Abrasives Industry: Exciting Opportunities Ahead

Published by Sharekhan Education | November 20, 2023

 Amit Pathak | Sharekhan Education

Introduction:

Abrasive is a material, utilized to finish or shape work pieces into smooth and reflective surfaces. It cuts, grinds, and polishes other softer materials. They are broadly classified into bonded abrasives, coated abrasives, and super abrasives. Several end-user industries such as Automobiles, Auto Ancillary, Metalworking, Building and construction, Woodworking, Railways, etc utilize abrasive products.

About the Industry:

India’s Abrasives market accounts for 1-2% of global markets. The organized sector comprises around 70% of the Abrasives Industry in India. Strong demand from end-user industries is expected to drive the organized market and grow at an 8.1% CAGR over FY22-FY28.  Imports constitute around 30% of the market largely dominated by Chinese products. The government of India’s increasing thrust on localization in manufacturing can enhance annual manufacturing capital expenditure by ~15-20%. This may lead to a strong demand for short-cycle industrial consumables in capital goods space like abrasives.

The government’s thrust on Make in India and Aatmanirbhar Bharat is set to fuel an uptick in manufacturing activity in India.   Govt. is targeting to increase the manufacturing sector’s contribution to GDP to ~25% from ~14% currently. Healthy budget allocation in transportation, railways, defense, and renewable sectors – are all aiding user industries’ growth, which will drive demand for industrial consumables like abrasives. Supply chain shifting to India amid China +1 strategy adopted by global manufacturing players will likely benefit abrasives demand.

About Carborundum Universal:

Let us discuss Carborundum Universal in this space. The company is a leading player with ~25% market share in the organized abrasives market. Among the world’s manufacturers, it is one of five with fully integrated operations encompassing mining, wind & hydropower stations, manufacturing, marketing, and distribution. The company is targeting 2x/3x growth in Revenue/PAT by FY25 vis-a-vis FY22, driven by organic and inorganic growth through suitable acquisitions, technologically advanced new product launches, and leveraging distribution reach. Improving product mix, enhancing the profitability of recently acquired subsidiaries and growing value-added products. Which will focus on leveraging operation, increasing capacity and implementing cost control measures. Thus expected to aid the expansion of profit margins.

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