Grindwell Norton Q2 Results Review

Grindwell Norton Ltd. reported muted revenue growth of 5.2% YoY, with Ebitda margin inching up 40 basis points YoY to 19.7%, led by healthy gross margin expansion of 175 bps YoY to 55.2%.

During H1 FY24, Abrasives revenue rose marginally at 3.0% YoY to Rs 6.6 billion, with Ebit margin for the segment coming in at 14.0% (versus 13.4% in H1 FY23).

Ceramics and plastics segment reported subdued results during the first half, with revenue growing 4.8% YoY to Rs 5.6 billion and Ebit margin dipping 303 basis points YoY to 19.7%.

We expect margin improvement for this segment in the near to medium term, driven by higher volumes and better product mix. Digital services was the best performing segment, as revenue grew robustly at 33.7% YoY to Rs 968 million in H1 FY24, with Ebit margin expanding significantly to 37.1% (versus 20.3% in H1 FY23).

We believe Grindwell Norton will likely see long-term profitable growth on the back of its-

  1. focus on technologically advanced niche/high performance products in performance plastics,

  2. penetration in newer high growth markets,

  3. attention on tapping new verticals in ceramics and refractories,

  4. capacity expansion in coated abrasives, engineered ceramics and performance plastics, and

  5. strong balance sheet, operating cash flows and return ratios (25.5% return on capital employed).

We expect revenue/profit after tax compound annual growth rate of 16.7%/9.5% over FY23-26E. The stock is trading at a PE of 55.6 times/46.6 times/38.7 times on FY24/25/26E earnings.

We maintain ‘Buy’ rating with a target price of Rs 2,604 (same as earlier) valuing it at PE of 51 times September-25E (same as earlier).

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