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Grindwell Norton Ltd>
  • CMP : 1,997.9 Chg : 35.10 (1.79%)
  • Target : 1,910.0 (15.34%)
  • Target Period : 12-18 Month

09 May 2022

About The Stock

Grindwell Norton (GNL) is the market leader in the India abrasive market with ~26% market share. The segments include abrasives (contributing ~57%), ceramics & plastics (33%) and IT services & others (10%).  GNL has witnessed strong & positive free cash flows consistently over more than a decade irrespective of the macro environment  It has consistently operated with high (>16%) margins & return ratios

Q4FY22

GNL reported a decent set of Q4FY22 numbers.  Revenues came in at ₹ 558.9 crore, up 9.8% YoY owing to better demand  EBITDA in Q4FY22 came in at ₹ 123.6 crore, up 9.4% YoY with margins at 22.1% with improved gross margins  Consequently, PAT grew 12.5% YoY to ₹ 90.6 crore

What should Investors do?

Going forward, accelerated growth in performance plastics & ceramics and exports are expected to drive long term incremental growth.  We remain long term positive and change our rating on the stock from HOLD to BUY

Target Price Valuation

We value GNL at ₹ 1908 i.e. 50x P/E on FY24E EPS

Key Triggers for future price performance

Ambition to maintain market share in abrasives and increase market share in ceramic & plastics with gradual penetration of new value added products  High margin value added products and solutions oriented approach to drive margin expansion (from ~16.7% in FY20 to 20.5% in FY24E)  We expect revenue, EBITDA to grow at CAGR of 18.6%, 20.1%, respectively, over FY21-24E  Net debt free b/s, double-digit return ratios & strong cash generation

New Stock Ideas

Apart from GNL, in our coverage we also like Thermax.  Leader with strong balance sheet, prudent working capital management, recent technological tie-ups, are expected to support growth  BUY with target price of ₹ 2445. 

Q4FY22 Results: Strong set of numbers amid challenging environment

Revenues came in at | 558.9 crore, up 9.8% YoY and grew by 11.4% on QoQ basis. primarily aided by strong performance in ceramics & plastic and IT segment. Revenue contribution from abrasives, ceramics & IT services were at ~53.9%, ~39.8% & ~6.4%, respectively  Abrasive segment revenue marginally declined by 0.8% to | 301.1 crore YoY, ceramics and plastic segment grew well by 34.3% to | 222.4 crore YoY while IT services segment grew 7.8% to | 35.7 crore, YoY  Abrasive segment registered EBIT margin of 14.9% (vs. 16.1% in Q4FY21). EBIT margins for ceramics and plastic segment reported 27.8% (vs. 26% in Q4FY21) while in IT services segment EBIT margin was at 28.3% (vs. 28.8% YoY)  Overall, EBITDA margins came in at 22.1% (vs. 22.2% Q4FY21) and substantially increased 424 bps QoQ. Gross margins also increased by 130 bps to 58% YoY, quarterly by 330 bps  PAT grew 12.5% YoY, 30% QoQ to | 90.6 crore

Terms & conditions and other disclosures

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Buy: >15%

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Reduce: -15% to -5%;

Sell: <-15% 

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pankaj.pandey@icicisecurities.com

 

 

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