India. The capex excludes three projects - Volzhsky II, the Foskor Zirconia project in South Africa, and the GMDC joint venture project in India.
Micro grid project of capacity expansion of 2400 tonne in SEZ Cochin will commission in March 2011 quarter.
Zirconia capacity expansion is expected to commission production in 14-16 months from now.
Monolithics capacity of 30,000 tonnes will come in March 2011.
In the quarter ended Sep 2010, Carborundum Universal's consolidated net profit grew by robust 55% to Rs. 41.11 crore largely on strong demand in Indian market, overseas subsidiaries i.e. in Russia, North America, South Africa and the Joint Ventures i.e., Murugappa Morgan Thermal Ceramics Ltd, Wendt India Ltd and Ciria; as well as robust non operating performance and fall in effective tax rate. The operating income grew by 30% to Rs. 426.47 crore on back of growth across all its segments. Increase in OPM by 70 bps lifted the operating profit by 35% to Rs. 83.71 crore.
Electro minerals sales grew by 27% to Rs. 152.61 crore on the back of strong industrial activity in the abrasives, refractory and steel business.
Effective price increase in abrasives was 3-5% in Sep 2010 quarter.
China sells grinding wheels, raw materials such as brown fused and silicon carbide in India.
Demand is good in India and Europe. America is patchy as seeing demand ni pockets such as aero space and bearing only.
CUMI's consolidated abrasives sales grew by 25% to Rs. 180.04 crore driven by strong off take from various market segments in India and Russia.
The PBIT margin of electrominerals grew by 120 bps to 23% resulting in 34% spurt in its PBIT to Rs. 35.75 crore. The improved profitability was due to increased sales and tight control on fixed costs.
The PBIT margin of ceramics fell by 140 bps to 17% due to Chinese competition seen in Australia affected the margins in CUMI Australia and product mix of refractories doing well.
Price increase in Zirconia for electro minerals were 5% and Russia, across silicon carbide is around 7.5%.
Topline of Zirconia was Rs. 30 crore approx and Rs. 2.8 crore of PAT at company's level (i.e. 51% share of CUMI)
CUMI Australia's topline was Rs. 13.5 crore and PAT was Rs. 2.3 crore.
In abrasives, 20% of sales are directly into auto, auto components, bearing, steel and engineering industries.
Capacity utilization in Q2 FY 11 is 90% in bonded abrasives, coated abrasives are 2/3^rd of total capacity, fired refractories are near 100% and ceramics 80-90% in India. In South Africa, capacity is running near 100%, Russia near 100% silicon carbide and China 60-75%. Broadly, there is no capacity available for Zirconia and silicon carbide. They have capacities for coated abrasives, monolithics and anticorrosives.
About 65% of coated sales are for sheet goods and belts. Sheet goods are used in wall floor, steel furniture, general and engineering applications by painters, carpenters etc Belts are used primarily in auto, auto components, wood working, hand tool manufacture etc
Total sales to Europe is over Rs. 200 crore per annum.
It has two captive power plants - SEDCO, a 85% subsidiary, which is gas based power plant with 5.5 MW and wholly owned 12 MW hydroelectric power station in Kerala.
In electromionerals cost, energy costs contributes 35% and balance is either pet coke or mined bauxite.
CUMI is second largest producer of silicon carbide in world.
Consolidated bank borrowings is Rs. 415 crore as on 30^th Sep 2010.
Next installment for repayment of ECB is in May 2011 of around Rs. 30 crore.
ROCE in Sep 2010 quarter is around 25%.

Carborundum Universal Expects electromineral price to increase in Q3 FY 11

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