PL Stock Report: Grindwell Norton (GWN IN) - Q1FY24 Result Update - Ceramics & Plastics to be key growth drivers - BUY

Grindwell Norton (GWN IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs2,215 | TP: Rs2,604

Q1FY24 Result Update - Ceramics & Plastics to be key growth drivers

Quick Pointers:

♦ Ceramics & Plastics revenue grew 8.9% YoY to Rs2.8bn.

♦ Higher employee cost, impacted EBITDA margins (flat YoY), despite gross margins expansion (up 92bps YoY).

Grindwell Norton (GWN), reported muted quarterly performance with revenue growth of 4.8% YoY and EBITDA margins remaining flat YoY at 20.2%. Ceramics & Plastics segment reported a revenue growth of 8.9% YoY to Rs2.8bn and Digital services reported revenue of Rs505mn (up ~41% YoY). Ceramics & Plastics EBIT margins were lower at 19.5% in Q1FY24 and we believe it likely to improve in near to medium term (FY24E EBIT margin ~23.5%), driven by improving volume and product mix. Abrasives revenue were broadly flat at Rs3.3bn with EBIT margins declining ~30bps YoY to 13.8%.

We believe GWN focus on technologically advance, niche/ high performance products in performance plastics, penetration in newer high growth markets, attention on tapping newer verticals in Ceramics & Refractories and capacity expansion in coated abrasives, engineer ceramics and performance plastics will likely drive profitable growth in long run. Also, strong balance sheet, operating cash flows and return ratios (25.5% ROCE) augers well for the company. We expect Revenue/PAT CAGR of 16.7%/9.5% over FY23-26E. The stock is trading at PE of 57.1x/47.8x/39.7x on FY24/25/26E earnings. We maintain ‘Buy’ rating on stock with TP of Rs2,604 (same as earlier) valuing it at PE of 51x Sep’25E.

Higher employee cost resulted in flat YoY EBITDA margins: Consolidated sales grew 4.8% YoY to Rs6.7bn (PLe~ Rs7.6bn), driven by growth in Ceramics & Plastics segment. EBITDA grew 4.9% YoY to Rs1.4bn, (PLe~ Rs1.5bn), with EBITDA margin remaining flat at 20.2% (PLe 19.7%), aided by gross margin expansion of 92bps on YoY (~54.7%), despite higher employee cost (up 15.2% YoY). PAT grew 4.9% YoY to Rs970mn (PLe ~Rs1.1bn).

Ceramics & Plastics reported 8.9% YoY revenue growth: Abrasives revenue came in at Rs3.3bn (down 0.4% YoY), while Ceramics & Plastics segment revenue grew 8.9% YoY to Rs2.8bn. Digital services revenue grew ~41% YoY to Rs505mn. Abrasives margins came in at 13.8% vs 14% in Q1FY23 and Ceramics margins declined to 19.5% vs 23.9% in Q1FY23. Digital Services margin expanded to 38.4% vs 23% in Q1FY23.

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