GWN is well placed structurally over the long term bolstered by market leadership and robust product portfolio.
Grindwell Norton’s (GWN) Q4FY19 revenue grew 6% y-o-y (in line) due to subdued growth in abrasives (5% versus CUMI’s 3% industrials growth) and Ebitda fell ~7% y-o-y (6% below estimate) due to higher input cost pressure. FY19 sales grew 12% y-o-y driven by strong spurt in ceramics & plastics (C&P; up ~18% y-o-y).
Within C&P, performance plastics (PP) grew 14.5% y-o-y and high performance refractories (HPR) jumped 29.3% y-o-y. Management is optimistic on achieving 16% revenue growth in C&P over the next few years led by new applications in auto and life science sectors.
GWN is well placed structurally over the long term bolstered by market leadership and robust product portfolio. However, we remain cautious due to recent auto slowdown impacting abrasives and PP demand. Maintain hold with revised TP of `569 (earlier `500) as we roll over to Q2FY21E and value it at 29x (20% premium to CUMI). Revenue at `4.1bn grew 6% y-o-y (in line).
Revenue growth was led by strong 12% y-o-y growth in C&P segment, while growth in abrasives was subdued (5% y-o-y). Ebitda margin slipped 223bps y-o-y to 16.7% due to increase in raw material cost and higher employee cost. Ebitda fell 7% y-o-y, 6% below estimate.
The segment grew 9.2% y-o-y led by mix of volume and realisation growth. On a strong growth of 26% y-o-y in FY18, the C&P division (contributes 31% to top line) reported strong growth of 18% y-o-y. This was led by robust 29.3% y-o-y spurt in HPR and 14.5% y-o-y surge in PP.
Management expects strong growth of 16% p.a. in C&P segment over next few years led by new applications introduced in auto and life sciences space. We expect steady growth driven by demand in the industrial segment and new application launches across sectors. We estimate margin to increase led by pricing actions and improving working capital position. At CMP, the stock trades at 30.2x Q2FY21E EPS.
FY19 sales grew 11.7% y-o-y led by growth in domestic volume and realisation. Growth contribution was 4.5% domestic volume led, 1.3% exports volume contribution, marginal 4.4% price increase, 1% service income increase and 0.5% increase in other operating income.