CUMI is a leading domestic manufacturer of abrasives, industrial ceramics and refractories. It also has manufacturing plants in Russia (Silicon Carbide) and South Africa (Zirconia and refractories). With an expected pick up in domestic industrial activity, demand for abrasives and industrial ceramics should recover, driving a sharp pickup in CUMI’s domestic revenue growth. Aided by operating leverage and restructuring of its international operations, CUMI’s margins and RoE are thus set to improve substantially.
We value the stock at 20x FY17E EPS to arrive at TP of Rs 225/sh. Our target multiple is at 30% premium to 10-yr average but is reasonable in our view given the high visibility of an industrial capex revival in India and company’s creditable track record. CUMI has generated positive operating cash flow across cycles and has managed a nearly debt free balance sheet despite an asset intensive business, three acquisitions and a prolonged global slowdown. BUY for an immediate play on industrial recovery and a 32% EPS CAGR over FY14-17E.