Limited Head-start to early economic recovery Viewpoint

Carborundum Universal Limited (CUMI) is a leading manufacturing company Sector: Capital Goods in India (CUMI+Grindwell hold a market share of ~50%) along with strong presence in refractories, electro minerals (EMD), and industrial (IC). Prior to FY2020 New Idea (which was affected by economic slowdown and COVID-19 pandemic), it has grown its consolidated revenue/operating profit/PAT at a CAGR of 11.4%/13.3%/18.7%, respectively, during FY2016-FY2019, driven by high-growth segments (EMD and IC). View: Positive The company has outperformed macro indicators (such as GDP and IIP) during FY2017- FY2019, led by strong revenue growth in its overseas operations (which also showed CMP: Rs. 280 5% y-o-y growth in revenues in FY2020 vs domestic declining by 10% y-o-y). We expect CUMI to outperform macro indicators during FY2021-FY2023E on the back of domestic Upside potential: 23-25% economic revival and continued strength in its overseas operations. The benefit of having the largest capacity and lowest cost advantage in fused alumina domestically (part of electrominerals - 39% revenue, 38% PBIT) along with minimal cost difference to China is expected to give CUMI an edge both as a domestic and overseas supplier (for countries reducing dependence on China). Hence, we expect the EMD segment to rise Company details to higher growth trajectory of 14.7% CAGR during FY2021-FY2023E. In Ceramics (24% revenue, 30% PBIT), demand pull from refractory customers, expansion in Metallized Market cap: Rs. 5,311 cr cylinders are expected to maintain high revenue growth trajectory during FY2021- FY2023E (13.5% CAGR). (In abrasives (37% revenue, 32% PBIT FY2020 mix), doubling 52-week high/low: Rs. 361/175 of coated products in March 2020 is expected to drive revenue in both domestic and international markets. Overall, we expect high revenue growth trajectory in Ceramics and EMD divisions to drive its earnings during FY2021-FY2023E. Although FY2021 NSE volume: (No of 1.8 lakh performance is expected to be affected by COVID-19 led disruption, we expect a strong shares) bounce-back over FY2021-FY2023E with revenues/operating profit/net profit growing at a CAGR of 15.1%/19.2%/20.8%, respectively. The company generated free cash flows BSE code: 513375 of Rs. 643 crore during FY2016-FY2020 post incurring on an average of almost Rs. 120 crore p.a. capex and negligible leverage (average ~0.1x). We expect free cash flow NSE code: CARBORUNIV generation of Rs. 722 crore along with ROE and ROCE improving by 222 bps and 311 bps respectively during FY2021-FY2023E. The company is currently trading at PE of 18.9x/16.4x on FY2022E/FY2023E earnings, which we believe is reasonable considering Sharekhan code: CARBORUNIV its growth outlook and strong balance sheet. Hence, we re-initiate with a Positive view on the stock with an upside potential of 23-25%. Free float: (No of 11.0 cr Growth revival to be driven by domestic and global levers: CUMI has been affected by shares) slowdown in two core industries viz. automotive and construction apart from iron and steel, power and especially in its abrasives business. However, it was able to offset the weakness in domestic economy to a certain extent through its overseas operations (~49% revenue mix) catered predominantly by ceramics and electrominerals. India’s Atama Shareholding (%) Nirbhar initiative, government’s efforts on reviving industrial activities, global preferences seeking China’s alternative sources etc. are key medium to long-term growth levers for the company. The company’s continuous focus on innovation, geographic diversification, and Promoters 42.1 maintaining cost-competitive advantages are expected to aid in grabbing the opportunities that lie ahead in both domestic and global markets. FII 6.6 Our Call DII 28.0 Valuation – Re-Initiate Viewpoint coverage with 23-25% upside potential: CUMI is on the cusp on growth revival with expected improvement in domestic economic activities Others 23.4 and its strong product line for overseas operations. The company’s capacity expansions, new product introduction, and end-sector and geographic diversification are expected to revive its earnings growth trajectory from FY2022. We expect CUMI to grow its revenue/ operating profit/PAT at a CAGR of 15.1%/19.2%/20.8% during FY2021-FY2023E. The company is currently trading at a PE of 18.9x/16.4x on FY2022E/FY2023E earnings, which Price chart we believe is reasonable considering its growth outlook and strong balance sheet. Hence, 400 we re-initiate with a Positive view on the stock with an upside potential of 23-25%. 350 Key Risks 300 1) Weak economic environment both domestic and globally; 2) Delay in sale of its loss- 250 making Fosker Zirconia unit. 200 150 Valuation (Consolidated) Rs cr 19 19 20 20 - - - - Particulars FY19 FY20 FY21E FY22E FY23E Apr Dec Aug Aug Revenue 2,689 2,599 2,362 2,768 3,128 OPM (%) 16.3 15.3 15.0 15.7 16.1 Adjusted PAT 248 272 222 281 324 Price performance % Y-o-Y growth 14.8 10.0 (18.6) 26.7 15.1 (%) 1m 3m 6m 12m Adjusted EPS (Rs.) 13.1 14.4 11.7 14.9 17.1 P/E (x) 21.4 19.5 23.9 18.9 16.4 Absolute 20 37 -23 2 P/B (x) 3.1 2.9 2.6 2.3 2.1 EV/EBIDTA (x) 10.9 11.0 11.3 8.9 7.5 Relative to 19 13 -16 -2 Sensex RoNW (%) 15.1 15.2 11.4 13.0 13.6 RoCE (%) 19.7 17.7 13.7 16.0 16.8 Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

August 21, 2020 9 Source: RBI,Company,Sharekhan Research Source: RBI,Company,SharekhanResearch FY2021-FY2023E. during indicators macro-economic outpace should CUMI well, to fare continue operations overseas and improving environment economic domestic with We expect y-o-y). grew 5% by overseas while y-o-y 10% revenues declined todomestic FY2020 in 49% which (in FY2016 in 43% from revenues increased revenues.of share overseas The have overseas in bounce-back by led FY2019 economic domestic the The indicators company industries. during outperformed FY2017-CUMI’s end-user affect same the in Fluctuations economy. of the of core sectors of performance are barometers growth IIP and growth GDP as such barometers India’smacroeconomic mining. and power, cement, steel, & iron from apart CUMI’s business are operations highly core dependent on two viz. industries automotives and construction operations inoverseas performance strong –through macro indicators Outperforming August 21, 2020 IIP vs.CUMIrevenuegrowthtrend GDP vs.CUMIrevenuegrowthtrend 10.0 12.0 14.0 16.0 10.0 12.0 14.0 16.0 ------0.0 2.0 4.0 6.0 8.0 0.0 2.0 4.0 6.0 8.0 6.0 4.0 2.0 6.0 4.0 2.0 FY17 FY17 IIP YoY growth (%) growth IIP YoY GDP growth(%) FY18 FY18 CUMI revenue growth (%) growth revenue CUMI CUMI revenue growth (%) growth revenue CUMI FY19 FY19 FY20 FY20 10

Viewpoint Viewpoint August 21, 2020 FY2020, the company commissioned maker facility at its existing location in doubling the existing existing Tamil in the location doubling existing Nadu its at maker facility FY2020, commissioned company the During slow down. industry by affected was abrasives bonded while well doing been have abrasives coated Abrasives, viz. (China). VAW Within CACCL and subsidiaries America overseas CUMI its (Russia), affected had pandemic COVID-19 with along sector auto global in Downturn . &general fabrication auto-ancillary, automotive, the on dependence FY2020 revenues in to CUMI’s during owing decline y-o-y 11.5% reported Abrasives FY2016-FY2019. over CAGR 6.8% of CAGR revenuesclockeda segment Abrasives growth to revival re-ignite and inauto segment inabrasives building Capacity Source: Company,SharekhanResearch Source: Company,SharekhanResearch Domestic vs.overseasrevenuemixtrend Domestic vs.overseasrevenuegrowthtrend 100 10 20 30 40 50 60 70 80 90 - - 10.0 15.0 20.0 15.0 10.0 0 - 0.0 5.0 5.0 FY15 47 56 FY15 FY16 43 59 FY16 India (yoy growth %) growth (yoy India FY17 FY17 43 58 India Overseas Overseas (yoy growth %) growth (yoy Overseas FY18 FY18 45 55 FY19 FY19 45 55 FY20 FY20 49 51 11

Viewpoint Source: CompanyData;SharekhanResearch Abrasives businessstructure overto FY2021-FY2023E. record CAGR a14.5% ‘s revenues segment abrasives the we expect effect, low base revenues with along FY2020 in FY2021E and Abrasives in dips consecutive two after Consequently, revenue growth. domestic revive to help expected is industry) processing agro feeds which Abrasives (Sterling monsoon anormal and segment auto the in a revival addition, revenues. In overseas to drive expected is demand auto global in up pick with along abrasives coated in addition capacity The globally. products Abrasives Coated for demand cater to the will which capacity, August 21, 2020 Source: Company,SharekhanResearch Abrasives revenuetrend 1000 1100 1200 500 600 700 800 900 FY15 3 Plants in ; . Uttarakhand, Hosur. Uttarakhand, Chennai; in Plants 3 Stand Alone Operations Alone Stand FY16 Kolkatta FY17 FY18 Abrasives Revenue(Rscr) Abrasives FY19 US, ME, China ME, US, FY20 Wendt JVs / Subs JVs / FY21E Sterling VAW FY22E FY23E 12

Viewpoint Source: Company, SharekhanResearch to CAGR. 14.7% FY2021-FY2023E during revenue growth its to improve upon vertical EMD its we expect 2021.March Overall, by quality) of and Zircon Sand availability in to due volatility entity making (loss Africa South in operations Zirconia to from exit looking also is China). It on to reduce dependence aresourcing looking (who players to Global supplier an as alternative to penetrate opportunities provides China than cost higher marginal and customers) and also commissioned a pilot Graphene facility. The company’s lowest cost production in alumina Refractory from prospects growth healthy (has alumina fused awhite into India in facility Zirconia Fusion its converted CUMI capacity. full near at running business Refractory and SiC by driven traction improving seeing VAW subsidiary Russian is its Internationally, slowdown. Auto by affected was abrasives while customers Refractory from pull demand saw vertical the Domestically, Abrasives. and of Refractory to customers caters business EMD The y-o-y. of 1% revenue growth marginal FY2020 during with performance resilient recording while FY2016-FY2019 during CAGR 10.8% a clocked revenues segment’s electrominerals CUMI’s EMD for trajectory toinhigh growth aid supplier global &competitive pull demand Refractory EMD revenuetrend August 21, 2020 Source: CompanyData;SharekhanResearch EMD businessstructure 1000 1100 1200 1300 1400 500 600 700 800 900 FY15 1 Hydelpower station FY16 3 Plants in Kerala; Kerala; in Plants 3 Stand Alone Alone Stand Operations FY17 FY18 Electrominerals cr) (Rs EMD FY19 Foskor Foskor Pty. Ltd FY20 Zirconia Subs FY21E Works Volszhky FY22E FY23E 13

Viewpoint Source: CompanyData;SharekhanResearch FY2021-FY2023E. during CAGR of 13.5% revenue high growth to maintain expected is which newer in geographies, Metalized and Cylinders Wear Ceramics its marketing is company The H2FY2021. in to commission expected is which Metaliized in cylinder capacity its expanding further is It manufacturer. domestic only the is it space, Metaliized cylinder In Russia. and US the as such geographies other in expanding is it while Australia in player amajor is it Wear In Ceramics, well. to perform continued Wear Metallized and businesses Ceramics Cylinder its Ceramics, Industrial Within Anti-corrosives. and Refractories Ceramics, viz. Industrial categories broad three into divided is Ceramics increases. price selective and volume higher by led revenues FY2020, grew segment 4% During by the y-o-y over FY2016-FY2019. CAGR 13.9% at revenuesgrowing with verticals CUMI’s among pace fastest a at grown has ceramics CUMI’s trajectory high growth to sustain Ceramics Industrial August 21, 2020 Source: Company Data;SharekhanResearch Refractories businessstructure Industrial Ceramicsbusinessstructure 2 Plants in Chennai; Chennai; in Plants 2 1 plant at Jabalpur at plant 1 Stand Alone Alone Stand Operations 1 Plant in India in Plant 1 Stand Alone Alone Stand Operations Refractories IC CUMI Australia Australia CUMI (P). Ltd VolszhkyAbrasive Subs Subs CME; USA CME; Works 14

Viewpoint August 21, 2020 of Rs. 722 crore and improvement in RoE and RoCE by 222 bps and 311 bps, respectively over the same period. over same the respectively bps, 222 311 by and RoCE bps and RoE in 722 crore improvement of and Rs. generation flow free cash we expect Consequently, respectively. CAGR, 15.1%/19.2%/20.8% profit/net at growing profit revenues/operating by led FY2021-FY2023E over bounce-back strong expect we disruption, led COVID-19 by affected to be expected is FY2021 performance Although, FY2016-FY2020. during respectively bps 73 and 223 by bps RoCE and RoE FY2020, in improved its has it performance muted the ~0.1x). Despite leverage (average negligible 120 and Rs. crore expenditure p.a. capital of almost average an on incurring post FY2016-FY2020 during crore 643 Rs. of flows free-cash generate to able been has company The ventures. led by 7.5% revenue CAGR, maintaining on an average 16% OPM, lower tax outgo and rising income from Joint has CUMI generated on an average Rs. 350 crore per annum of cash operating FY2016-FY2020 flowsduring during FY2021-FY2023E return improving ratios crore 722 with ofRs. FCF Expect Source: Company,SharekhanResearch Source: Company,SharekhanResearch OCF/FCF/Capex trend Ceramics revenuetrend 300 350 400 450 500 550 600 650 700 750 800 - - 200 100 100 200 300 400 500 600 0 FY15 FY16 Operating Cash Flow (Rs cr) FY16 FY17 FY17 FY18 Ceramics(Rs cr) (Industrial+Refractories) FY18 FY19 Free Cash flows (Rs cr) (Rs flows Cash Free FY19 FY20 FY20 FY21E FY21E Capex (Rs cr) (Rs Capex FY22E FY22E FY23E FY23E 15

Viewpoint fibre products and refractory materials and solutions, respectively. solutions, and materials and refractory products fibre ventures are providing joint CIRIA MMTCL and products. of electromineral trading the in is Europe CUMI ceramic products. and abrasives manufactures/trades China, in based Company, &Ceramics Abrasives CUMI ceramic products. and of abrasive are trading into East Middle CUMI and America FY2020).for CUMI 20.5 crore loss net (Rs. entity loss-making its is Zirconia, which of Monoclinic production the in is Africa South sector. in auto to Foskor the Zirconia catering based components precision and machines, grinding abrasives, super manufactures venture company, ajoint Limited, Wendt (India) and subsidiary Russian its Works (VAW), Volzhsky Abrasive of grains. ore and transfer material bulk and power,non-ferrous thermal steel, based coal- mining, as such industries for applications handling material erosive and abrasive critical for solution protection wear offering player amajor is it where equipment, lined in is Australia CUMI management. Tamil in ITfacilities company provides Access Net India generation power Nadu. agas-based is based) India feeds to rice the and polishing agro processing Energy Southern Development industry. (SEDCO, Corporation which abrasives, conventional specialist manufactures (India) Abrasives Sterling subsidiary company’s direct The ceramics. and electrominerals viz. abrasives, categories major three into divided is business CUMI’s joint ventures and presence subsidiaries globallyStrong through Source: Company,SharekhanResearch August 21, 2020 Return Ratios trend 10.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 FY16 FY17 FY18 RoCE (%) RoCE FY19 FY20 RoE (%) RoE FY21E FY22E FY23E 16

Viewpoint August 21, 2020 Source: CompanyData;SharekhanResearch CUMI GroupStructure Electro Minerals Standalone Standalone Operations Abrasives Ceramics CUMI AustraliaPty. Ltd. Net AccessIndia Limited Sterling Abrasives SEDCO SEDCO Direct Subs Direct Limited 51.22% - 100% - 84.76% – 60% - CUMI Works (Russia) CACCL (China) – (Pty) Zirconia FOSKOR CUMI Europe (Czech (Czech Europe CUMI Ltd. (S. Africa) – Africa) (S. Ltd. CUMI America Inc. – America CUMI CUMI Middle East – Volzhsky Republic) Republic) Subs via CIL via Subs 100% 100% Abrasives Abrasives – 100% - 98.07% 100% 51% Wendt India Ltd. 39.87% Ltd. Wendt India JVs/ Associates CIRIA Limited - Limited CIRIA MMTCL - 49% 30% 17

Viewpoint micro finishing for light weighting. The company’s future focus area is to leverage capabilities in material material in capabilities materials. new age leverage to deliver technologies processing to is area focus future company’s The weighting. light for finishing micro super/ for minerals value-added on focuses company the and integration backward strong has company The markets. Russian and to Europe caters it which from Russia, at world the in of SiC capacities largest of the one has it exported; one-third and domestically, sold is one-third while production, of electrominerals one-third ofthe potentialin‘Minerals Future.’ has growth significant consume andabrasives CUMI’s divisions ceramics business The products. alumina fused in leader adomestic is and carbide silicon in leadership global has CUMI revenue) revenue, (39% cost PBITofFY20 advantage 38% –Competitive Electrominerals industries. bearing and steel, market potential high around built transportation, another represents Europe growth. good to deliver expected is marketworld’s abrasives, for largest second the is which US, products. abrasive and materials of abrasive producer largest the to be continues China over and globally. 55 market markets India in reach strong provide globe the across distributors and China, East, Middle America, North in entities marketing The Thailand. and Russia, India, across located plants manufacturing 10 has business The markets. international and domestic in products coated for demand to growing cater to the expected is which of abrasives, coated capacity installed the doubling thereby 2020, March during at maker coated plant world-class of automated, an Commissioning industries. several in end-user are utilised products abrasive and materials Abrasive abrasives, products. allied and super fluid, working metal abrasives, coated abrasives, bonded are segments product key The revenue, (37% revenue) 32%Abrasives PBIT ofFY2020 capacity doubling –Coated Source: CompanyData;SharekhanResearch August 21, 2020 Global footprint 18

Viewpoint August 21, 2020 nacelle covers, automotive and railway body panels, gratings, pallets, cable trays, flooring, chequered plates, plates, chequered flooring, trays, cable pallets, gratings, panels, body railway and fencing. and louvers, bridges, platforms, ladders, chimney roof sheets, automotive covers, windmill gratings, and pipes nacelle anti-corrosive resistant abrasion headers, spray (FGD) desulphurisation gas flue glass fibre reinforcedpolymer The products. product rangeincludes large chemicalstorage tanks, chimneys, are primarily Composites segments. product standard and project-based comprises business composites The Composites: world. across the units zinc extraction and copper in used company’s areThe also concrete poly cells chemicals. construction proof wall bricks, carbon bricks, tiles, acid-resistant lining, PU flooring, screeding,include PU, andrange epoxy coatings,piping, sealants, andproduct water company’s The effluents. of treatment with dealing industries other and industries process of chemical range awide serving industry, this in player amajor is company The Anti-corrosives: foundry, melting, non-ferrous thermal powerpetrochemicals, and treatment heat furnaces. plants, ceramics, rocket pads, launch reactors, black carbon kilns, cement melting, glass steel, secondary steel, and iron are business refractory the for industries user Key Castables. pre-fired pre-cast and monolithic and cements, refractories, application high-temperature complex in shaped player aleading is company The Refractories: globally. market demand increasing the to meet geared fully is business the this, With FY2020-FY2021. in in commissioned be will and undertaken was furnace metallisation of acontinuous addition by capacity the expanding further on a project segment, cylinders metallised the In globally. customers to leading caters and distribution and transmission power high-voltage for India in cylinders of metallised manufacturer only the is company the technical ceramics, of market terms Under in reach. business this support also China and East, Middle America, North in Subsidiaries US. the and Australia, India, in located facilities manufacturing/service are Operations insulators, furnace carried building, out and through glass, petrochemicals, construction. and sanitary iron cement, non-ferrous metals, and ware,carbon protection, steel industries, black, ballistic sanitary tiles, coal grain handling, washeries, are transmission, and ceramics business power generation for Key industries user products. carbide zirconia, silicon and alumina, offers Business Ceramics Industrial Industrial ceramics: Ceramics and refractories (24% revenue, 30% PBIT, 24% of FY2020 revenue) - Well-received new products 19

Viewpoint August 21, 2020 steady state. state. steady costs fixed to to improve OPM to a due expects and leverage utilisation to improving see lower started operating and revenue. has company The of lack by led was y-o-y bps 454 of dip OPM y-o-y). (-45% business standalone by caused impact the limited y-o-y) (-33% subsidiaries international in However, performance better of COVID-19. to due impact y-o-y of 33% arevenue decline witnessed company quarter, the the During by operations overseas aided results Q1FY2021 Tax rate NPM (%) Total OPM (%) Electro minerals Ceramics Margins (%) Abrasives Adj. PAT PBIT margins(%) Reported PAT Total PBIT Tax Others PBT Electro minerals Depreciation Ceramics Interest Abrasives PBIT Other Income Total Sales Operating profit Less: intersegmentrevenue Other Expense Others Power cost Electro minerals Employees benefit Ceramics Net rawmaterial Abrasives Sales Revenue Source: Company;SharekhanResearch Source: Company; SharekhanResearch Particulars Segmental quarterlyperformance(Consolidated) Particulars Quarterly performance(Consolidated) Q1FY21 Q1FY21 (2.3) 444 450 28.1 210 108 11.0 143 9.6 4.4 7.6 110 131 20 20 34 26 11.1 82 23 23 43 (3) 12 16 12 71 2 6

7 1 Q1FY20 Q1FY20 36.6 664 259 12.7 10.9 18.0 264 14.2 238 165 158 671 9.2 7.9 85 26 26 95 96 30 28 53 53 24 42 84 72 17 2 5 2

YoY (%) YoY (%) -62.6% -62.6% -54.5% -30.2% -64.4% -33.0% -48.7% -72.7% -26.1% -40.1% -11.9% (20.6) (60.3) (110.7) (34.9) -2.0% 31.6% (49.3) (60.1) (20.7) (33.1) (61.0) (514) (454) (31.2) (703) (347) BPS BPS (4.5) 188 - - Q4FY20 Q4FY20 25.6 586 252 15.5 12.8 10.8 594 16.1 17.3 105 102 11.2 140 139 213 179 94 80 92 92 25 29 36 32 36 23 93 12 17 2 3

QoQ (%) QoQ (%) -20.4% -24.3% -39.3% -39.3% -78.6% -78.6% -20.7% -23.7% -75.7% -57.7% (64.2) (24.3) -78.1% (113.2) (53.9) (23.2) (850) (38.3) (67.0) (27.6) -7.5% (1,116) (51.5) (760) Rs cr Rs cr (31.2) 2.3% (16.7) (168) BPS BPS 20 - - -

Viewpoint Net profittrend August 21, 2020 Source: Company,SharekhanResearch Source: Company,SharekhanResearch ROCE trend Source: Company,SharekhanResearch Revenue trend 100 150 200 250 300 350 10.0 12.0 14.0 16.0 18.0 20.0 22.0 Financials in charts incharts Financials 1,000 1,500 2,000 2,500 3,000 3,500 50 - 500 - FY17 FY17 FY17 FY18 FY18 FY18 Revenue (Rs cr) Revenue Net profit (Rs profit Net cr) FY19 FY19 FY19 FY20 FY20 RoCE (%) FY20 FY21E FY21E Growth (%)Growth FY21E Growth (%)Growth FY22E FY22E FY22E FY23E FY23E FY23E 10.0 15.0 20.0 (15.0) (10.0) 5.0 (5.0) - 15.0 25.0 35.0 (25.0) (15.0) 5.0 (5.0) Source: Company,SharekhanResearch OCF/FCF trend Source: Company,SharekhanResearch EBITDA trend Source: Company,SharekhanResearch ROE trend - 10.0 11.0 12.0 13.0 14.0 15.0 16.0 100 200 300 400 500 600 100 14.0 14.5 15.0 15.5 16.0 16.5 17.0 0 FY16 FY17 FY17 Operating Cash Flow (Rs cr) FY17 FY18 FY18 FY18 FY19 FY19 OP (Rs cr) (Rs OP FY19 FY20 RoE (%) RoE FY20 FY20 FY21E Free Cash flows (Rs cr) (Rs flows Cash Free OPM (%) OPM FY21E FY21E FY22E FY22E FY22E FY23E FY23E FY23E 14.0 14.5 15.0 15.5 16.0 16.5 17.0 21

Viewpoint August 21, 2020 Source: SharekhanResearch 23-25%. of potential upside an with stock the on view aPositive with we Hence, re-initiate sheet. balance strong and outlook growth its considering reasonable is we believe which earnings, FY2022E/FY2023E on of 18.9x/16.4x profit/PATat The a FY2021-FY2023E. CAGRcompanyduringis of currently15.1%/19.2%/20.8% trading at a PE revenue/operating to report CUMI FY2022. from We expect trajectory growth earnings to its revive expected The company’s capacity expansions, new product introduction, end sector, and geographic diversification are for line overseas product strong improvement operations. expected and its economic in domestic activities potential: upside 23-25% with coverage Viewpoint Re-initiate Valuation improvement along operations sustained in healthy domestic with overseas operations. with FY2021-FY2023E during trajectory growth to earnings return to company high the we expect Overall, in benefit terms ofand being domestic overseas(countries supplier looking to reduceondependence China). to expected is China with difference marginal and domestically producer lowest-cost and largest-capacity the being company the with electrominerals, in position competitive FY2020. in cost lowfrom base CUMI’s to revive revenues segment’s are expected abrasives Further, FY2021-FY2023E. during trajectory growth in improvement with along market revenue high domestic its to maintain are expected verticals EMD company’sand the The Ceramics operations. overseas in recovery economic early an from benefit to expected is CUMI EMD: and by Ceramics led over FY2021-FY2023E trajectory growth healthy earnings Expect Outlook One-year forwardP/E(x)band Grindwell Norton* Particulars Peer Comparison Carborundum Universal Source:SharekhanResearch, *Bloombergestimates 10.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 5.0 5.0 Aug - 10 Aug - 11 FY20 Aug 19.5 34 - 12 FY21E 23.9 36.7 1yr Fwd PE(x) Fwd 1yr P/E (x) Aug FY22E - 13 18.8 31.4 Aug FY23E 28.3 16.4 - 14 Avg 1yr fwd PE fwd 1yr Avg FY20 Aug 22 11 - 15 EV/EBITDA (x) FY21E 24.7 11.3 Aug CUMI is on the cusp on growth revival with with revival growth on cusp the on is CUMI FY22E - 16 20.3 8.9 Peak Aug FY23E 18.2 - 17 7.5 FY20 Aug Trough 15.2 16 - 18 FY21E 13.4 11.4 RoE (%) Aug FY22E - 19 14.9 13 Aug FY23E 15.6 13.6 - 20 22

Viewpoint Key management personnel Data Additional Top shareholders 10 Š Š Key Risks FY2021-FY2023E. during earnings its to drive divisions EMD and Ceramics in trajectory revenue high growth we expect Overall, markets. international and 2020 domestic revenue to March in drive both in expected is products coated of doubling abrasives, In FY2021-FY2023E. during trajectory revenue high growth to maintain are expected electrominerals) (in cylinders Metallized in alumina expansion customers, refractory from pull demand Ceramics, supplier. In overseas and fused in advantage cost lowest a domestic as both edge an to CUMI give expected is to China and difference cost minimal with along domestically capacity largest the having of benefit The operations. overseas its in strength continued and revival economic of domestic back the on FY2023E FY2021- during indicators macro to outperform CUMI We expect operations. overseas its in revenue growth macro The (such indicators led company by has as and during outperformed FY2017-FY2019, strong GDP IIP) theme Investment 7countries. across located plants 30 zircoania). and has company The alumina carbide, (silicon electrominerals and monolithics) and products (fired refractories ceramics), metallised and coated engineered ceramics abrasives), super and (bonded, ceramics (wear resistance, equipment, lined of abrasives range awide manufactures company The 1954. in India Murugappa, the and UK Company, Wheel Grinding Universal USA, Company Carborundum venturebetween joint a asincorporated was CUMI company About August 21, 2020 Source: Bloomberg Source: CompanyWebsite MR. PPadmanabhan Mr PSJayan Mr NinadGadgil MR. NAnanthaseshan Mr MMurugappan 1 Sr. No. 10 9 8 7 6 5 4 3 2

Sharekhan Limited,itsanalystor dependant(s) oftheanalystmightbeholdingorhavingaposition in thecompaniesmentionedarticle. Delay in sale of Foskor Zirconia: If management cannot find a suitable buyer, margins would keep shrinking. keep would margins buyer, suitable a find cannot management If Zirconia: Foskor of sale in Delay Carborundum Universal’s contracting. Carborundum growth to could lead industries user in Slowdown industries: user in of it) lack (or the to growth responsive Highly Ambadi InvestmentsLtd Holder Name L&T MutualFundTrustee/India Reliance CapitalTrustee CoLtd Murugappa EDUCL&MedFDTN Shamyak Invest ICICI PruLifeInsuranceCo.Ltd Capital GroupCompanyInc SBI Long Term Fund SBI FundsManagementPvt.Ltd HDFC AMC Chief AccountOfficer Executive VicePresident–Electrominerals President -Abrasives Managing Director Chairman Holding (%) 29.59 5.28 9.22 3.03 2.70 7.27 1.55 2.01 1.64 2.11 23

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This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst further certifies that neither he or its associates or his relatives has any direct or indirect financial interest nor have actual or beneficial ownership of 1% or more in the securities of the company at the end of the month immediately preceding the date of publication of the research report nor have any material conflict of interest nor has served as officer, director or employee or engaged in market making activity of the company. Further, the analyst has also not been a part of the team which has managed or co-managed the public offerings of the company and no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Sharekhan Limited or its associates or analysts have not received any compensation for investment banking, merchant banking, brokerage services or any compensation or other benefits from the subject company or from third party in the past twelve months in connection with the research report. Either SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind.

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Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX - Commodity: INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; Mutual Fund: ARN 20669; Research Analyst: INH000006183;

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