Buy Grindwell Norton Ltd For Target Rs.2110 - ICICI Direct
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Strong performance by Ceramics & plastic segment
About the stock: Grindwell Norton (GNL) is the market leader in the India abrasive market with ~26% market share. The segments include abrasives (contributing ~57%), ceramics & plastics (33%) and IT services & others (10%).
* GNL has witnessed strong & positive free cash flows consistently over more than a decade irrespective of the macro environment
* It has consistently operated with high (>16%) margins & return ratios
Q1FY23 Results: GNL reported a strong set of Q1FY23 numbers.
* Revenues came in at Rs. 638 crore, grew by 45.2% YoY owing to better demand.
* EBITDA came in at Rs. 128.9 crore, grew by 48.2% YoY with margins at 20.2% while gross margins dipped by 280 bps YoY basis
* Consequently, PAT grew 46.2% YoY to Rs. 92.4 crore
What should investors do? Going forward, accelerated growth in performance plastics & ceramics and exports are expected to drive long term incremental growth.
* We remain long term positive and maintain our BUY rating on the stock
Target Price and Valuation: We value GNL at Rs. 2110 i.e. 55x P/E on FY24E EPS
Key triggers for future price performance:
* Ambition to maintain market share in abrasives and increase market share in ceramic & plastics with gradual penetration of new value added products
* High margin value added products and solutions oriented approach to drive margin expansion (from ~16.7% in FY20 to 20.5% in FY24E)
* We expect revenue, EBITDA to grow at CAGR of 18.8%, 20.3%, respectively, over FY21-24E
* Net debt free b/s, double-digit return ratios & strong cash generation
Alternate Stock Idea: Apart from GNL, in our coverage we also like Thermax.
* Leader with strong balance sheet, prudent working capital management, recent technological tie-ups, are expected to support growth
* BUY with target price of Rs. 2450
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