Next Generation Materials Demand Will Create Global Opportunities

Key Takeaways

• Strong growth in Ceramics and innovation in high-purity silicon carbide position the company to benefit from expanding demand in advanced technology sectors.
  
• Short-term operational issues are expected to normalize, supporting recovery in margins while ongoing capex and global diversification drive long-term growth.
  
• International instability, supply chain disruptions, margin pressures, and export uncertainties threaten revenue growth, profitability, and the overall earnings outlook across key business segments.

Catalysts

Manufactures and sells abrasives, ceramics, and electrominerals in India and internationally.

• Growth in Ceramics-particularly driven by applications in electric vehicles, semiconductor, and electronics industries-continues at double-digit rates, with management reiterating full-year guidance for 16–18% growth and maintaining elevated margins; this positions the company to benefit from expanding demand for advanced materials, supporting future topline and margin expansion.
  
• High-purity silicon carbide (HPSiC) pilot plant remains on track, with client qualification underway; as this product qualifies for use in power electronics, semiconductors, and renewable energy-fast-growing sectors globally-it represents a significant new addressable market that could drive future revenue acceleration once customer adoption ramps up.
  
• The company's ongoing ₹350 crore capex program across Ceramics, Electro Minerals, and Abrasives is focused on next-generation materials and value-added products, directly supporting long-term growth initiatives and margin improvement through innovation and product mix shift.
  
• Short-term margin compression in Abrasives and Electro Minerals has been exacerbated by temporary operational issues (e.g., Rhodius logistics disruption, high-cost inventory in Electro Minerals), both of which management expects to normalize in coming quarters; resolving these operational bottlenecks should support a recovery in earnings and margins.
  
• Carborundum Universal's ongoing international diversification and product innovations despite near-term headwinds-combined with large structural demand from global infrastructure, urbanization, and sustainability trends-are expected to stabilize and grow revenue while protecting long-term margin improvement.

Carborundum Universal Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carborundum Universal's revenue will grow by 9.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 10.2% in 3 years time.
• Analysts expect earnings to reach ₹6.5 billion (and earnings per share of ₹34.19) by about August 2028, up from ₹2.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.4x on those 2028 earnings, down from 66.6x today. This future PE is greater than the current PE for the IN Chemicals industry at 26.7x.
• Analysts expect the number of shares outstanding to decline by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.48%, as per the Simply Wall St company report.

Carborundum Universal Future Earnings Per Share Growth

Risks

• The VAW subsidiary faces ongoing restrictions from international sanctions, currently limiting its sales to within Russia, with a 25–30% volume decline versus last year; any prolonged geopolitical tension or expanded sanctions could further reduce revenue, profitability, and predictability of cash flows.
  
• Rhodius (German subsidiary) suffered significant supply chain and logistics disruptions following a logistics partner switch, resulting in a substantial sales loss that will not be recoverable this fiscal year and leading to an expected annual loss after several profitable years-casting doubt on the stability and growth of Carborundum Universal's international earnings and margins.
  
• Standalone and consolidated Electro Minerals margins have sharply declined (from 11.4% to 1.1% YoY) due to heavy input cost volatility, especially in alumina, and persistent price pressure from Chinese competition, increasing the risk of further margin erosion and fragile earnings in this sector.
  
• Growth in the core Abrasives segment has turned negative (8% YoY decline in sales; ~13 pp decline in consolidated ROCE), driven by soft retail demand and inventory corrections at major distributors; any sustained weakness in this channel, or inability to grow share in new states/segments, could lead to further revenue stagnation and margin compression.
  
• The company's exposure to new global tariffs (notably on U.S. exports, which account for 8–10% of sales) introduces uncertainty regarding overseas revenue streams-particularly as clients seek local or alternative suppliers-potentially dampening export growth and threatening the topline and margin guidance for the coming years.

Valuation

• The analysts have a consensus price target of ₹897.5 for Carborundum Universal based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1040.0, and the most bearish reporting a price target of just ₹679.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹63.6 billion, earnings will come to ₹6.5 billion, and it would be trading on a PE ratio of 37.4x, assuming you use a discount rate of 13.5%.
  
• Given the current share price of ₹845.55, the analyst price target of ₹897.5 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.