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On Monday, Macquarie analysts downgraded Carborundum Universal (NSE:CRBR) Ltd (CU:IN) stock rating from Neutral to Underperform, adjusting the price target to INR900 from the previous INR1,260. The downgrade followed the company's third-quarter financial results for fiscal year 2025, which showed a mixed performance with certain subsidiaries weighing on the overall margins.
Carborundum Universal reported a third-quarter revenue of Rs12.6 billion, a 9% increase year-over-year, aligning with Macquarie's estimates. However, EBITDA for the quarter fell by 8% year-over-year and was 7% below Macquarie's expectations. The EBITDA margin stood at 14.1% in the third quarter compared to 16.7% in the same period the previous fiscal year. The decline in margins was largely attributed to the performance of the company's ceramic and abrasive international subsidiaries, as well as lower standalone margins in the abrasives segment.
The company's abrasives subsidiaries reported an implied EBIT of -6.2%, a significant downturn from the break-even point in the third quarter of the previous fiscal year. Macquarie indicated that the turnaround for Rhodius and AWUKO is taking longer than expected due to weak macroeconomic conditions. The ceramics international subsidiaries also reported a substantial drop in implied EBIT percentage to 2.4% from 32% in the third quarter of fiscal year 2024. Despite management's mention of one-off provisions and expectations for margin normalization from the fourth quarter, analysts see the volatility as a negative indicator.
The electrominerals segment is also expected to face challenges, with VAW likely to see reduced revenue and EBIT. Approximately 40% of VAW's business is affected by the inability to transact in euros, adding to the existing impact from transaction limitations in USD. VAW is shifting its focus to domestic sales within Russia, which currently accounts for about 60% of its sales, and management plans to undertake cost reduction measures.
On a positive note, the India ceramics business emerged as a bright spot, with a robust 29% year-over-year growth in the third quarter and healthy standalone profitability, with an EBIT of 25.3% compared to 23.7% in the same quarter of the previous fiscal year. Carborundum Universal's progress in research and development initiatives is on track, and the company anticipates sharing more details about its long-term growth plans following the fourth-quarter results.
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