ICICI Direct is bullish on Grindwell Norton has recommended buy rating on the stock with a target price of Rs 625 in its research report dated February 05, 2019.
ICICI Direct's research report on Grindwell Norton
Grindwell Norton (GNL) reported weak Q3FY19 numbers, which were below our estimates. Revenues came in at Rs 394.8 crore, up 8% YoY, below our estimate of Rs 415 crore. Abrasives, ceramics and ‘new initiatives’ segment contributed ~59%, ~33% and ~8%, respectively EBITDA margins came in at 16.2% vs. 17.6% YoY. This was primarily due to a decline in gross margins by 200 bps YoY. Power & fuel expenses also increased 16.1% YoY. However, the same was partly offset by lower employee & other expenses, up 4.7% YoY and 5.4% YoY, respectively. Absolute EBITDA declined 0.7% YoY Segment wise – Abrasives, ceramics and ‘new initiatives’ segment reported EBIT margins of 13.3%, 14.5% and 23.7%, respectively. Other income increased 61.4% YoY. Accordingly, PAT grew 3.5% YoY to Rs 41.2 crore.
Outlook
To support healthy growth rates, GNL has also planned a capex of Rs 50 crore for these segments. With a cash balance of Rs 250-300 crore and debt-free status, we believe GNL is a quality play. We value GNL at 31x FY21E earnings to arrive at a target price of Rs 625. We have a BUY rating on GNL.
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