Accumulate Grindwell Norton Ltd For Target Rs. 1,716 - Prabhudas Liladhar Capital Ltd
Soft Q4; margin focus amid rising uncertainties
Quick Pointers:
* Ceramics & Plastics/Digital Services segment revenue grew 5.8%/6.5% YoY while Abrasives revenue declined 1.7% YoY in Q4FY25.
* Abrasives/Digital Services EBIT margin fell by 97/418bps YoY to 13.4%/23.8% in Q4FY25 while Ceramics EBIT margin grew by 104bps YoY to 17.3%.
Grindwell Norton (GWN) reported a muted performance for the quarter, with revenue growing modestly by 2.7% YoY and EBITDA margins remaining largely stable at 17.9%. The domestic demand shown resilience across both the Abrasives and Ceramics segments. However, export demand remained subdued, likely due to persistent pressure from Chinese dumping and overall weak global demand. Looking ahead, growth in the Abrasives segment is expected to be supported by emerging opportunities such as edge grinding for solar glass, rising demand for high-productivity solutions. Ceramics profitability is expected to improve with recovery in export demand and favorable product mix. Nonetheless, the escalating tariff wars raises concerns over a potential increase in Chinese dumping, which could impact volumes in both domestic and export markets. We await further commentary from the management in the annual investor meet of GWN.
Chinese alternative products dumping, global tariff wars and change in mix of consumable demand will be key monitorable, however we remain positive on GWN due to its 1) focus on technologically advanced niche/high performance products in performance plastics, 2) penetration in newer high growth markets, 3) attention on tapping new verticals in Ceramics & Refractories, and 4) capacity expansion in coated abrasives, engineered ceramics and performance plastics. The stock is trading at a P/E of 41.0x/34.7x on FY26/27E earnings. We maintain ‘Accumulate’ rating with a TP of Rs1,716 (same as earlier) valuing the stock at a PE of 40x Sep’26E (same as earlier).
Healthy growth in ceramics drive topline: Consolidated revenue increased by 2.7% YoY to Rs7.1bn (PLe: Rs7.3bn), led by growth across all segments except in Abrasives which declined by 1.7% YoY to Rs3.6bn. Gross margin contracted by 40 bps YoY to 54.0%. EBITDA grew by 1.9% YoY to Rs1.3bn (PLe: Rs1.3bn). EBITDA margin remains flattish to 17.9% (PLe:18.3%) on the back of significant margin contraction in Digital Services segment. Adj. PBT rose by 1.6% YoY to Rs1.2bn (PLe: Rs1.3bn). Adj. PAT was flattish at Rs925mn (PLe: Rs969mn).
Digital Services continued to face strong headwinds: Abrasives revenue declined 1.7% YoY to Rs3.6bn, while Ceramics & Plastics rose 5.8% YoY to Rs2.9bn. Digital Services posted a 6.5% YoY revenue growth at Rs480mn. However, margins saw mixed movement—Digital Services margin dropped sharply by 418bps YoY to 23.8%, while Ceramics & Plastics improved to 17.3%. Abrasives margin softened by 97bps to 13.4%.
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