Recommendations from Other Industrial Products Sectors

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

GRINDWELL NORTON 

MAINTAINING LEADERSHIP MOMENTUM 

HERE IS WHY
Strong performance over the past three years
Good market position
Diverse revenue stream 

Grindwell Norton Ltd. (GNO) is one of the subsidiaries of the Compagnie de Saint- Gobain (Saint-Gobain), a transnational group with its headquarters in Paris. GNO’s businesses are divided into two major segments – abrasives and ceramics and plastics. The abrasives industry in India currently has two major players offering a full range of abrasives products, one of which is GNO. GNO has a leadership position in several product-market segments. It offers the widest range of cutting-edge abrasive products to the Indian market. While a vast majority of these products are made by GNO in India, some are sourced from other plants of Saint-Gobain or from third parties. Saint-Gobain has strong backward integration when it comes to abrasives since its ceramic materials division manufactures high-end abrasive grains. In fact, Saint-Gobain is a major player worldwide in abrasives. It has a strong product portfolio, a well-established research and development setup with projects in both basic and applied areas and a global reach with plants and marketing or sales offices all over the world. GNO benefits from being a part of such an organisation in terms of access to all developments in products and process technology, sourcing of products and development of exports. There is also the hope that the government will take action to revive the industrial economy. 

And, as and when this happens, the business is well-placed to benefit from such growth. The main businesses in its ceramics and plastics segment include silicon carbide, performance ceramics, and refractories and performance plastics. GNO is a market leader in silicon carbide. Entry barriers are high by way of capital investment and technology. Thus, its leadership position is bound to continue in the near future. The company’s performance ceramics and refractories business caters to specialised refractory and ceramic product applications for different industry segments. Diversification helps cushion demand fluctuation in any one sector. In performance plastics, GNO produces and markets more than 800 standard and custom-made polymer products through three business segments, namely, engineered components, life sciences and composites.

The company has shown consistent improvement in its financial performance over the last three years. Its operations are debt-free. The RoCE has improved from 21.73 per cent in FY16-17 to 25.17 per cent in FY18-19. RoE has also improved in this period from 14.67 per cent to 16.28 per cent. Gross sales have grown from Rs 1,364 crore in FY16-17 to Rs 1,598 crore in FY18-19, showing a CAGR of 8.23 per cent. In the same period, its EBITDA has grown from Rs 224 crore to Rs 307 crore, showing a CAGR of 17.06 per cent. PAT has also grown from Rs 121 crore to Rs 169 crore, showing a CAGR of 18.18 per cent.

The company’s debt-free status, increasing EBITDA and PAT margins with healthy and increasing dividend payout ratio shows the financial discipline and performance of the company. With diverse revenue streams, the company can also sustain demand slowdown from its end customers. Its products are more linked to infrastructure spend and related engineering companies. With the recent government push for infrastructure development of Rs 1.02 trillion, the demand for GNO’s products may see an upward trajectory. The stock is currently trading at TTM PE of 40.38x. By virtue of these factors, we recommend our readerinvestors to BUY this stock.