Carborundum Universal Limited — Q3 FY25 earnings call

Call held 14 Feb 2025

Management summary

Carborundum Universal Limited reported mixed results for Q3 FY25, with strong standalone sales growth offset by a significant impact from US sanctions on its Russian subsidiary, VAW, leading to substantial provisioning. Consolidated profitability declined due to this exceptional item and margin pressures across segments, prompting a downward revision in full-year sales and PAT guidance. The company is focusing on domestic operations for VAW and addressing margin challenges in other segments.

Highlights

  • Consolidated Q3 sales reached INR 1,241 crores, marking a 9.8% year-on-year growth.

  • Consolidated PBIT for Q3 was INR 141 crores, a 10.8% decrease compared to Q3 FY24.

  • Consolidated PAT (without exceptional items) remained flat at INR 111 crores in Q3 FY25.

  • Standalone Q3 sales hit a record high of INR 728 crores, growing 15% YoY.

  • US sanctions on the Russian subsidiary VAW led to a RUB 1.59 billion (INR 104 crores pre-tax) provisioning, impacting Q3 PAT which fell to INR 35 crores.

  • FY25 consolidated sales guidance revised downwards to INR 4,800-5,000 crores from INR 5,100-5,200 crores.

  • FY25 PAT guidance (without exceptional items) set at around INR 450 crores.

  • Consolidated PBIT margin declined to 11.3% in Q3 FY25 from 14% in Q3 FY24, primarily due to lower Abrasives PBIT and unallocable expenses.

Concerns

  • US Sanctions on VAW (Russian Subsidiary)

Key financials

  1. Consolidated Sales ₹1,241 Cr +9.8%YoY
  2. Consolidated PBIT ₹141 Cr -10.8%YoY
  3. Consolidated PBIT Margin 11.3%
  4. Consolidated PAT (ex-exceptional) ₹111 Cr 0%YoY
  5. Consolidated PAT (inc-exceptional) ₹35 Cr
  6. Standalone Sales ₹728 Cr +15%YoY

What they filed

Q1 FY27: revenue up 17.1%, net profit up 33.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,224 1,255 1,217 1,219 1,298 +6%1,291 +3%1,398 +15%1,427 +17%
EBITDA195 177 146 121 156 −20%157 −11%144 −1%135 +12%
Net profit116 38 30 60 74 −36%73 +92%-40 −233%80 +33%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Sales
₹1,257 Cr Total
  • Abrasives (Consolidated) ₹526 Cr 41.8%
  • Electrominerals (Consolidated) ₹416 Cr 33.1%
  • Ceramics (Consolidated) ₹315 Cr 25.1%

Order book

low confidence
Management noted that Abrasives demand is holding on, with industrial activity showing pressure but increased infrastructure spending expected to generate demand. For Ceramics, customers are ready for expansion projects.

Source: Q&A

Capital allocation

high confidence
  • Capex ₹300 Cr Cut

    Previously planned ₹350 Cr

    For CAPEX side, we said that we would spend about INR 350 crores. So, far, we spent about INR 202 crores in 9 months. We feel we should be spending about INR 300 crores.
  • Debt Gross ₹109 Cr
    There was no debt in our standalone books. And total debt at a consolidated basis was at INR 109 crores at the end of Q3 FY '25, compared to INR 103 crores at the end of Q2 '25, and INR 119 crores at the end of Q3 '24. The debt-to-equity ratio was at 0.03 at a consolidated level.
  • M&A Silicon Carbide Products, Inc. Acquisition · Integrated

    Small English company, consolidated for 2 months in Q3 FY25.

    Sir, just on that Silicon Carbide Products, Inc... So, that Company is fine. We will share more details, it's a very small english Company. They are in line with our expectations.

Guidance & targets

Sales

  • Consolidated Sales Sales · FY25 · High confidence INR 4,800-5,000 crores

    Previously INR 5,100-5,200 crores → INR 4,800-5,000 crores

    We communicated full-year consolidated sales to be 9% to 11% growth. We said about INR 5,100 crores to INR 5,200 crores. We expect a shortfall of INR 200 crores to INR 300 crores. So, the overall growth will be accordingly adjusted.

    — Sridharan Rangarajan

  • Consolidated Abrasives Growth Sales · FY25 · High confidence 5%

    Previously 10% → 5%

    Consolidated Abrasives, we expect a growth of 5% against 10%, what we communicated earlier.

    — Sridharan Rangarajan

  • Abrasives India Growth Sales · FY25 · High confidence 6-7%

    Previously 9-11% → 6-7%

    Abrasives India growth would be in the range of 6% to 7% against 9% to 11%, what was communicated earlier.

    — Sridharan Rangarajan

  • RHODIUS Sales Growth Sales · FY25 · High confidence 6-7%

    Previously 9-10% → 6-7%

    RHODIUS is doing well. We communicated earlier, the growth of 9% to 10%, but now we are revising. We feel it could be about 6% to 7%.

    — Sridharan Rangarajan

  • AWUKO Sales Increase Sales · FY25 · High confidence €1.3 million

    Previously €2 million → €1.3 million

    At present, we feel that the sales will increase by €1.3 million instead of €2 million, EBITDA loss will still be around €4.5 million.

    — Sridharan Rangarajan

  • Consolidated Ceramic Segment Sales Growth Sales · FY25 · High confidence 10-12%

    Previously 12-14% → 10-12%

    We communicated about sales growth of 12% to 14% consolidated Ceramic segment. We expect it to be 10% to 12%.

    — Sridharan Rangarajan

  • Industrial Ceramics India Sales Growth Sales · FY25 · High confidence 10%

    Previously 12% → 10%

    For Industrial Ceramics business in India, we communicated growth projection would be 12% because of some shortfall in Engineered and Wear Ceramics segment. It would be 10% on a year-on-year basis.

    — Sridharan Rangarajan

  • Refractory Sales Growth Sales · FY25 · High confidence 8-9%

    Previously 12-13% → 8-9%

    Refractory, we expect 8% to 9% growth over the last year, against 12% to 13%, as communicated earlier.

    — Sridharan Rangarajan

  • Consolidated Electrominerals Sales Growth Sales · FY25 · High confidence flat marginal improvement

    Previously 5-6% → flat marginal improvement

    We communicated about sales growth of 5% to 6% in consolidated Electrominerals business. We expect some shortfall from VAW what we have planned. This will lead to flat marginal improvement over the last year.

    — Sridharan Rangarajan

  • Standalone Electrominerals Sales Growth Sales · FY25 · Medium confidence around 10%
    Growth from standalone business is slightly better than what we communicated earlier, about 10% growth.

    — Sridharan Rangarajan

Profitability

  • Consolidated PAT (ex-exceptional) Profitability · FY25 · High confidence around INR 450 crores
    We expect PAT to be around INR 450 crores without considering the exception effect.

    — Sridharan Rangarajan

  • RHODIUS Loss After Tax Profitability · FY25 · High confidence €1.9 million

    Previously breakeven → €1.9 million

    We expect a loss after tax of €1.9 million on full-year basis against the breakeven we told in Q2 Earnings Call.

    — Sridharan Rangarajan

Capex

  • Total CAPEX Capex · FY25 · High confidence INR 300 crores

    Previously INR 350 crores → INR 300 crores

    For CAPEX side, we said that we would spend about INR 350 crores. So, far, we spent about INR 202 crores in 9 months. We feel we should be spending about INR 300 crores.

    — Sridharan Rangarajan

Margin

  • Consolidated PBIT Margin Margin · FY25 · High confidence drop of 100-120 bps

    Previously 12.7-12.8% → drop of 100-120 bps

    The PBIT performance, we communicated consolidated PBIT would be 12.7%, 12.8%. We expect a drop of by about 100 to 120 bps.

    — Sridharan Rangarajan

  • Consolidated Abrasives & Ceramic Margin Margin · FY25 · High confidence drop by about 150 bps

    Previously similar to FY24 → drop by about 150 bps

    We said that consolidated Abrasives and Ceramic margin will be similar to that of FY '24. At present, we expect to drop by about 150 basis points.

    — Sridharan Rangarajan

  • Consolidated Electrominerals Margin Margin · FY25 · High confidence decrease by 100 bps

    Previously 13.5-14% → decrease by 100 bps

    In our last call, we said that consolidated Electrominerals margin will be in the range of 13.5% to 14%. We expect the margin decrease by 100 bps.

    — Sridharan Rangarajan

Debt

  • Debt Status Debt · Ongoing · High confidence debt-free
    We will be continuing to be debt-free.

    — Sridharan Rangarajan

Expenses

  • Unallocable Expenses Expenses · FY25 · Medium confidence around INR 60 crores plus
    Last year, we spent about, say, - INR 58 crores of total unallocable costs. We should expect should be in the range of about around INR 60 crores plus. So, that's the broad expectation one can have.

    — Sridharan Rangarajan

What to watch in Q4 FY25

VAW Operational Restructuring & Profitability

next quarter
Current VAW operating domestically, RUB 718 million Q3 PAT loss (with exceptional), RUB 479 million Q3 PAT (without exceptional)
Target Stabilized domestic operations and sustained profitability without exceptional items

Why it matters

To assess the effectiveness of VAW's new domestic-only business model and its impact on overall consolidated profitability.

So, as I said, the business is relooking at the model, and repositioning themselves the cost also accordingly, because you cannot afford to run the business at the same level with 100% business possible, whereas you are only doing domestic. So, that repositioning is parallelly happening, and they have to resize this operation accordingly. So, they are very much aware, and they are definitely on the job to do that. My own guess is that they should be able to reposition this in this quarter.

Risks & concerns

  • US Sanctions on VAW (Russian Subsidiary)

    high

    VAW designated as 'Specially Designated National', blocking USD/EUR transactions, leading to RUB 1.59 billion (INR 104 crores pre-tax) provisioning and forcing VAW to operate only domestically.

    Management acknowledged

  • Consolidated PBIT Margin Compression

    medium

    Consolidated PBIT margin declined to 11.3% in Q3 FY25 from 14% in Q3 FY24, driven by lower Abrasives PBIT, higher unallocable expenses, and one-off issues in Ceramics subsidiaries.

    Management acknowledged

  • Abrasives Segment Underperformance

    medium

    Abrasives PBIT degrew 43% YoY in Q3, with margins dropping to 5.4%, due to lower standalone performance, RHODIUS cost pressures, and AWUKO sales shortfall.

    Management acknowledged

  • Electrominerals Margin Pressure

    medium

    Electrominerals YTD PBIT margin decreased to 14% from 16% YoY, mainly due to higher input costs (alumina price) and pricing pressures, exacerbated by competition from China.

    Management acknowledged

  • Ceramics Subsidiary One-off Issues

    medium

    Ceramics margins impacted by one-off issues in Australia (inventory provisions, receivables, product mix) and America (freight absorption), which are not operational but affect profitability.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
VAW's ability to absorb lost export sales in the local Russian market Partial
So, Harshit, we said that we will not be able to sell and we will not be able to compensate. We will only be selling what we were selling domestically. And we are just looking 1 quarter at a time to see how this whole thing develops.

Analyst questioned the viability of VAW's domestic-only strategy post-sanctions, and management indicated a cautious, quarter-by-quarter approach without full compensation for lost exports.

Asked by Harshit Patel

Repatriation of cash from VAW to India Direct
Yes. So, Harshit, just an accounting technical term is being used. This represents the cash in VAW. And typically, the cash repatriation means that Rupee-Ruble trade is possible only to the extent of the trade-related transaction. CUMI India doesn't own VAW directly. It is owned by Cyprus, and it has to come through Cyprus. And that is where we feel that at this point in time, it is not repatriable and hence, it is mentioned so.

Clarified the complex structure and restrictions preventing direct repatriation of VAW's cash to India, highlighting a potential long-term challenge for capital access.

Asked by Harshit Patel

Weak margins in Ceramics segment despite strong standalone growth Direct
So, to start with, there are some one-off issues in Australia and America. Australia is largely there are provisions in terms of the inventory, and in terms of the receivables. And that is the broad reason. Plus, there is also product mix change in terms of the lower project-based orders. That is the reason for that. As far as the Americas is also concerned is that we used to ship them, including the freight, but now we have changed the terms. The freight is absorbed by our American entity. And hence, there is a drop in the margin from their level. So, I would say, these are not relating to operations side of the business. More at this point in time, one-off I would say.

Management explained that Ceramics margin pressure was due to specific one-off issues in subsidiaries (inventory, receivables, freight absorption, product mix) rather than core operational weakness, suggesting potential for recovery.

Asked by Harshit Patel

Sequential drop in standalone EMD margins Direct
So, to start with, if you look at always EMD, the Q3 PBIT margins were lower than the Q2. It's a seasonality effect. You can check many quarters and you will see this trend, right? Second is that there is a cost pressure. Definitely, alumina price increase versus our ability to put on the price is a continuing process, plus the competition from China is also a factor that puts us also pressure in terms of putting up the price.

Provided reasons for the sequential margin decline in Electrominerals, citing seasonality, inability to fully pass on alumina price increases, and Chinese competition.

Asked by Harshit Patel

Outlook for domestic Abrasives and performance of RHODIUS/AWUKO Direct
Yes. See, Abrasive demand is largely, I would say, at this point in time, holding on. Definitely, the market industrial activity is showing pressure in terms of the demand, that is there. And also at the same time, there's an increased infrastructure spend. The government also has announced, so should be able to again put up some demand for the Abrasives one.

Addressed concerns about Abrasives demand, acknowledging current pressures but highlighting potential support from government infrastructure spending, and reiterated revised guidance for subsidiaries.

Asked by Amit Anwani

VAW's business model and strategy post-sanctions Direct
So, I told, Amit, in my opening remarks, 60% is domestic sale and 40% is export. And of that, 12% is dollar-denominated and 25% is euro-denominated. We feel that euro on dollar, they will not be able to export. And the focus of the Company would be more on Domestic side of the business, which is what they used to do, 60% of the business. And we are looking now quarter-by-quarter.

Clarified the shift in VAW's strategy to focus entirely on its historical 60% domestic business, acknowledging the loss of export revenue due to sanctions.

Asked by Amit Anwani

Update on Ceramics expansion projects (armor, semiconductor) and customer readiness Direct
The customers are ready, and they are definitely very much part of this progress, and they have been updated. They also keep updating us. And it is progressing as expected.

Confirmed that key Ceramics expansion projects are on track and customer readiness aligns with the company's progress, indicating smooth execution and future revenue potential.

Asked by Bhavin Vithlani

Consideration of divesting VAW given ongoing challenges Evasive
Yes. Bhavin, it's a good question. From our point of view, we need to allow some time to understand what this means to us, right? And we don't want to extend our thinking beyond the current management of what we are doing. These things can change. It's a geopolitical issue. So, we need to wait and see. So, we will have to give some time to see how this development will turn.

Management avoided directly answering the question about potential divestment of VAW, emphasizing the need for time to assess the geopolitical situation and its implications.

Asked by Bhavin Vithlani

2 min read 6 chapters

Detailed narrative

Q3 FY25 Consolidated Performance Overview

Carborundum Universal Limited reported consolidated sales of INR 1,241 crores in Q3 FY25, representing a 9.8% year-on-year growth, primarily driven by strong performance in Ceramics and Electrominerals. However, consolidated PBIT saw a decline of 10.8% YoY to INR 141 crores, and the PBIT margin contracted to 11.3% from 14% in Q3 FY24. Consolidated PAT, including exceptional items, was significantly impacted, falling to INR 35 crores, while PAT excluding exceptional items remained flat at INR 111 crores.

Impact of US Sanctions on Russian Subsidiary (VAW)

The company's Russian subsidiary, Volzhsky Abrasive Works (VAW), was designated as a 'Specially Designated National' by the US Department of State. This sanction blocks transactions in US dollars and euros, necessitating a RUB 1.59 billion (INR 104 crores pre-tax for CUMI) provisioning for foreign currency receivables and deposits. VAW, which previously exported 40-45% of its sales, will now focus solely on its domestic Russian market, leading to a revised outlook for its contribution.

Segmental Performance and Margin Pressures

The Abrasives segment experienced a marginal sales degrowth of 0.4% YoY to INR 526 crores, with PBIT declining significantly by 43% to INR 28 crores, impacting its margin. Electrominerals sales grew 12.8% to INR 416 crores, and PBIT increased 34% to INR 67.5 crores, though YTD margins were down due to input cost and pricing pressures. The Ceramics segment showed robust sales growth of 29.6% to INR 315 crores, with PBIT growing 14% to INR 68 crores, but margins were affected by one-off issues in Australian and American subsidiaries.

Revised Full-Year FY25 Guidance

Management revised its full-year consolidated sales guidance downwards to INR 4,800-5,000 crores from the earlier INR 5,100-5,200 crores. The PAT guidance (without exceptional items) was set at around INR 450 crores. CAPEX plans for FY25 were also adjusted to INR 300 crores from INR 350 crores. Segment-specific growth and margin targets were similarly revised downwards, reflecting the challenges from VAW and ongoing market dynamics.

Standalone Business Strength and Ceramics Project Progress

The standalone business demonstrated resilience, achieving its highest quarterly sales of INR 728 crores, a 15% YoY increase. Standalone Ceramics sales grew 25% to INR 265 crores, driven by volume. The company confirmed that its Ceramics expansion projects, including those for armor and semiconductor applications, are on track and progressing as per schedule, with customer readiness aligning with project timelines, indicating future growth potential.

Capital Allocation and Efficiency

Carborundum Universal Limited maintains a debt-free status at the standalone level, with consolidated debt at INR 109 crores and a low debt-to-equity ratio of 0.03. YTD CAPEX stood at INR 202 crores, with a revised full-year plan of INR 300 crores. However, the consolidated Return on Capital Employed (ROCE) on a YTD basis declined to 17% from 18.3% in the same period last year, primarily due to the performance of Abrasives and Ceramics subsidiaries.

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