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