Hold Grindwell Norton; target of Rs 600: ICICI Direct

ICICI Direct's research report on Grindwell Norton

Grindwell Norton (GNL) reported decent Q2FY21 numbers across operational parameters owing to pent-up demand and revival in key sectors like automotive, industrial, construction, engineering amid unlock. Revenues were at Rs 439.0 crore, decent growth of 11.9% YoY. Abrasives, ceramics & ‘new initiatives’ segment contributed ~59%, ~32% & ~9%, respectively. Overall, EBITDA margins were at 21.3%, improving 470 bps YoY. This was primarily aided by a reduction in overall operating expenses and employee expenses. Gross margins were at 54.3% with a marginal decline of 40 bps YoY. PAT grew 23.4% to Rs 64.3 crore YoY despite lower other income and higher effective tax rate YoY. Other income fell 26.3% to Rs 7.6 crore YoY.

Outlook

Going forward, we expect stable growth in plastics segment owing to niche value added products in life sciences. However, industrial/automotive slowdown will continue to affect abrasive, ceramics segments. On the whole, we expect abrasives, ceramics and ‘new initiatives’ to grow at a CAGR of -4.5%, 3.3% and 4.1%, respectively, in FY20-22E. With a cash balance of Rs 429 crore and debt-free status, we believe GNL is well placed to gain from gradual economic revival with strong market share in key segments. We value GNL at 33x on FY22E EPS to arrive at a target price of Rs 600. We maintain our HOLD rating on the stock.

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