GRINDWELL NORTON LTD Result Update (CONSOLIDATED BASIS): Q2 FY18

Transcription

1 GRINDWELL NORTON LTD Result Update (CONSOLIDATED BASIS): Q2 FY18 Index Details Stock Data Sector Other Industrial Products BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg.) 3797 Market Cap (Rs. in mn.) Annual Estimated Results(A*: Actual / E*: Estimated) Years(Rs. in mn) FY17A FY18E FY19E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) As on Sep 2017 As on Jun 2017 Promoter Public Others 1 Year Comparative Graph CMP: NOV 25 th, 2017 Overweight SYNOPSIS ISIN: INE536A01023 Grindwell Norton Limited (GNO) manufactures and sells abrasives, ceramics, and plastic products in India and internationally. Consolidated revenue for the quarter stood at Rs mn from Rs mn, when compared with the prior year period, an increase of 2.63%. During Q2 FY18, consolidated Operating Profit (EBIDTA) is Rs mn as against Rs mn in Q2 FY17, an increase of 21.84%. Consolidated PBT increased by 25.41% to Rs mn in Q2 FY18 from Rs mn during the quarter ended Sep 30 th, During Q2 FY18, consolidated net profit jumps to Rs mn from Rs mn in Q2 FY17, an increase of 22.30%. EPS of the company stood at Rs during the quarter, as against Rs per share over previous year period. During H1 FY18, revenue stood at Rs mn as compared to Rs mn during the same period of previous year. GRINDWELL NORTON LTD S&P BSE SENSEX During H1 FY18, net profit stood at Rs mn from Rs mn in H1 FY17, grew by 15.58%. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 9% over 2016 to 2019E, respectively. PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn (Rs.) Ratio Ratio (%) Grindwell Norton Ltd Ramkrishna Forgings Ltd Carborundum Universal Ltd Steelcast Ltd

2 QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS) Results updates- Q2 FY18, (Rs. in Million) Sep-17 Sep-16 % Change Revenue % Net Profit % EPS % EBIDTA % Revenue for the 2 nd quarter stood at Rs million from Rs million, when compared with the prior year period, an increase of 2.63%. EBIDTA is Rs million as against Rs million in the corresponding period of the previous year, an increase of 21.84%. The company s net profit jumps to Rs million from Rs million in the corresponding quarter ending of previous year, an increase of 22.30%. Reported earnings per share of the company stood at Rs during the quarter, as against Rs per share over previous year period. Break up of Expenditure Break up of Expenditure Cost of material consumed Q2 FY18 Value in Rs. Million Q2 FY17 % Change % Excise duty on sales Purchase of Traded Goods Employee Benefit Expenses Depreciation & Amortization Expense % % % Power & Fuel % Other Expenses %

3 Segment Revenue COMPANY PROFILE Grindwell Norton Ltd (GNO) is one of the subsidiaries of Company Saint-Gobain (Saint-Gobain), a transnational group with its headquarters in Paris with Sales of Euro 39.1 billion in Saint-Gobain s businesses fall into four broad sectors of activity: Construction Products, Flat Glass, High Performance Materials and Building Distribution. GNO s businesses are a part of the High Performance Materials sector of activity. In GNO, the businesses are divided into two major segments: 1. Abrasives, 2. Ceramics & Plastics. The Abrasives segment offers bonded abrasives in the form of wheels, segments, sticks, etc. for various applications, such as lapping, honing, super-finishing, race grinding, thread grinding, fluting, OD grinding, ID grinding, surface grinding, etc., as well as for rough applications, including snagging, cutting-off, burr removal, weld preparation, etc. It also provides abrasives consisting of stationary dressers, rotary dressers, diamond and grinding wheels, and allied products for precision applications; coated abrasives products in various shapes, such as discs, belts, rolls, etc. for material removal and surface generation; nonwoven abrasives for use in domestic and industrial applications; construction products, such as various blades, diamond polishing pads and sponge wheels, and diamond core drill bits; and thin wheels. The Ceramics and Plastics segment offers silicon carbide grains primarily for use as raw material in the manufacture of abrasives and refractories, and for stone polishing; and high performance refractories for use in processing ferrous and non-ferrous metals, and as kiln furniture to fire ceramic wares, as well as used as filtering media and for wear resistance. It also produces and markets performance plastics comprising bearings, seals, tubing and hoses, films, fabrics, and foams for use in automotive, pharma and bio-pharma, construction, food and beverage, energy, and general industrial markets. Grindwell Norton Limited also exports its products to other countries.

4 FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as of March 31, E FY16A FY17A FY18E FY19E ASSETS 1) Non-Current Assets a) Property, plant and equipment b) Capital Work in Progress c) Goodwill d) Other Intangible assets e) Financial Assets i) Investments ii) Loans iii) Other Financial Assets f) Other Non Current Assets Sub - Total Non- Current assets ) Current Assets a) Inventories b) Financial assets i) Trade receivables ii) Cash and cash equivalents iii) bank balances Other than Cash iv) Loans v) Other Financial Assets c) Other Current Assets Sub - Total current assets Total Assets (1+2) EQUITY AND LIABILITIES 1) EQUITY a) Equity Share Capital b) Other equity c) Minority Interest Total Equity ) Non Current Liabilities a) Financial Liabilities i) Borrowings b) Provisions c) Deferred Tax Liabilities (net) d) Other Non Current liabilities Sub - Total Non Current liabilities ) Current Liabilities a)financial liabilities i) Borrowings ii) Trade payables iii) Other financial liabilities b)other Current Liabilities c) Provisions d) Current tax Liabilities (net) Sub - Total current liabilities Total Equity and Liabilities (1+2+3)

5 Annual Profit & Loss Statement for the period of 2016 to 2019E Value(Rs.in.mn) FY16A FY17A FY18E FY19E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority Interest Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 st Mar, 2017 to 31 st Dec, 2017E Value(Rs.in.mn) 31-Mar Jun Sep Dec-17E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit after Tax Minority Interest Net Profit Equity capital Face value EPS

6 Ratio Analysis Particulars FY16A FY17A FY18E FY19E EPS (Rs.) EBITDA Margin (%) 16.61% 16.42% 17.27% 17.22% PBT Margin (%) 12.98% 13.18% 14.03% 14.03% PAT Margin (%) 8.57% 8.86% 9.45% 9.42% P/E Ratio (x) ROE (%) 13.94% 13.54% 13.67% 13.11% ROCE (%) 21.01% 20.17% 20.14% 19.34% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

7 OUTLOOK AND CONCLUSION At the current market price of Rs , the stock P/E ratio is at x FY18E and x FY19E respectively. Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 9% over 2016 to 2019E, respectively. On the basis of EV/EBITDA, the stock trades at x for FY18E and x for FY19E. Price to Book Value of the stock is expected to be at 5.80 x and 5.17 x for FY18E and FY19E respectively. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment. INDUSTRY OVERVIEW The Abrasives industry 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. Apart from the two major players in the market, there are a few medium sized players and a number of small local players. Besides, imports from China are present in many categories, particularly, at the low end. Some of the players from Europe and Japan have their agents and/or distributors to service mainly the precision grinding or polishing or surface preparation segments. In the case of Coated Abrasives, a few important international players have set up conversion facilities and some have also set-up local manufacturing facilities. Also most of the Power Tool players are now focusing on developing their accessories business which includes Thin Wheels and some Coated Abrasives. The market, over a period of time, has become highly price sensitive. Key success factors are quality, cost, service and capability to provide total grinding solutions.

8 Development & Outlook Basic and applied areas and global reach, with plants and marketing/sales organizations all over the world. GNO 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. Over the past few years, the growth in manufacturing and mining has been moderate to low and this has affected the Abrasives Business. During , there was some revival of the Auto and Steel sectors. On the other hand, there was little or no improvement in private investment and in project activity. Consequently, volume growth though much higher than the previous year, was below expectations. The growth was mainly on account of new products and new markets (including export markets). While efforts were made to increase product prices, in a competitive and low-growth and low inflationary market, success was limited and the increase was below expectations. Under these circumstances, the business delivered a reasonable performance with improvements in several areas. The Next Level initiative continued to engage the employees at all levels and there was progress on several dimensions. In addition, working capital, in general, and the quality of Receivables and Inventory, in particular, were in good shape. All in all, the Abrasives business strengthened its market and its financial position during the financial year. Looking ahead, the short term outlook is uncertain. The implementation of the Goods and Services Act will accentuate uncertainty in the next few months. Having said that, the medium term outlook is positive and the business is well-placed to benefit from growth of the industrial economy as and when this takes place. Under these circumstance, in the current fiscal, the business will focus on growing volumes (new products, new markets domestic and export) and on increasing prices while continuing to focus on operational excellence, implementing various marketing programmes and The Next Level initiatives. CERAMICS & PLASTICS In the domestic market there are three main players (including GNO) in the SiC business. GNO is the market leader. This market is also catered to by imports, mainly from China and Vietnam. The key requirements for success in the industry are quality and cost competitiveness. Entry barriers are high by way of capital investment and technology. The Silicon Carbide business had another challenging year. Domestic demand for SiC continued to be stable. The business lost market share to imports (primarily from Vietnam/China). Exports continued to decline. This was partly due to weak European demand and also due to the weakness of the Euro. The depreciation of the Euro had an impact on export margins too. The availability of low priced imports from Vietnam and China put increasing downward pressure on domestic prices. On the supply side, production at the Company s Tirupati Plant was affected by the low power generation by the Andhra Pradesh Gas Power Corporation Limited (on account of reduced availability of gas). Consequently, production was low at Tirupati. Further, prices for key raw materials increased significantly during the fiscal year.

9 Although from an external perspective, the outlook for the business in continues to be uncertain, the worst seems to be over. The supply situation should improve, while demand and prices are unlikely to fall further. Input prices are expected to be stable around present levels. The focus in will be on price and cost management. In the medium term, the business needs to find an economically viable source of crude to grow. FUTURE PROSPECTS While the long term outlook for the Indian economy remains very positive, the short term outlook is uncertain. Investment demand remains low. The order inflow, across businesses, remains muted and there is no pull from the channel. While the implementation of the Goods and Services Tax Act will have a positive impact in the medium term, it will accentuate short term uncertainty. With capacity utilization increasing, inflation expected to remain low, the Rupee expected to depreciate gradually and the cumulative impact of the economic reforms initiated by the Government being positive, there are hopes of higher industrial growth in the new fiscal. Under the circumstances, the company s management will continue to focus on new products, new markets and exports to sustain growth.

10 Disclosure Section The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an official confirmation of any transaction. The information contained herein is from publicly available secondary sources and data or other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its 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. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document. Analyst Certification The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best of their knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. The analyst qualifications, sectors covered and their exposure if any are tabulated hereunder: Name of the Analyst Qualifications Sectors Covered Dr.C.V.S.L. Kameswari M.Sc, PGDCA, Pharma & M.B.A, Diversified Ph.D (Finance) U. Janaki Rao M.B.A Capital Goods B. Anil Kumar M.B.A Auto, IT & FMCG Exposure/Interest to company/sector Under Coverage in the Current Report No Interest/ Exposure No Interest/ Exposure No Interest/ Exposure M. Vijay M.B.A Diversified No Interest/ Exposure V. Harini Priya M.B.A Diversified No Interest/ Exposure MD. Naveed M.B.A Diversified No Interest/ Exposure A. Bhikshapathi M.B.A Diversified No Interest/ Exposure Important Disclosures on Subject Companies In the next 3 months, neither Firstcall Research nor the Entity expects to receive or intends to seek compensation for any services from the company under the current analytical research coverage. Within the last 12 months, Firstcall Research has not received any compensation for its products and services from the company under the current coverage. Within the last 12 months, Firstcall Research has not provided or is providing any services to, or has any client relationship with, the company under current research coverage. Within the last 12 months, Firstcall Research has neither provided or is providing any services to and/or in the past has not entered into an agreement to provide services or does not have a client relationship with the company under the research coverage. Certain disclosures listed above are also for compliance with applicable regulations in various jurisdictions. Firstcall Research does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, No-Weight and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all weights used in Firstcall Research. In addition, since Firstcall Research contains more complete information concerning the analyst's views, investors should carefully read Firstcall Research, in its entirety, and not infer the contents from the weightages assigned alone. In any case, weightages (or research) should not be used or relied upon as investment advice.

11 An investor's decision to buy or sell should depend on individual circumstances (such as the investor's own discretion, his ability of understanding the dynamics, existing holdings) and other considerations. Analyst Stock Weights Overweight (O): The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Equal-weight (E): The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. No-weight (NR): Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Underweight (U): The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Unless otherwise specified, the weights included in Firstcall Research does not indicate any price targets. The statistical summaries of Firstcall Research will only indicate the direction of the industry perception of the analyst and the interpretations of analysts should be seen as statistical summaries of financial data of the companies with perceived industry direction in terms of weights. Firstcall Research may not be distributed to the public media or quoted or used by the public media without the express written consent of Firstcall Research. The reports of Firstcall Research are for Information purposes only and is not to be construed as a recommendation or a solicitation to trade in any securities/instruments. Firstcall Research is not a brokerage and does not execute transactions for clients in the securities/instruments. Firstcall Research - Overall Statement S.No Particulars Remarks 1 Comments on general trends in the securities market 2 Discussion is broad based and also broad based indices 3 Commentaries on economic, political or market conditions 4 Periodic reports or other communications not for public appearance 5 The reports are statistical summaries of financial data of the companies as and where applicable 6 Analysis relating to the sector concerned 7 No material is for public appearance 8 We are no intermediaries for anyone and neither our entity nor our analysts have any interests in the reports 9 Our reports are password protected and contain all the required applicable disclosures 10 Analysts as per the policy of the company are not entitled to take positions either for trading or long term in the analytical view that they form as a part of their work 11 No conflict of interest and analysts are expected to maintain strict adherence to the company rules and regulations. 12 As a matter of policy no analyst will be allowed to do personal trading or deal and even if they do so they have to disclose the same to the company and take prior approval of the company

12 13 Our entity or any analyst shall not provide any promise or assurance of any favorable outcome based on their reports on industry, company or sector or group 14 Researchers maintain arms length/ Chinese wall distance from other employees of the entity 15 No analyst will be allowed to cover or do any research where he has financial interest 16 Our entity does not do any reports upon receiving any compensation from any company Firstcall Research Provides Industry Research on all the Sectors and Equity Research on Major Companies forming part of Listed and Unlisted Segments For Further Details Contact: Mobile No: