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Jul 18, 2017 - Automotive, Oil & Gas, Life Sciences, Construction, Energy and .... Business School and a Bachelor of. Commerce degree from Sydenham.
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ATS Research Desk Company Name: Grindwell Norton limited Fundamental Report

Grindwell Norton is a part of the High Performance Materials division, which is a part of the Innovative Materials Sector of the Group. The Company pioneered the manufacture of grinding wheels in India in 1941. Saint-Gobain currently holds 51.66% of the equity capital of GNO. Companies businesses include: Abrasives, Silicon Carbide, High Performance Refractories, Performance Plastics and ADFORS. Recommendation Target Time Frame

:

BUY 470-495 4-8 months

Potential upside

10%-12%

Investment Rationale

Stock Data CMP as on 18/7/2017 52 Week High/Low Market Cap (Cr) Total Debt (FY-17)(Cr) Enterprise Value(FY-17)(Cr) Cash and Investment (FY-17)(Cr) Equity Capital (Cr) Face Value Share Holding Pattern Promoters & Promoters Group Holding (%) Public Holding (%) Grand Total

 Strong parentage and leadership in domestic market  Ceramic and plastics is expected to show a CAGR of 13% in FY-17-FY19E  Strong balance sheet  Abrasive segment witness increased volumes

427.10 446/288 4728.85 18 4300.1 201.9 55.36 5 58.89 41.11 100

Valuation Summary P/E EV/EBITDA P/BV ROCE (%) RONW (%)

Net Sales Operating Profit PAT EPS

FY-16

FY-17

FY-18E

FY-19E

42.6 24.9668 6.7 22.26 15.5

39.6084 23.5355 6.2 23.3 16.4

35.0763 21.1116 5.4 25.2 17.1

31.8676 19.8945 5 26.3 18.4

FY-15

FY-16

FY-17

FY-18E

FY-19E

1,127.9 180.6

1,175.4 182.04

1,254.8 193.11

1377.4 215.28

1473.7 228.45

103.2 18.6

104.62 18.9

119.39 10.8

134.82 12.2

148.39 13.4

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Outlook:

Overall outlook for the company is bullish. With a P/E of 39.6 in FY-17 which is below the industry P/E of 47.08, and improved margins along with projected profit growing at a CAGR of 6.22% and projected net sales with CAGR of 6.63% over a period of 7 years from FY-13-FY19E, stock has high potential to post healthy revenues in future.

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Product portfolio:

Abrasive business • Bonded (including Thin Wheels) • Coated (including Nonwoven) • Super Abrasives

Ceramic and Plastic Business • High performance refractories • Silicon carbide • ADFORS • Performance plastic

Other Businesses • Certain Teed • SG INDEC

ABRASIVES SEGMENT Bonded Abrasives: These are most commonly available in the form of wheels. They are also available 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.. The variety is very high. GNO makes over 15,000 different products in a year. Super Abrasives: These are made of diamond (synthetic or natural) or Cubic Boron Nitride and are used in precision applications. Coated Abrasives products: These are engineered composites comprising of a backing, a bond system and abrasive grains and are designed for material removal and surface preparation. Coated Abrasives products are available in various shapes like discs, belts, rolls etc. to suit a wide gamut of surface preparation and polishing applications. Non-Woven, which is a part of Coated also caters to consumer market in scouring applications. CERAMICS & PLASTICS SEGMENT: SILICON CARBIDE: Silicon Carbide grains are used primarily as raw material in the manufacture of Abrasives, Refractories and for stone polishing. HIGH PERFORMANCE REFRACTORIES: Refractories are used for processing ferrous and non-ferrous metals, as kiln furniture to fire ceramic wares, as filtering media, as wear resistance material and also as body protection plates. GNO manufactures mostly silicon carbide refractories and high alumina monolithic.

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PERFORMANCE PLASTICS: The Performance Plastics business produces and markets more than 800 standard and custom-made polymer products through three business segments: Engineered Components (“ENC”), Fluid Systems (“FLS”) and Composites (“CMP”). The major product lines in PPL are Bearings, Seals, Tubing & Hoses, Films, Fabrics and Foams. The major markets addressed are Automotive, Oil & Gas, Life Sciences, Construction, Energy and General Industrial.

Segment Break-up

Segment Break-up Analysis

8% 346

354

452

400

27%

804

898

997

1127

FY-16

FY-17

FY-18E

FY-19E

Abrasives

Ceramics & Plastics

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65%

Abrasives

Ceramics &plastics

Other Business

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Industry Overview: In India, the Abrasives industry is catered by few leading players serving major portion of the Indian market. Imports are predominantly in the high and low end Abrasives. The Bonded Abrasives and the Coated Abrasives are important segments in the Indian scenario and contribute maximum in terms of revenue to this industry. The industry currently has two major players offering a full range of Abrasives products, one of which is GNO. 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. 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. Entry barriers to the sector are mainly high owing to high amount of capital investment and extensive advanced technology requirement. According to the report, the India non-woven abrasives market was valued at USD 125.68 million in 2015 is expected to reach USD 176.72 million in 2021 and is anticipated to grow at a CAGR of 5.69% between 2016 and 2021. Based on end user the Indian non-woven abrasives market is divided into major industries including construction, household, transportation, electronics & semiconductors and other such as industrial application i.e. machinery, medical devices etc

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Investment Rationale: Strong parentage and leadership in domestic market: 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. Company is a leading player on the domestic abrasives market with a revenue share of 25%.Comapny is well diversified across various segments, catering mainly into abrasives with 65% of revenues from the segment and ceramics and plastics together contributing 27%of revenues. Company is backed by strong parentage of Saint Gobain holding a strong financial track record of topline and earning with a CAGR of 15.6% and 13.5% respectively over the last 10 years. With a strong expected Industrial recovery and growth in abrasives and ceramics segment, the company is poised to benefit in near term

Ceramic and plastics is expected to show a CAGR of 13% in FY-17-FY19E: The ceramics and plastics division contributing 27% of revenues recorded a weak growth of 2% in FY17.Weak growth was due to tepid volume growth and slow realisations.However Company being the dominant player in the domestic market and positive expectations from end user industries like auto, pharma, construction and oil and gas will definitely boost volume and revenues. Increased HPR exports from the Halol facility and introduction of new products from the PPL division would drive revenues. As per management commentary, the segment is expected to show revenues to grow at a CAGR of 13% in FY-17-19E to 452 Cr. Strong balance sheet: Company poised a healthy balance sheet. Borrowings showed an improvement with YOY growth in year ended in March-2017 is -52.87% vs 45.16% in March2016.Fixed assets showed a YOY growth of 2.83% in the year ended March -2017 as compared to -0.79% in march-2016.Currently capacity utilization for abrasives and ceramics segment accounts to 70% and 40% respectively. Company has planned capex of Rs 75 Cr for FY18 and Rs 59Cr for FY17.the capex is for new initiatives like road grids for defence and civil airports etc. Company holds a strong cash balance of 200 Cr and debt free position gives a clear picture for the company to report healthy revenue in near term Abrasive segment witness increased volumes: Company posted strong volume growth of 8.9% for FY17 with muted realization growth of 0.2% YOY, introduction of new products in the abrasives segment and continued recovery in the industrial segment mainly contributed to the growth. As per management view on growth in manufacturing segment coupled with industrial recovery company is expected to grow at a CAGR of 12% in FY17-19E to 1127 Cr.

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Top 10 Shareholders Rank Name 1. SBI Mutual Fund 2. Sundaram Mutual Fund 3. HDFC Trustee Company Limited 4. UTI 5. Goldman Sachs India Limited 6. Nina G. Bharucha 7. Gagandeep Credit Capital Private Limited 8. Kuwait Investment Authority Fund 9. Karl Gayomard Bharucha 10. Nemish S. Shah

Latest Filling Date 01-4-2017 01-4-2017 01-4-2017

% OS 5% 2.99% 2.75%

Position(m) 5.53M 3.31M 3.04M

01-4-2017 01-4-2017

1.88% 1.53%

2.08M 1.69M

01-4-2017 01-4-2017

1.06% 0.95%

1.17M 1.04M

01-4-2017

0.9%

1.00M

01-4-2017 01-4-2017

0.82% 0.91%

0.91M 1.00M

Share Holding Compare (%holding) Dec-16 March-17 Promoters 58.89% 58.89% FIIs 4.07% 4.26% Mutual 13.52% 14% Funds Other DIIs 0.00% 0.00% Non 23.5% 22.84% Institution al Investor

Change (%) 0.00% 0.19% 0.48% 0.00% -0.07%

Key Events Date FY-06 Mar-09 May-12 Jun-13 Sep-13 Mar-14 May-16

Key Personnel Mr. Pradip Shah

Event

Declared bonus in the ratio of 1:1 Started Silicon Carbide plant at subsidiary in Bhutan. New HPR plant commissioned in Halol (Gujarat R&D Centre of the group started in Chennai New Nonwoven plant in Bangalore was fully commissioned Bonded abrasives expansion project at Nagpur completed Declared bonus in the ratio of 1:1

Designation &Experience Chairman

Auditors

Pradip holds an MBA from Harvard Business School and a Bachelor of Commerce degree from Sydenham College, Bombay. He is currently chairman of Kansai Nerolac, Grindwell Norton, Sonata Software and Director of BASF (India), Godrej & Boyce, Hardy Oil and Gas (U.K.), Pfizer Mr.Anand Mahajan

Managing Director He graduated from St. Xavier’s College, Mumbai, in 1974 and obtained a B.A. (Honours) degree in Economics. Mr. Mahajan is a director of all the Group companies in India

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Key Ratio:

Key Ratios Quick Ratio Current Ratio Turnover Ratio Asset Turnover ratio

FY-13 0.95 1.73

FY-14 1.07 1.94

FY-15 1.17 2.03

FY-16 1.24 2.15

FY-17 1.68 2.6

125.5

116.4

122.2

119.5

103.9

Inventory

6.17

5.28

5.22

4.93

5.25

EBIDTM (%) EBITM (%) ROCE (%)

16.51 14.45 17.54

15.53 12.77 13.61

16.67 13.48 15.32

16.35 13.23 14.28

17.28 14.06 12.4

RONW (%)

18.87

14.75

16.46

15.10

13.11

Payout (%)

0.00

35.44

35.61

43.71

36.84

2.5

2.79

6.22

5.56

4.43

7.94 1.37

10.08 1.66

20.03 3.44

19.10 3.23

10.21 3.17

Debtors Interest Cover Ratio

Sales/Assets (X) Price/Book Value(P/BV) EV/EBITDA Market Cap/ Sales

EBITDA GROWTH TREND 18% 17% 16% 15%

182.04 15%

193.11

215.45

15.4%

16%

14%

300 228.45 16.9% 200 100 0

EBITDA

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MARGIN

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Consolidated Income Statement 2013

2014

2015

2016

2017

2018 E

2019 E

Revenue From Operations [Gross] Less: Excise/Sevice Tax/Other Levies Revenue From Operations [Net] Other Operating Revenues Total Operating Revenues EXPENSES Cost Of Materials Consumed Purchase Of Stock-In Trade Changes In Inventories Of FG,WIP And Stock-In Trade Employee Benefit Expenses Other Expenses Total Expenses

1,017.24

1,033.2

1,212.20

1,261.45

1,355.33

1485.55

1590.0

76.9

74.91

84.25

85.96

100.44

108.07

116.32

940.34

958.35

1,127.95

1,175.49

1,254.89

1377.48

1473.7

6.65 946.99

7.15 965.50

7.42 1,135.37

7.22 1,182.71

8.47 1,263.36

8.94 1386.4

9.52 1483.2

362.88 65.43 -12.88

351.27 76.55 -14.83

408.12 83.87 -10.27

419.68 86.17 -13.88

452.1 99.68 1.66

495.49 104.27 -8.99

529.09 112.22 -8.36

105.85 273.64 794.92

114.23 294.28 821.5

132.85 340.2 954.77

152.61 356.09 1000.67

170.21 346.6 1070.25

175.97 404.40 1171.13

EBITDA Depreciation And Amortization Expenses EBIT Finance Costs Other Income EBIT

152.07 24.4

144.00 31.83

180.60 41.61

182.04 41.93

193.11 42.25

215.28 47.67

193.17 428.72 1254.8 4 228.45 51.07

127.67 3 10.84 135.51

112.17 3.05 12.78 121.90

138.99 2.91 17.71 153.79

140.11 2.37 20.83 158.57

150.86 2.01 30.85 179.70

167.62 1.66 26.63 192.59

177.38 1.56 30.28 206.10

Profit/Loss Before Tax Total Tax Expenses

135.51 38.38

121.90 37.48

153.79 49.6

158.57 52.8

179.70 58.82

192.59 57.78

206.10 57.71

Profit/Loss After Tax And Before Extraordinary Items Minority Interest

97.13

84.42

104.19

105.77

120.88

134.82

148.39

0.16

-0.5

-0.98

-1.15

-1.49

0.00

0.00

Consolidated Profit/Loss After MI And Associates EARNINGS PER SHARE Basic EPS (Rs.) Diluted EPS (Rs.)

97.29

83.92

103.21

104.62

119.39

134.82

148.39

17.6 17.6

15.2 15.2

18.6 18.6

18.9 18.9

10.8 10.8

12.2 12.2

13.4 13.4

Income

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Consolidated Balance Sheet 2013

2014

2015

2016

2017

Equities and Liabilities SHAREHOLDER'S FUNDS Equity Share Capital

27.68

27.68

27.68

27.68

55.36

Total Share Capital Revaluation Reserves

27.68 3.69

27.68 3.52

27.68 3.35

27.68 0

55.36 3.35

Reserves and Surplus Total Reserves and Surplus

484.87 488.56

526.7 530.22

584.8 588.15

646.1 646.1

834.31 837.66

Total Shareholders Funds Minority Interest NON-CURRENT LIABILITIES Long Term Borrowings Deferred Tax Liabilities [Net]

516.24 7.12

557.9 7.62

615.83 8.59

673.78 9.75

893.02 11.24

13.94 14.98

11.77 18.91

6.38 18.74

2.78 17.38

1.92 22.97

Other Long Term Liabilities Long Term Provisions Total Non-Current Liabilities

5.44 15.01 49.38

5.72 16.07 52.46

6.08 14.58 45.78

7.73 10.61 38.5

1.98 17.28 44.15

CURRENT LIABILITIES Short Term Borrowings

8.43

4.64

8.53

8.79

5.84

Trade Payables Other Current Liabilities

55.4 100.62

70.63 94.5

88.72 122.32

83.56 166.01

75.15 170.32

Short Term Provisions Total Current Liabilities Total Capital And Liabilities

46.43 210.87 783.61

45.72 215.48 833.46

47.7 267.28 937.48

14.57 272.92 994.95

10.18 261.49 1,209.90

Tangible Assets

320.58

369.79

356.84

342.02

365.81

Intangible Assets

6.52

5.17

3.38

2.46

1.83

Capital Work-In-Progress

61.71

5.52

6.73

13.58

6.21

Fixed Assets Non-Current Investments

388.81 30.83

380.49 35.15

366.96 35.15

358.06 40.15

373.85 145.49

Long Term Loans And Advances

17.23

15.08

14.73

24.44

3.27

Other Non-Current Assets

0.03

0

0

0

12.03

Total Non-Current Assets

436.9

430.71

416.84

422.65

535.13

CURRENT ASSETS Inventories Trade Receivables Cash And Cash Equivalents Short Term Loans And Advances

159.34 96.1 55.69 26.23

184.53 89.96 84.71 33.71

225.05 123.03 113.5 46.16

245.67 150.06 120.82 39.81

245.58 127.39 242.51 17

Other Current Assets Total Current Assets Total Assets

9.35 346.71 783.61

9.84 402.75 833.46

12.9 520.64 937.48

15.94 572.3 994.95

42.28 674.77 1,209.90

ASSETS NON-CURRENT ASSETS

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Stock Performance Chart:

Research by: Megha Mohnot Equity Research Analyst ATS Wealth Managers Pvt Ltd. Email: [email protected]

Disclaimer: This report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be constructed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.

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