Hold Grindwell Norton Ltd For Target Rs.1,739 by Prabhudas Liladhar Capital Ltd
Subdued Q1; margin strain across segments
Quick Pointers:
* Digital Services/Abrasives segment revenue grew 11.7%/0.6% YoY, while Ceramics & Plastics (C&P) declined 2.6% YoY in Q1FY26.
* Abrasives/C&P/Digital Services EBIT margin fell by 72/50/185bps YoY to 12.8%/17.4%/28.1%.
Grindwell Norton (GWN) delivered a subdued performance for the quarter, with revenue remaining largely flat YoY at Rs7.0bn and EBITDA margin contracting by 40bps YoY to 18.5%. The Abrasives segment reported negligible growth, while margins weakened further—likely impacted by continued Chinese dumping. The Ceramics & Plastics (C&P) segment also posted a decline in revenue, with profitability remaining under strain. Notably, the Digital Services segment saw topline growth, however, it continued to witness a sharp erosion in margins. Meanwhile, the management has approved a land acquisition of ~Rs180mn in Halol, Gujarat, on a freehold basis to support future expansion plans following the ongoing capacity expansion of the Halol plant for performance ceramics and refractories business.
We remain cautious in the near term due to limited visibility regarding demand recovery amid persistent Chinese alternative products dumping, global tariff wars and change in mix of consumable demand. In the long-term, potential growth triggers may include 1) GWN’s focus on technologically advanced niche/high-performance products in performance plastics, 2) penetration in newer high-growth markets, 3) focus 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 43.7x/37.6x on FY26/27E earnings. We maintain ‘HOLD’ rating with a TP of Rs1,739 (same as earlier) valuing the stock at a PE of 40x Mar’27E (same as earlier).
Flat topline, margins under pressure: Consolidated revenue remained largely flat at Rs7.0bn (PLe: Rs7.3bn). Gross margin was also flat YoY at 54.6%. EBITDA declined 2.4% YoY to Rs1.3bn (PLe: Rs1.4bn). EBITDA margin declined by 40bps YoY to 18.5% (PLe: 18.6%) on the back of margin contraction in all segments and increase in other expenses (+101bps YoY % of sales). PBT remained flattish at Rs1.3bn (PLe: Rs1.3bn) due to higher other income (+51.1% YoY to Rs238mn) offsetting weaker operating performance. PAT improved by 1.4% YoY to Rs945mn (PLe: Rs942mn) aided by lower effective tax rate (25.0% vs 25.6% in Q1FY25).
Segmental snapshot: Digital Services posts positive growth: During the quarter, Digital Services’ revenue grew 11.7% YoY to Rs509mn, while Abrasives was flat YoY at Rs3.5bn, offset by 2.6% YoY decline in C&P to Rs3.0bn. C&P margin declined to 17.4% (vs 17.9% in Q1FY25), while Digital Services’ margin fell sharply to 28.1% (vs 29.9%). Abrasives EBIT margin dipped by 72bps YoY to 12.8% (vs 13.6%).
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