ICICI Direct recommended hold rating on Grindwell Norton with a target price of Rs 550 in its research report dated May 25, 2020.
ICICI Direct's research report on Grindwell Norton
Grindwell Norton (GNL) reported muted Q4FY20 numbers across operational parameters owing to overall automotive, industrial slowdown amid Covid-19. Revenues came in at Rs 365.9 crore, down 9.7% YoY. Abrasives, ceramics, new initiatives segment contributed ~60%, ~31%, ~9%, respectively. EBITDA margins were at 16.5%, down marginally by 20 bps YoY. This was primarily due to a decline in gross margins by ~20 bps YoY to 55.3% for the quarter. However, the margin decline was partly offset by lower power & fuel and other expenses, which were down 10.8%, 23% YoY, respectively. PAT de-grew 1.4% to Rs 41.8 crore, YoY, primarily aided by lower taxes. It has also recommended a dividend of Rs 7.5 per share.
Outlook
Going forward, we expect stable growth in plastics segment due to niche value added products in life sciences. However, industrial/automotive slowdown will continue to affect abrasive, ceramics segments. On the whole, abrasives, ceramics, new initiatives are expected to grow at CAGR of -0.6%, 2.6%, 2.0%, respectively, in FY20-22E. With cash balance of Rs 429 crore, debt-free status, we believe GNL is well placed to gain from any revival with strong market share in key segments. We value GNL at 33x FY22E EPS to arrive at a TP of Rs 550 & change our rating from BUY to HOLD.
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