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Strong performance led by ceramics & plastics…

Grindwell Norton (GNL) reported strong Q4FY21 numbers across operational parameters owing to better demand, favourable product mix and revival in key sectors like automotive, industrial, construction, engineering amid economic recovery. Revenues came in at | 508.8 crore, up a strong 39.1% YoY (amid low base) while it grew 11.2% on a QoQ basis, primarily aided by strong performance in the ceramics & plastic segment.

Revenue contribution from abrasives, ceramics & IT services were at ~60%, ~32.5% & ~6.5%, respectively. Overall, EBITDA margins were at 22.2%, improving significantly by 570 bps YoY whereas it improved 80 bps QoQ. This was primarily aided by a reduction in overall operating expenses and better gross margins, which improved 140 bps to 56.7% YoY. PAT grew 92.9% to | 80.6 crore YoY, partly aided by higher other income.

Superior margins led by product mix, cost efficiencies…

Topline growth was driven by ceramics & plastics segment, which grew 44.5% to | 165.6 crore YoY followed by abrasive segment, which grew 38.3% to | 303.5 crore YoY while IT services segment grew 15.6% to | 33.1 crore YoY. Abrasive segment registered EBIT margin of 16.1% (vs. 9.5% in Q4FY20). While EBIT margins for ceramics and plastic segment expanded to 26% YoY (vs. 15% in Q4FY20) and IT services segment EBIT margin was at 28.8% (vs. 22.4%, YoY).

Superior margins are expected to sustain in the long term led by operational efficiencies and further addition of high margin value added products and solutions approach in performance plastics and performance ceramics & refractories segment (e.g. life science) providing better pricing power and strong incremental growth.

Export, value-added Solutions to drive long term growth

GNL enjoys a strong moat in abrasives segment, commanding ~26% market share (pegged at ~| 3200 crore). It sees strategic relevance of exports for incremental growth, which contributes ~15% to topline. It aims to focus on exports of niche high value products in ceramics & plastic segment in some cases to replace Chinese products and penetrate neighbouring countries of US, South East Asia markets and enter newer market for stronger growth.

Valuation & Outlook

Going forward, accelerated growth in the plastics segment is expected to continue owing to niche value added products and solutions approach in performance plastics, performance ceramics & refractories segment and focus on export of niche high value products. We believe GNL is well placed to further gain from gradual economic revival in key segments. Overall, we expect abrasives, ceramics to grow at CAGR of 15%, 18.5%, respectively, in FY21-23E. We value GNL at 45x on FY23E EPS on the back of sustained superior margins with a target price of | 1310 (earlier TP | 805) and maintain BUY rating.

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