1
SYNOPSIS
We initiated coverage of Grindwell
Norton Ltd and set a target price of
Rs.306.00 for Medium term
investment.
GNO is one of the subsidiaries of
companies de saint-gobain was
incorporated in the year 1950 for
manufacture abrasive products in
the name of Grindwell Abrasives,
Ltd.
During the quarter ended, the
robust growth of Net Profit is
increased by 23% to Rs. 252.50
million compare to previous year
Quarter.
Net Sales & PAT of the company are
expected to grow at a CAGR of 14%
and 11% over 2010 to 2013E
respectively.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 7807.40 1422.90 856.30 15.47 17.52
FY 12E 9076.84 1670.84 1035.96 18.71 14.48
FY 13E 10347.60 1913.66 1192.96 21.55 12.58
Stock Data:
Sector: Industrial Products
Face Value Rs. 5.00
52 wk. High/Low (Rs.) 278.00/190.00
Volume (2 wk. Avg.) 2319.00
BSE Code 506076
Market Cap (Rs.in mn) 15002.56
Share Holding Pattern
1 Year Comparative Graph
Grindwell Norton BSE SENSEX
C.M.P: Rs. 271.00 Target Price: Rs. 306.00 Date: Feb 23rd, 2012 BUY
Grindwell Norton Ltd Result Update: Q3 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Grindwell Norton Ltd 271.00 15002.56 15.47 17.52 3.75 120.00
Carborudum Universal 155.20 2908.16 7.00 22.17 5.53 125.00
Wendit India 1598.00 319.60 86.90 18.39 5.50 250.00
Orient Abrasive 10.57 126.46 3.31 3.19 0.69 100.00
Investment Highlights
Q3 FY12 Results Update
Grindwell Norton Ltd disclosed a phenomenon rise in standalone net profit for the
quarter ended Dec 2011. During the quarter, the profit of the company surged
23.29% to Rs 252.50 million from Rs 204.80 million in the same quarter previous
year. Net sales for the quarter for the quarter rose 15.85% to Rs. 2220.90 million
from Rs. 1917.10 million, when compared with the prior year period. It reported
earnings of Rs 4.56 a share during the quarter, registering 23.29% increase over
previous year period.
Quarterly Results - Standalone (Rs in mn)
As At Dec-11 Dec -10 %change
Net sales 2220.90 1917.10 15.85
PAT 252.50 204.80 23.29
Basic EPS 4.56 3.70 23.29
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Break Up Of Expenditure
Company Profile:
The Company was incorporated in the year 1950 for manufacture abrasive products in
the name of Grindwell Abrasives, Ltd.
The company entered into a technical collaboration with Norton Co of USA in 1967 for
keep abreast with the latest technology and in year 1971. The name of the Company
was changed to Grindwell Norton Ltd with the investment in the company equity by
Norton co USA. Saint-Gobain acquired Norton Company, USA, worldwide, and six
years later, GNO became the first majority-owned subsidiary of Saint-Gobain in India.
In the year 1977 first silicon carbide plant was commissioned in Bangalore Karnataka
state and second plant at Tirupati Andhra Pradesh in 1979 now the company
manufacturing Operations were located in Mora near Mumbai, Nagpur, Banglore,
Tirupati, Himachal Pradesh and Butan and 11 sales offices across the country and
Headquartered in Mumbai.
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In October’2006, GNO had the honour of featuring in Forbes Asia’s “Best Under a
Billion” list. It was one of just 23 Indian companies listed among the top 200
companies, with sales of under a billion dollars, in the Asia-Pacific Region.
PRODUCTS & PLANT
The company offers best abrasives technology to Indian Industry by manufactures
bonded abrasives, coated abrasives, super refractories, Ceramics and Performance
Plastics with advanced polymer technology.
ABRASIVES SEGMENT
The major sectors of activities within the Abrasives segment are Bonded Abrasives ,
Coated Abrasives and Super Abrasives.
Bonded Abrasives, most commonly in the form of wheels but also in other shapes
such as segment, sticks etc., and are used for various applications ranging from
polishing or lapping to removing high quantities of materials. Bonded Abrasives are
used in precision applications such as lapping , honing, super-finishing, race grinding,
thread grinding, fluting, OD grinding, ID grinding, surface grinding etc. GNO makes
over 15000 different products in a year.
Super Abrasives are made of diamond (synthetic or natural) or cubic boron nitride and
are used in recision applications. Coated Abrasives products are engineering
composites comprising backing, bond system and abrasive grains and are designed for
material removal and surface generation.
CERAMICS & PLASTICS SEGMENT
The major businesses in this segment are:
(i) Silicon Carbide
(ii) (ii) High Performance Refractories
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Silicon Carbide
Silicon Carbide grains are used primarily as raw material in the manufacture of
abrasives, refractories and for stone polishing. Silicon Carbide is manufactured at
Tirupati in Andhra Pradesh.
The Tirupati Plant is certified under ISO 9001:2000, ISO14001:2004 and OHSAS
18001:1999.
Silicon Carbide is also manufactured by your Company’s subsidiary, Saint-Gobain
Ceramic Materials Bhutan Ltd., at its plant near Phuentsholing in Bhutan.
High Performance Refractories
Refractories are used for processing ferrous and non ferrous metals and as kiln
furniture to fire ceramic wares. They are also used as filtering media. GNO
manufactures mostly silicon carbide refractories.GNO offers complete solution with
expertise in design, engineering and manufacturing refractory systems for most of the
demanding, high temperature and wear applications.
The plant is located at Bangalore, Karnataka and is certified under ISO 9001: 2000,
ISO14001: 2004 and OHSAS 18001:1999.
Competition:
The Abrasives Industry currently has two major players, one of which is GNO. The
entry of global players in Bonded and Coated and reduction in import duties more
international players entering the market as the Indian economy grows rapidly. This
competition from Imports will further increase and Business must be cost-
competitive and, on the other, it must offer products, services and solutions, that fully
meet the customers’ expectations as well as substantial expansion and modernization
is key and local competitors will continue to be a challenge.
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Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 7023.60 7807.40 9076.84 10347.60
Other Income 243.10 274.20 358.98 423.60
Total Income 7266.70 8081.60 9435.83 10771.20
Expenditure -5786.10 -6658.70 -7764.98 -8857.55
Operating Profit 1480.60 1422.90 1670.84 1913.66
Interest -2.50 -2.80 -4.58 -5.95
Gross profit 1478.10 1420.10 1666.27 1907.71
Depreciation -177.90 -163.20 -168.66 -178.77
Profit Before Tax 1300.20 1256.90 1497.61 1728.93
Tax -425.20 -400.60 -461.65 -535.97
Profit After Tax 875.00 856.30 1035.96 1192.96
Equity capital 276.80 276.80 276.80 276.80
Reserves 3254.60 3724.90 4760.86 5953.83
Face value 5.00 5.00 5.00 5.00
EPS 15.81 15.47 18.71 21.55
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E
Description 3m 3m 3m 3m
Net sales 2011.50 2268.20 2220.90 2576.24
Other income 87.20 72.20 100.80 98.78
Total Income 2098.70 2340.40 2321.70 2675.03
Expenditure -1715.20 -1942.70 -1914.70 -2192.38
Operating profit 383.50 397.70 407.00 482.64
Interest -0.60 -0.90 -1.50 -1.58
Gross profit 382.90 396.80 405.50 481.07
Depreciation -41.90 -42.50 -41.10 -43.16
Profit Before Tax 341.00 354.30 364.40 437.91
Tax -104.20 -109.80 -111.90 -135.75
Profit After Tax 236.80 244.50 252.50 302.16
Equity capital 276.80 276.80 276.80 276.80
Face value 5.00 5.00 5.00 5.00
EPS 4.28 4.42 4.56 5.46
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Key Ratios
Particulars FY10 FY11 FY12E FY13E
No. of Shares(in mn) 55.36 55.36 55.36 55.36
EBITDA Margin (%) 21.08% 18.23% 18.41% 18.49%
PBT Margin (%) 18.51% 16.10% 16.50% 16.71%
PAT Margin (%) 12.46% 10.97% 11.41% 11.53%
P/E Ratio (x) 17.15 17.52 14.48 12.58
ROE (%) 24.78% 21.40% 20.56% 19.15%
ROCE (%) 46.96% 39.64% 36.51% 33.58%
Debt Equity Ratio 0.00 0.00 0.00 0.00
EV/EBITDA (x) 10.13 10.54 8.38 7.84
Book Value (Rs.) 63.79 72.29 91.00 112.55
P/BV 4.25 3.75 2.98 2.41
Charts:
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P/E Ratio (X)
EV/EBITDA (X)
10
P/BV
Outlook and Conclusion
At the current market price of Rs.271.00, the stock is trading at 14.48 x FY12E
and 12.58 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.18.71 and Rs.21.55 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 14% and
11% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 8.98 x for FY12E and 7.84 x for
FY13E.
Price to Book Value of the stock is expected to be at 2.98 x and 2.41 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.306.00 for Medium term investment.
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Industry Overview
Despite of heave competition in the changing domestic market scenario, The Indian
economy is expected to witness sustained growth in 2011-12, though industrial
growth may be moderate. Abrasives business registered an all-time high growth of
41% over the previous period mainly due to increase in domestic demand higher sales
of new products and in new markets and gains in market share. The Indian abrasives
market expected to grow at 10% annually and expecting 12% Growth in demand for
bonded abrasives and 10-12% growth likely to be in coated abrasives.
The Indian abrasives market size is estimated to be about 19.0 millions in value and
its overall capacity utilization in the bonded abrasive industry is about 85% and
bonded abrasives industry in India has eight Units in the organized sector and large
number of units exist in Unorganized sector with total installed capacity of 15881
tonnes per annum.
The coated abrasives industry has six units in organized sector with installed capacity
of 54000 reams per annum and unorganized sector caters to the lower end
requirement with the installed capacity about 75000 reams per annum. Total size of
the industry estimated at about 11.0 millions by value and 60% of capacity utilization.
Abrasives are industrial consumables which find wide application in metals, auto,
construction, fabrication and various machining industries and CUMI & GNL
together account for 70% of the market. Estimating in next five –years Indian
abrasives industry grows to Rs 15.6 bn organized Indian abrasives industry.
______________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
12
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