What Triggered A 30% Rally In Carborundum Stock Over Past Three Weeks
Shares of Carborundum Universal Ltd. have risen more than 30% over the last three weeks, riding on the optimism stemming from the government’s move to extend its Rs 1.46-lakh-crore ($20 billion) incentive programme to attract companies to set up manufacturing in India.
Shares of the abrasives and industrial ceramics maker have also outperformed the Nifty Smallcap Index, which has gained more than 12% during the same period, and its only listed peer Grindwell Norton Ltd., according to Bloomberg data.
The Indian government on Nov. 11 announced its plan to offer production-linked incentives to 10 sectors, including automobile, solar panel and specialty-steel makers over a five-year period, according to a statement. Textile units, food processing plants and specialized pharmaceutical product makers are also eligible for the incentives.
The highest amount of Rs 57,042 crore was allocated to provide incentives to the automobile and auto components industries. That provides an opportunity to Carborundum Universal as the company lists automakers as one of its key end-users. Also, auto parts makers globally are looking to shift their supply chain network out of China to reduce dependence on one country for sourcing bulk of its components.
The Indian abrasives market, according to an ICICI Direct note on Nov. 3, is estimated at Rs 3,200 crore. Carborundum Universal, along with Grindwell Norton, account for 55-60% of the overall market share.
Carborundum Universal, at the Rising Stars Conference hosted by Axis Capital last week, said abrasives and technical ceramics have seen consistent demand pickup, which is likely to spill-over to the second half of the ongoing fiscal as well.
Management Commentary At Rising Star Conference:
- New coated maker plant doubled capacities and improved ability to compete in domestic and export markets
- Exports to scale up to about 20% of overall revenue over the next three-five 3-5 years
- Capacity expansion plans for Silicon Carbide delayed due to the pandemic
- Exit plan for step-down subsidiary, Foskor Zirconia Pty Ltd., is underway and is expected to close in the second half
“With current capacities, the company is well placed to clock revenue of Rs 3,200 crore to Rs 3,500 crore,” Axis Capital said.
Of the 10 analysts tracking Carborundum Universal, nine have a ‘buy’ recommendation and one suggests a ‘hold’. The stock trades 15.3% higher than its Bloomberg consensus 12-month price target of Rs 322.2 apiece.