Carborundum Universal Limited — Q4 FY25 earnings call

Call held 13 May 2025

Management summary

Carborundum Universal reported a challenging Q4 and full year FY25, marked by a significant decline in PAT and PBIT margins, largely attributed to the impact of sanctions on its Russian VAW operations and a deferred tax credit reversal in AWUKO. Despite these headwinds, the company outlined an ambitious 5-year strategy to double sales and grow R&D, while providing FY26 guidance anticipating continued pressure from VAW but strong growth in Ceramics.

Highlights

  • Consolidated sales for FY25 reached INR 4,834 crores, growing 4.4% YoY.

  • Consolidated PAT for FY25 was INR 293 crores, a significant drop from INR 461 crores in FY24, primarily due to VAW provisions and AWUKO deferred tax credit reversal.

  • Consolidated PBIT for FY25 stood at INR 541 crores, down 13.4% YoY, with PBIT margin contracting to 11.2% from 13.5% in FY24.

  • VAW's Q4 profit after tax was INR 11 crores, down from INR 35 crores in Q4 FY24, impacted by sanctions.

  • FY25 consolidated capex investment was INR 282 crores.

  • FY26 consolidated sales growth is guided at 6-7%, with PBIT margin expected to drop by 100-150 basis points due to VAW.

  • Long-term strategy aims to double sales in 5 years, supported by a 4-5x increase in R&D spend over the next 5-6 years.

Concerns

  • VAW Sanctions and Volume Drop

Key financials

  1. Consolidated Sales ₹4,834 Cr +4.4%YoY
  2. Consolidated PAT ₹293 Cr -36.5%YoY
  3. Consolidated PBIT ₹541 Cr -13.4%YoY
  4. Consolidated PBIT Margin 11.2%
  5. Consolidated ROCE 14.2%
  6. Standalone Sales ₹2,784 Cr +7.3%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
₹4,893 Cr Total
  • Abrasives (Consolidated) ₹2,159 Cr 44.1%
  • Electrominerals (Consolidated) ₹1,574 Cr 32.2%
  • Ceramics (Consolidated) ₹1,160 Cr 23.7%

Order book

low confidence
Management discussed project-driven business in Ceramics experiencing degrowth due to project delays, but no quantified order book or inflow was provided.

Source: Inferred

Capital allocation

high confidence
  • Capex ₹300 Cr
    Capex could be in the range of about INR300 crores to INR350 crores. This is what we are expecting.
  • Debt Gross ₹120 Cr · 0.0× EBITDA
    Now the debt position, there was no debt in our standalone books and total debt at a consolidated basis was at INR120 crores at the end of Q4 '25 compared to INR109 crores at the end of Q3 and INR113 crores at the end of Q4 '24. The debt-to-equity ratio was at 0.03 at a consolidated level.
  • Liquidity Liquidity disclosed Free cash flows on a full year basis at a consolidated level is 22% to PAT compared to 86% last year. The decline in free cash flow was on account of higher working capital and higher capex investments.
    Free cash flows on a full year basis at a consolidated level is 22% to PAT compared to 86% last year. The decline in free cash flow was on account of higher working capital and higher capex investments.

Guidance & targets

Revenue

  • Consolidated Sales Growth Revenue · FY26 · High confidence 6% to 7%
    We expect the full year consolidated sales growth could be 6% to 7% in FY '26.

    — Sridharan Rangarajan

  • Consolidated Abrasives Sales Growth Revenue · FY26 · High confidence 5% to 6%
    Consolidated sales growth in Abrasives would be 5% to 6%, majorly driven by growth in standalone Abrasives, which could be 6% to 8% and then RHODIUS and AWUKO.

    — Sridharan Rangarajan

  • Consolidated Ceramics Sales Growth Revenue · FY26 · High confidence 16% to 18%
    Sales growth in consolidated Ceramics would be 16% to 18%, majorly driven by growth in standalone Ceramics and then supported by CUMI Australia and CUMI America.

    — Sridharan Rangarajan

  • Consolidated Electrominerals Sales Growth Revenue · FY26 · High confidence 1% to 2%
    Sales growth in Electrominerals could be about 1% to 2% because of the drop in sales in VAW in Russia.

    — Sridharan Rangarajan

Profitability

  • Consolidated PBIT Margin Profitability · FY26 · High confidence drop by 100 to 150 basis points
    In FY '25, we delivered a PBIT margin of 11.2% at consolidated level. In FY '26 this could drop by 100 to 150 basis points because of the softer performance in VAW.

    — Sridharan Rangarajan

  • Consolidated Abrasives Margin Profitability · FY26 · High confidence improve by 100 to 150 basis points
    Consolidated Abrasives margin was about 7% in FY '25. We expect this could improve by another 100 to 150 basis points.

    — Sridharan Rangarajan

  • Consolidated Ceramics Margin Profitability · FY26 · High confidence drop by 100 to 120 basis points
    Consolidated Ceramics in FY '25 was 24.7%. We expect this could drop by 100 basis to 120 basis points.

    — Sridharan Rangarajan

  • Consolidated Electrominerals Margin Profitability · FY26 · High confidence drop by 500 to 600 basis points
    Consolidated Electrominerals in FY '25 was 12.5%. We expect this could be dropped by 500 to 600 basis points in FY '26. This is again arising from VAW.

    — Sridharan Rangarajan

Capex

  • Capex Investment Capex · FY26 · High confidence INR 300 crores to INR 350 crores
    Capex could be in the range of about INR300 crores to INR350 crores. This is what we are expecting.

    — Sridharan Rangarajan

Sales

  • Sales Doubling Sales · next 5 years · Medium confidence 2 times
    At the highest level, we want to grow by 2 times in this period with sustained profitability.

    — Sridharan Rangarajan

R&D

  • R&D Spend Increase R&D · next 5 to 6 years · Medium confidence 4 to 5 times
    We expect to increase our R&D spend 4 to 5 times over the next 5 to 6 years to fuel the innovation across the board.

    — Sridharan Rangarajan

What to watch in Q1 FY26

VAW Sanctions Impact and Resolution

next quarter
Current 25-30% volume drop in Q4 FY25, INR 100cr PBIT impact expected in FY26
Target Signs of sanctions easing or resolution of geopolitical conflict

Why it matters

The VAW situation is the primary driver of PBIT margin contraction and overall profitability concerns for FY26.

Just to sum up here, I think we feel that VAW's performance will have a deeper impact in FY '26. We feel that the profitability could drop at least by INR100 crores and that is why we have factored in the numbers whatever I'm telling. But it all depends on the recovery. Basically, if the sanctions get lifted sooner than later what we are looking at, then this could change and I'm expecting whatever I communicated as if the sanctions are continuing.

Risks & concerns

  • VAW Sanctions and Volume Drop

    high

    Sanctions on VAW led to a 25-30% volume drop in Q4 FY25, impacting profitability by INR 24 crores, and expected to have a deeper impact of at least INR 100 crores on FY26 PBIT.

    Management acknowledged

  • AWUKO Deferred Tax Credit Reversal

    medium

    Reversal of deferred tax credit of INR 32 crores in FY25 and not taking credit for FY25 losses (INR 18 crores) impacted consolidated PAT, but is considered reversible once the situation improves.

    Management acknowledged

  • Chinese Competition and Pricing Pressure

    medium

    Ongoing pricing pressure from China, particularly in Electrominerals (alumina), prevented full pass-through of cost increases, impacting margins. Management expects this to continue.

    Management acknowledged

  • Project Delays in Ceramics

    low

    12% of the Ceramics business, which is project-driven, experienced degrowth due to project delays, though management expects this to recover next year.

    Management acknowledged

Q&A highlights

5 direct
VAW Sales and Profitability in Q4 FY25 Direct
Yes. So Harshit, I think, this is exclusively coming out of the volume drop. And as I said, it is 25% to 30% volumes are down in Q4 and we have factored in the similar volume drop for the full year next year as well. So that is what I communicated. So it's a pure volume drop.

Clarified that the significant drop in VAW's Q4 profitability was purely volume-driven due to sanctions, not other one-offs.

Asked by Harshit Patel

Ceramics Segment Growth Drivers Direct
No, I think the ramp-up with the customer is happening as communicated, no challenge at all. Just to give you a perspective, the entire Ceramics segment let's look at it in 3 broad areas. 65 percentage of the business grew at about 18%. 23 percentage of the business, which is Wear Ceramics were flat. And then 12 percentage of the business degrew at 36%. That is how the overall mix you are seeing about 6% to 7%, right?

Explained the mixed performance within Ceramics, highlighting that project-driven business degrowth offset strong growth in other areas, leading to a moderate overall segment growth.

Asked by Harshit Patel

EMD Margins and Impact of Chinese Competition Partial
No. So I think in the EMD margin, the way I would like to look at it is that we practically passed on the cost increase of alumina to the extent of, say, 85% to 90% cost push. The rest we could not push because of the pricing pressure coming from China. So that is what you are seeing in the margin drop.

Addressed the EMD margin contraction, attributing it to inability to fully pass on cost increases due to pricing pressure from China, indicating ongoing competitive challenges.

Asked by Harshit Patel

Strategic Objectives and Capex Plans Partial
So thank you, Mohit. We are not sharing this at this stage, the capex program. I would have loved to share it at this stage. But next year capex I have shared with you broadly. So that is what at this point. But as I said, we have a clear program to deliver this 2 times top line growth. So we feel that we have enough programs to deliver this and should not have an impact -- should not have an issue for us.

Management deferred detailed capex plans for the 5-year strategy, only reiterating the FY26 capex guidance, suggesting some details are still under wraps.

Asked by Mohit Kumar

Abrasives Competition and Market Share Strategy Direct
So we feel that we have enough room in these 3 other category to take a share and that we can grow in the market and the growth strategy largely the broad strategy is that, one, is wherever there are product gaps where we have identified product gaps and that are going to be met both out of the new product to be developed and introduced or source where required. And the second one is strengthening the go-to-market.

Outlined a clear strategy for gaining market share in Abrasives by addressing product gaps and enhancing go-to-market, despite competitive pressures.

Asked by Mohit Kumar

VAW Future Outlook and Geopolitical Impact Direct
So I think since the time of the sanction in January, early January 2025, right, so we are almost, say, kind of 4, 5 months since the sanction has happened, there are a lot of developments, which are very positive, right. There are multiple ceasefires has happened between Ukraine and Russia. There are open comments made by both the governments that they would like to end this conflict and then reach a settlement.

Provided management's optimistic view on the potential resolution of geopolitical conflicts affecting VAW, indicating a hope for improved performance if sanctions are lifted.

Asked by Amit Anwani

Specialty Minerals Strategy Differentiation Direct
Three different things. One is within alumina, we are increasing the treated grain and export of alumina is going to go up. That's the first vector, this is different. Second is increasing the zirconia portfolio, this is the second vector of difference because our right to win is very high because we have established operation in South Africa plus we are also having a small operation here. The third difference is focus on thermal spray powders using oxides.

Detailed the specific strategic shifts in Electrominerals to move towards specialty materials, including treated alumina, expanded zirconia portfolio, and thermal spray powders, differentiating it from past efforts.

Asked by Mohit Pandey

3 min read 6 chapters

Detailed narrative

FY25 Financial Performance Overview

Carborundum Universal reported consolidated sales of INR 4,834 crores for FY25, marking a 4.4% growth year-on-year. However, consolidated PAT significantly declined to INR 293 crores from INR 461 crores in FY24, primarily due to a INR 91 crore provision related to VAW and a INR 32 crore deferred tax credit reversal in AWUKO. Consolidated PBIT also saw a 13.4% reduction to INR 541 crores, with the PBIT margin contracting to 11.2% from 13.5% in the previous fiscal year.

Segmental Performance and Key Drivers

Abrasives consolidated sales grew 3.3% to INR 2,159 crores, but PBIT was down 17% to INR 151 crores, largely due to AWUKO's performance. Electrominerals sales increased 1.9% to INR 1,574 crores, but PBIT dropped 25% to INR 177 crores, mainly impacted by VAW. Ceramics was the strongest performer with 7.7% sales growth to INR 1,160 crores, and PBIT remained almost flat at INR 286 crores, driven by strong growth in metallized engineered ceramics offsetting degrowth in project-dependent businesses.

Impact of VAW Sanctions and AWUKO Challenges

The Russian VAW operations faced significant headwinds due to sanctions, resulting in a 25-30% volume drop in Q4 FY25 and a Q4 PAT of INR 11 crores, down from INR 35 crores in Q4 FY24. For the full year, VAW's PAT was INR 119 crores, excluding exceptional items, compared to INR 149 crores in FY24. AWUKO also contributed to the consolidated loss, with a EUR 10.2 million loss after tax in FY25, exacerbated by a EUR 3.5 million deferred tax asset reversal and inventory provisioning.

FY26 Outlook and Margin Guidance

For FY26, the company projects a consolidated sales growth of 6-7%. However, consolidated PBIT margin is expected to drop by 100-150 basis points due to the anticipated softer performance of VAW. Segment-wise, Abrasives margin is expected to improve by 100-150 bps, while Ceramics margin may drop by 100-120 bps, and Electrominerals margin is projected to decline significantly by 500-600 bps, primarily due to VAW's impact.

Long-term Strategic Vision and Capital Allocation

Carborundum Universal unveiled a 5-year strategy aiming to double sales with sustained profitability. This involves scaling core businesses, entering adjacencies, and exploring step-outs. The company plans to increase R&D spend 4 to 5 times over the next 5-6 years to fuel innovation. FY25 consolidated capex was INR 282 crores, and FY26 capex is projected to be in the range of INR 300-350 crores. Consolidated debt stood at INR 120 crores at the end of Q4 FY25, with a debt-to-equity ratio of 0.03.

Specialty Materials Focus in Electrominerals

The Electrominerals division aims to evolve from a minerals player to a specialty material player. This strategy includes scaling up alumina capacity with a focus on treated grains and expanding the zirconia portfolio with new products like alumina zirconia and stabilized zirconia. Additionally, the company plans to enhance product development for high-growth sectors like semiconductor and aviation by venturing into advanced materials such as thermal spray powders, aiming for specialty minerals to constitute 40% of the business in 5-6 years.

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