Grindwell Norton

We recommend ‘BUY’ on GRINDWELL NORTON LTD for a target of INR 614 – valuing the company at P/E 34x of FY20E Earning.

CMP:                  INR 534

Target Price:     INR 614

Investment Rationale:

  • Grindwell Norton is a leading company in the domestic abrasives market.
  • Backed by the strong parentage of Saint Gobain, a strong financial track record
  • Strong parentage, leadership in domestic market to drive growth.
  • Strong moat, new value-added products, robust exports.
  • GNL keeps introducing new value-added products every year with the support of its strong parent – Saint Gobain.
  • With rising prospects in the fabrication segment and greater manufacturing activity in user industries, management expects to maintain healthy volume growth in abrasives.
  • Constant addition of products to its range would lead to strong sales growth.

Valuations And View:

Grindwell Norton is a part of the High Performance Materials division, which is a part of the Innovative Materials Sector of the Group. The CertainTeed business, which is a part of the Construction Products Sector of Saint-Gobain, also operates under GNO. GNO provides its expertise in the areas of innovation and co-development through a wide range of high-performance materials for demanding applications in diverse segments such as the automotive, health, defense, security and even the food & beverage industries. We value the business at 34x FY20E EPS and recommend a BUY rating on the stock with a target price of INR 614 per share.

Risk & Concerns

  • Industry and Market: The dependence on any single industry segment is less than 15%.
  • Technology: Abrasives have been used over a very long period of time and technological changes in terms of applications are gradual.
  • Competition: The Abrasives Market has clearly been evolving from two major players to multi-players. The competitive landscape has become much more dynamic.

Company Background

Grindwell Norton (GNO), a company listed on the Bombay and National Stock Exchanges, pioneered the manufacture of grinding wheels in India in 1941. Today, GNO’s businesses include: Abrasives, Silicon Carbide, High Performance Refractories, Performance Plastics and ADFORS. The Saint-Gobain Delegation (Country Head) office, and INDEC (the captive India IT Development Centre for the Saint-Gobain Group globally) are also part of GNO. GNO’s subsidiary, Saint-Gobain Ceramic Materials Bhutan Pvt. Ltd., manufactures Silicon Carbide. GNO is part of the Saint-Gobain Group. The Group currently holds 51.66% of the equity capital of GNO.

The businesses of the Saint-Gobain Group in India are housed in two large entities, Grindwell Norton Limited (GNO), a publicly traded company, and Saint-Gobain India Pvt. Ltd. (SGI). Grindwell Norton is a part of the High Performance Materials division, which is a part of the Innovative Materials Sector of the Group. GNO’s subsidiary, Saint-Gobain Ceramic Materials Bhutan Pvt. Ltd., manufactures Silicon Carbide. GNO holds 70% of the equity of this Company. The CertainTeed business, which is a part of the Construction Products Sector of Saint-Gobain, also operates under GNO.

Businesses

  • Abrasives Business
  • Ceramics and Plastic Business
  • Other Businesses

Industry Overview

The Abrasives industry has two major players offering a full range of Abrasive products, one of which is GNO. GNO has a leadership position in several product-market segments. 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. Some of the players from Europe and Japan have their agents and/or distributors to service mainly the precision grinding or polishing or surface preparation segments. In the case of Coated Abrasives, a few important international players have set up conversion 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. Over the past few years, import of low cost products with acceptable quality has substantially increased. Unscrupulous trade practices by some of the players give them undue cost advantage. Key success factors are good quality, cost, innovation, differentiation, service and capability to provide total grinding solutions.