1
Feb 12, 2018
Grindwell Norton Ltd
Recommendation (Rs.)
CMP (as on Feb 12, 2018) 505
Target Price 586
Previous target price 510
Upside (%) 16
Stock Information
Mkt Cap (Rs.mn/US$ mn) 55914 / 870
52-wk High/Low (Rs.) 575 / 316
3M Avg. daily value (Rs.) 24.1
Beta (x) 0.6
Sensex/Nifty 34300 / 10540
O/S Shares(mn) 110.7
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 60.0
FIIs 4.4
DIIs 14.4
Others 21.2
Stock Performance (%)
1M 3M 6M 12M
Absolute (9) 7 33 55
Relative to Sensex (8) 4 21 28
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
De Arul Kaarthick
040 - 3321 6280
arul.kaarthick@karvy.com
Revenue grew by 16% on the back of strong growth in Ceramics and Plastics
division (+24%) and earnings grew even faster at 45% in Q2FY18, due to margin
improvement across segments in Q3FY17. We believe earnings to expand by
20% CARG in next two years on the account revival in economic activity and GDP
growth crossing 7.5% in FY19-FY20, market share gain from unorganised market
for consumables and strong traction for new product lines in market. Hence, we
maintain ‘BUY’ on the stock for a target price of Rs. 586 based on FY20E EPS`.
Abrasives business to pick-up in FY19-20: Lower base on account of Demon,
lingering impact of GST, unfavourable trade terms and slow pick-up in economic
activity impacted growth and revenue was at for the quarter. However, in the
next two years with pick-up in activity which could be aided by shift in the market
structure in favour of organised players like Grindwell and Carborundum, which
together make about half of the market. We believe abrasives business could grow
at a CAGR of 8.6% in FY19E & FY20E to Rs. 10, 534mn.
New product line to drive growth in Ceramics & Plastic segment: With the
introduction of new product lines in the plastics segment revenue grew by 24% and
operating margin improved by 558bps to 15% in Q3FY18. We believe the traction
could continue going forward as Grindwell could penetrate deep into market with
access to proven parent portfolio in the performance plastics segment. C&P could
grow at a CAGR of 26% in next two years and could be the most protable as well.
Valuation and Risks
We believe abrasives and ceramics business could clock margins in-line or even
better than the levels of FY10 in next two years. Prime reason for earnings expansion
in FY19 and FY20 are revival in economic activity which provides strong support
for the base business and change in product mix could open-up new high margin
markets. We expect re-rating on account of strong growth and value Grindwell at 32x
of FY20E earnings for a target price of Rs. 586 representing an upside potential of
16%. However, slower than expected momentum in economic activity could impact
base business growth and margins.
For private circulation only. For important information about Karvy’s rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters
Exhibit 1: Valuation Summary
YE Mar-Consolidated (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 11506 12634 14091 16068 18589
EBITDA 1835 1931 2244 2653 3156
EBITDA Margin (%) 15.9 15.3 15.9 16.5 17.0
Adj. Net Prot 1064 1209 1415 1692 2030
EPS (Rs.) 9.6 10.9 12.8 15.3 18.3
RoE (%) 14.5 14.6 15.5 17.2 18.6
PE (x)* 35.1 32.6 39.5 33.0 27.5
Source: Company, Karvy Research,
*
Represents multiples for FY16 & FY17 are based on historic market price
Materials - Construction Materials
Grindwell Norton Ltd
India Research - Stock Broking
BUY
Bloomberg Code : GWN IN
Results Review
Earnings Revision (%)
YE Mar FY18E FY19E FY20E
Sales (%) 4.2 5.8 8.8
EBITDA (%) 8.0 11.1 14.0
PAT (%) 12.1 15.8 18.3
Source: Karvy Research
L
L
L
L
L
L
L
L
L
90
110
130
150
170
190
Feb-17
Mar -17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Gr indwel l Nor ton Ltd
Sensex
2
Feb 12, 2018
Grindwell Norton Ltd
Exhibit 2: Revenue and Profitability Grew in Q3FY18
YE Mar - Consolidated (Rs. Mn) Q3FY18 Q3FY17 YoY (%) Q2 FY18 QoQ (%) 9M FY18 9MFY17 YoY %
Turnover (Net) 3654 3144 16.2 3444 6.1 10475 9370 11.8
Op Expenditure 3010 2705 11.3 2865 5.1 8732 7968 9.6
EBITDA 645 440 46.6 579 11.3 1743 1402 24.3
Depreciation 117 103 14.2 111 6.1 337 308 9.3
EBIT 527 337 56.5 468 12.6 1405 1094 28.5
Interest 3.9 4.1 (4.9) 4 (2.5) 13 13 0.0
Other Income 69 93 (25.8) 78 (11.5) 206 230 (10.3)
PBT 592 425 39.2 542 9.2 1599 1311 22.0
Tax (Net) 190 148 28.0 182 4.2 534 444 20.2
PAT 402 277 45.2 360 11.8 1066 867 22.9
EBITDA Margin (%) 17.6 14.0 366 bps 16.8 83 bps 16.6 15.0 167 bps
EBIT Margin (%) 14.4 10.7 371 bps 13.6 83 bps 13.4 11.7 174 bps
PAT Margin (%) 11.0 8.8 220 bps 10.5 56 bps 10.2 9.3 92 bps
Source: Company, Karvy Research
Exhibit 5: Impressive Performance from Ceramics & Plastics Segment
YE Mar - Consolidated (Rs. Mn) Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%) 9M FY18 9MFY17 YoY %
Segment-wise Revenue (net)
Abrasives 2216 2183 1.5 2115 4.7 6617 6610 0.1
Ceramlcs & Plastics 1057 850 24.3 1043 1.4 3104 2609 19.0
Others 404 338 19.3 307 31.3 1031 864 19.4
Segment-wise EBIT
Abrasives 334 259 28.7 298 12.1 882 826 6.8
Ceramlcs & Plastics 159 80 97.6 144 10.3 426 264 61.0
Others 67 63 5.9 49 36.3 174 153 13.8
Segment-wise EBIT Margin (%)
Abrasives 15.1 11.9 318 bps 14.1 99 bps 13.3 12.5 83 bps
Ceramlcs & Plastics 15.0 9.5 558 bps 13.8 122 bps 13.7 10.1 358 bps
Others 16.6 18.7 (211) bps 16.0 60 bps 16.9 17.7 (82) bps
Source: Company, Karvy Research
Exhibit 3: 9MFY18 Revenue Break-up
Source: Company, Karvy Research
Exhibit 4: 9MFY17 Revenue Break-up
Source: Company, Karvy Research
Abrasives
61.5%
Ceramlcs &
Plastics
28.9%
Abrasives
65.6%
Ceramlcs &
Plastics
25.9%
Others 8.6%
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Feb 12, 2018
Grindwell Norton Ltd
Exhibit 6: Revenue and Profitability Grew in Q3FY18
YE Mar - Standalone (Rs. Mn) Q3FY18 Q3FY17 YoY (%) Q2 FY18 QoQ (%) 9M FY18 9MFY17 YoY %
Turnover (Net) 3574 3075 16.2 3399 5.2 10278 9154 12.3
Op Expenditure 2954 2661 11.0 2847 3.8 8618 7842 9.9
EBITDA 620 414 49.6 551 12.4 1661 1312 26.6
Depreciation 111 97 14.2 104 5.9 318 290 9.3
EBIT 509 317 60.4 447 13.9 1343 1022 31.5
Interest 3 2 36.8 3 4.0 8 5 46.3
Other Income 74 94 (21.8) 82 (10.6) 222 245 (9.7)
PBT 580 410 41.6 527 10.1 1557 1262 23.4
Tax (Net) 186 144 29.6 178 4.6 522 429 21.7
PAT 394 266 48.1 349 12.9 1035 833 24.3
EBITDA Margin (%) 17.3 13.5 387 bps 16.2 112 bps 16.2 14.3 182 bps
EBIT Margin (%) 14.2 10.3 392 bps 13.2 109 bps 13.1 11.2 191 bps
PAT Margin (%) 11.0 8.6 237 bps 10.3 76 bps 10.1 9.1 97 bps
Source: Company, Karvy Research
Exhibit 9: Impressive Performance from Ceramics & Plastics Segment
YE Mar -Standalone (Rs. Mn) Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%) 9M FY18 9MFY17 YoY %
Segment-wise Revenue (net)
Abrasives 2216 2183 1.5 2115 4.7 6617 6610 0.1
Ceramlcs & Plastics 979 778 25.8 997 (1.8) 2910 2395 21.5
Others 404 338 19.3 307 31.3 1031 864 19.4
Segment-wise EBIT
Abrasives 334 259 28.7 298 12.1 882 826 6.8
Ceramlcs & Plastics 146 63 133.1 127 14.5 379 208 82.5
Others 67 63 5.9 49 36.3 174 153 13.8
Segment-wise EBIT Margin (%)
Abrasives 15.1 11.9 318 bps 14.1 99 bps 13.3 12.5 83 bps
Ceramlcs & Plastics 14.9 8.0 686 bps 12.8 212 bps 13.0 8.7 435 bps
Others 16.6 18.7 (211) bps 16.0 60 bps 16.9 17.7 (82) bps
Source: Company, Karvy Research
Exhibit 7: 9MFY18 Revenue Break-up
Source: Company, Karvy Research
Exhibit 8: 9MFY17 Revenue Break-up
Source: Company, Karvy Research
Abrasives
62.7%
Ceramlcs &
Plastics
27.6%
Others
9.8%
Abrasives
67.0%
Ceramlcs &
Plastics
24.3%
Others
8.8%
4
Feb 12, 2018
Grindwell Norton Ltd
Exhibit 12: Revised Earnings Estimates
YE Mar - Consolidated (Rs. Mn)
FY18E FY19E FY20E
Old New % Change Old New % Change Old New % Change
Net Sales 13519 14091 4.2 15182 16068 5.8 17078 18589 8.8
EBITDA 2079 2244 8.0 2388 2653 11.1 2769 3156 14.0
EBITDA margin (%) 15.4 15.9 55 bps 15.7 16.5 78 bps 16.2 17.0 76 bps
Adj. PAT 1264 1415 11.9 1460 1692 15.9 1711 2030 18.7
EPS (Rs.) 11.4 12.8 12.1 13.2 15.3 15.8 15.5 18.3 18.3
Source: Karvy Research
Exhibit 10: S&P BSE Capital Goods Index - PE Valuation
Source: Bloomberg, Karvy Research
Exhibit 11: Grindwell Norton PE Valuation
Source: BSE, Karvy Research
0
11
22
33
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1 Yr Fwd PE
Average
+1 SD
-1 SD
0
10
20
30
40
50
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1 Yr Fwd PE
Average
+1 SD
-1 SD
5
Feb 12, 2018
Grindwell Norton Ltd
Financials
Exhibit 13: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Revenues 11506 12634 14091 16068 18589
Growth (%) 1.3 9.8 11.5 14.0 15.7
Operating Expenses 9671 10702 11847 13415 15433
EBITDA 1835 1931 2244 2653 3156
Growth (%) 1.5 5.2 16.2 18.2 19.0
Depreciation & Amortization 426 422 471 506 534
EBIT 1409 1509 1774 2147 2622
Interest Expenses 24 20 16 16 17
Other Income 226 309 263 287 296
PBT 1611 1797 2021 2418 2900
Tax 547 588 606 725 870
Adjusted PAT 1064 1209 1415 1692 2030
Growth (%) 2.1 13.6 17.0 19.6 20.0
Source: Company, Karvy Research
Exhibit 14: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Cash & Cash Equivalents 1241 2425 1998 2697 3482
Sundry Debtors 1335 1274 1832 2089 2417
Inventory 2580 2456 2701 3039 3419
Loans & Advances 264 244 257 275 294
Investments 1350 1455 1455 1455 1455
Gross Block 6082 6374 6824 7224 7624
Net Block 3505 3681 3660 3555 3421
CWIP 136 62 62 62 62
Miscellaneous 481 501 501 501 501
Total Assets 10891 12099 12467 13673 15051
Current Liabilities & Provisions 2654 2576 2670 2838 2972
Debt 152 78 78 78 78
Other Liabilities 453 515 416 433 451
Total Liabilities 3259 3169 3164 3349 3501
Shareholders Equity 277 554 554 554 554
Reserves & Surplus 7355 8377 8749 9771 10996
Total Networth 7632 8930 9303 10324 11550
Total Networth & Liabilities 10891 12099 12467 13673 15051
Source: Company, Karvy Research
6
Feb 12, 2018
Grindwell Norton Ltd
Exhibit 15: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
PBT 1611 1797 2021 2418 2900
Depreciation 426 422 471 506 534
Interest 24 20 16 16 17
Tax Paid (491) (609) (606) (725) (870)
Inc/dec in Net WC (104) 48 (722) (445) (593)
Other Income 12 11 263 287 296
Other non cash items (86) (78) (526) (573) (591)
Cash ow from operating activities 1392 1611 916 1483 1693
Inc/dec in capital expenditure (406) (413) (450) (400) (400)
Inc/dec in investments (50) 0 0 0 0
Others 79 96 263 287 296
Cash ow from investing activities (376) (328) (187) (113) (104)
Inc/dec in borrowings (73) (9) 14 17 18
Dividend paid (866) 0 (1154) (671) (805)
Interest paid (24) (20) (16) (16) (17)
Cash ow from nancing activities (1018) 25 (1156) (670) (804)
Net change in cash (3) 1307 (427) 699 785
Net change in cash (3) 1307 (470) 582 641
Source: Company, Karvy Research
Exhibit 16: Key Ratios
YE Mar FY16 FY17 FY18E FY19E FY20E
EBITDA Margin (%) 15.9 15.3 15.9 16.5 17.0
EBIT Margin (%) 12.2 11.9 12.6 13.4 14.1
Net Prot Margin (%) 9.2 9.6 10.0 10.5 10.9
Dividend Payout Ratio (%) 67.6 36.6 36.6 33.0 33.0
Net Debt/Equity (x) (0.1) (0.3) (0.2) (0.3) (0.3)
RoE (%) 14.5 14.6 15.5 17.2 18.6
RoCE (%) 14.1 14.4 15.4 17.1 18.4
Source: Company, Karvy Research
Exhibit 17: Valuation Parameters
YE Mar FY16 FY17 FY18E FY19E FY20E
EPS (Rs.) 9.6 10.9 12.8 15.3 18.3
DPS (Rs.) 3.3 4.0 4.7 5.0 6.1
BVPS (Rs.) 68.9 80.7 84.0 93.2 104.3
PE (x)* 35.1 32.6 39.5 33.0 27.5
P/BV (x)* 4.9 4.4 6.0 5.4 4.8
EV/EBITDA (x)* 19.8 19.2 24.0 20.1 16.6
EV/Sales (x)* 3.2 2.9 3.8 3.3 2.8
Source: Company, Karvy Research; *Represents multiples for FY16 & FY17 are based on historic market price
7
Feb 12, 2018
Grindwell Norton Ltd
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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y Analyst certication: The following analyst(s), De Arul Kaarthick, who is (are) primarily responsible for this report and whose name(s) is/are mentioned
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