Grindwell Norton Stock Analysis

Grindwell Norton Limited:

Businesses include: Abrasives, Silicon Carbide, Performance Ceramics & Refractories, Performance Plastics and ADFORS. Saint-Gobain currently holds 51.66% in the Company.

Date – 31st March 2020

Price – Rs. 443.10

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Business Segments:

Abrasives Business – Manufactures a full range of Bonded Abrasives, Coated Abrasives (including Non-woven Abrasives), Thin Wheels and Super abrasives at its plants near Mumbai, Bangalore, Nagpur and Himachal Pradesh. ~60-65% revenue comes from this segment.

Ceramic Business

  • Performance Ceramics & Refractories (PCR) business manufacture refractory systems for high temperature, ballistic and wear applications. The HPR plants are located in Bangalore and Halol (Gujarat).
  • The Silicon Carbide business manufactures Silicon Carbide crude and grains at Tirupati (Andhra Pradesh) and near Phuentsholing (Bhutan) and is a major supplier to all leading Refractory, Metallurgy and Abrasives manufacturers in India.
  • ADFORSis the world leader in glass fibre technical fabrics for applications in construction and industry. Its products include glass fibre mesh for exterior wall insulation, wall coverings, joint tapes and glass mats for thermal insulation.

Financial Performance

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

1,135.37

1,150.57

1,263.36

1,430.98

1,598.06

Growth

1.34%

9.80%

13.27%

11.68%

EBITDA (In Rs. Cr.)

180.60

183.51

193.12

246.90

271.81

EBITDA Margin

15.91%

15.95%

15.29%

17.25%

17.01%

EBIT (In Rs. Cr.)

138.99

140.93

150.87

202.06

226.58

EBIT Margin

12.24%

12.25%

11.94%

14.12%

14.18%

PBT (In Rs. Cr.)

153.79

161.09

179.72

227.47

260.44

PAT (In Rs. Cr.)

103.22

105.23

119.39

149.75

167.24

PAT Margin

9.09%

9.15%

9.45%

10.46%

10.47%

EPS (In Rs.)

9.32

9.50

10.78

13.53

15.10

EPS Growth Rate

1.95%

13.46%

25.43%

11.68%

Historic P/E (Closing Price of 31stMar)

37.51

35.42

32.96

37.32

38.72

Current P/E (TTM)

26.72

Shareholder funds (In Rs. Cr.)

615.83

763.17

893.02

990.52

1,097.92

Minority Interest (In Rs. Cr.)

8.59

9.75

11.24

12.38

13.86

Debt (In Rs. Cr.)

14.91

15.17

7.76

0.04

0.00

Cash (In Rs. Cr.)

113.50

124.07

242.51

272.23

234.12

Ratios

D/E

0.02

0.02

0.01

0.00

0.00

ROCE

28.25%

23.29%

21.17%

24.62%

24.45%

ROE

16.76%

13.79%

13.37%

15.12%

15.23%

Interest Coverage

62.06

75.83

96.08

161.37

181.21

Quarterly Performance

Quarterly Results

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

Q2FY 2020

Q3FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue (In Rs. Cr.)

394.80

405.34

411.36

392.30

410.03

1,619.03

4.52%

3.86%

EBITDA (In Rs. Cr.)

40.96

44.95

41.41

36.02

39.88

162.26

10.72%

-2.64%

EBITDA Margin

10.37%

11.09%

10.07%

9.18%

9.73%

10.02%

   

PAT (In Rs. Cr.)

41.25

42.41

42.74

52.08

46.28

183.51

-11.14%

12.19%

PAT Margin

10.45%

10.46%

10.39%

13.28%

11.29%

11.33%

   

EPS (In Rs.)

3.73

3.84

3.86

4.70

4.18

16.58

-11.06%

12.06%

WHAT’S DRIVING Grindwell Norton?

Diversified Business Model

The Company operates under 2 segments – Abrasives and the Ceramics and Plastics business. The Company generates revenue through different customer and industries, which has helped Grindwell to diversify the operational risk involved in its business. Further, the dependence on any single sector is less than 15%. The Company’s largest customer accounts for less than 3% of revenue and its largest dealer accounts for less than 3% of its sales.

Strong Financial Position

Grindwell has shown consistent growth over the last five years (i.e. 2014-15 to 2018-19). It’s net revenue from operations over this period grew at an impressive CAGR of 12.08%. For FY 2019, income from operations increased by 12% to Rs. 1,598.06 Cr. and PAT increased by 11% to Rs. 167.24 Cr. In 9 months, period ended December 2019, the Company has already achieved a revenue of Rs. 1213.69 Cr. Grindwell has reserves in excess of Rs.1,042.56 Cr and operates with ZERO debt on its books.

Benefit from Strong Parentage

Saint Gobain holds 51.66% in the Company. The Company is a major player worldwide in Abrasives and operates with strong product portfolio, R&D technologies and a strong network of manufacturing plants and marketing/sales organizations all over the world. The Company benefits from being a part of such an organization, in terms of access to all developments in products and process technology, sourcing of products and development of exports.

Strong Market Position

The Company holds ~25% market share in the abrasives market in India and 35% of the organized sector in this industry. The Company derives ~60% revenue from this segment. We believe that the Company tends to post growing revenue specially in the abrasives market where replacement of 90% of the abrasives sold is required in a period of 3 months.

WHAT’S DRAGGING Grindwell Norton?

Economy Slowdown and Weak Capex Cycle

Low growth of the manufacturing especially automobile sectors over the last few years has significantly affected the Abrasives business. In the current scenario, the Company is likely to witness little or no improvement in investment demand and in project activities.

Increase in Competition

Historically abrasives market has been dominated by two majors in India – Grindwell Norton and Carborandum Universal which is now changing. Recently 3M has entered into abrasives space. In addition, the Company faces competition from the unorganized sector. Although, we believe that with the advent of GST, strong players like Grindwell will be able to increase their revenue share at the cost of sales lost by the unorganized players.