1

SYNOPSIS

We initiated coverage of Grindwell

Norton Ltd and set a target price of

Rs.306.00 for Medium term

investment.

GNO is one of the subsidiaries of

companies de saint-gobain was

incorporated in the year 1950 for

manufacture abrasive products in

the name of Grindwell Abrasives,

Ltd.

During the quarter ended, the

robust growth of Net Profit is

increased by 23% to Rs. 252.50

million compare to previous year

Quarter.

Net Sales & PAT of the company are

expected to grow at a CAGR of 14%

and 11% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 7807.40 1422.90 856.30 15.47 17.52

FY 12E 9076.84 1670.84 1035.96 18.71 14.48

FY 13E 10347.60 1913.66 1192.96 21.55 12.58

Stock Data:

Sector: Industrial Products

Face Value Rs. 5.00

52 wk. High/Low (Rs.) 278.00/190.00

Volume (2 wk. Avg.) 2319.00

BSE Code 506076

Market Cap (Rs.in mn) 15002.56

Share Holding Pattern

1 Year Comparative Graph

Grindwell Norton BSE SENSEX

C.M.P: Rs. 271.00 Target Price: Rs. 306.00 Date: Feb 23rd, 2012 BUY

Grindwell Norton Ltd Result Update: Q3 FY 12

2

Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Grindwell Norton Ltd 271.00 15002.56 15.47 17.52 3.75 120.00

Carborudum Universal 155.20 2908.16 7.00 22.17 5.53 125.00

Wendit India 1598.00 319.60 86.90 18.39 5.50 250.00

Orient Abrasive 10.57 126.46 3.31 3.19 0.69 100.00

Investment Highlights

Q3 FY12 Results Update

Grindwell Norton Ltd disclosed a phenomenon rise in standalone net profit for the

quarter ended Dec 2011. During the quarter, the profit of the company surged

23.29% to Rs 252.50 million from Rs 204.80 million in the same quarter previous

year. Net sales for the quarter for the quarter rose 15.85% to Rs. 2220.90 million

from Rs. 1917.10 million, when compared with the prior year period. It reported

earnings of Rs 4.56 a share during the quarter, registering 23.29% increase over

previous year period.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec -10 %change

Net sales 2220.90 1917.10 15.85

PAT 252.50 204.80 23.29

Basic EPS 4.56 3.70 23.29

3

Break Up Of Expenditure

Company Profile:

The Company was incorporated in the year 1950 for manufacture abrasive products in

the name of Grindwell Abrasives, Ltd.

The company entered into a technical collaboration with Norton Co of USA in 1967 for

keep abreast with the latest technology and in year 1971. The name of the Company

was changed to Grindwell Norton Ltd with the investment in the company equity by

Norton co USA. Saint-Gobain acquired Norton Company, USA, worldwide, and six

years later, GNO became the first majority-owned subsidiary of Saint-Gobain in India.

In the year 1977 first silicon carbide plant was commissioned in Bangalore Karnataka

state and second plant at Tirupati Andhra Pradesh in 1979 now the company

manufacturing Operations were located in Mora near Mumbai, Nagpur, Banglore,

Tirupati, Himachal Pradesh and Butan and 11 sales offices across the country and

Headquartered in Mumbai.

4

In October’2006, GNO had the honour of featuring in Forbes Asia’s “Best Under a

Billion” list. It was one of just 23 Indian companies listed among the top 200

companies, with sales of under a billion dollars, in the Asia-Pacific Region.

PRODUCTS & PLANT

The company offers best abrasives technology to Indian Industry by manufactures

bonded abrasives, coated abrasives, super refractories, Ceramics and Performance

Plastics with advanced polymer technology.

ABRASIVES SEGMENT

The major sectors of activities within the Abrasives segment are Bonded Abrasives ,

Coated Abrasives and Super Abrasives.

Bonded Abrasives, most commonly in the form of wheels but also in other shapes

such as segment, sticks etc., and are used for various applications ranging from

polishing or lapping to removing high quantities of materials. Bonded Abrasives are

used in precision applications such as lapping , honing, super-finishing, race grinding,

thread grinding, fluting, OD grinding, ID grinding, surface grinding etc. GNO makes

over 15000 different products in a year.

Super Abrasives are made of diamond (synthetic or natural) or cubic boron nitride and

are used in recision applications. Coated Abrasives products are engineering

composites comprising backing, bond system and abrasive grains and are designed for

material removal and surface generation.

CERAMICS & PLASTICS SEGMENT

The major businesses in this segment are:

(i) Silicon Carbide

(ii) (ii) High Performance Refractories

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Silicon Carbide

Silicon Carbide grains are used primarily as raw material in the manufacture of

abrasives, refractories and for stone polishing. Silicon Carbide is manufactured at

Tirupati in Andhra Pradesh.

The Tirupati Plant is certified under ISO 9001:2000, ISO14001:2004 and OHSAS

18001:1999.

Silicon Carbide is also manufactured by your Company’s subsidiary, Saint-Gobain

Ceramic Materials Bhutan Ltd., at its plant near Phuentsholing in Bhutan.

High Performance Refractories

Refractories are used for processing ferrous and non ferrous metals and as kiln

furniture to fire ceramic wares. They are also used as filtering media. GNO

manufactures mostly silicon carbide refractories.GNO offers complete solution with

expertise in design, engineering and manufacturing refractory systems for most of the

demanding, high temperature and wear applications.

The plant is located at Bangalore, Karnataka and is certified under ISO 9001: 2000,

ISO14001: 2004 and OHSAS 18001:1999.

Competition:

The Abrasives Industry currently has two major players, one of which is GNO. The

entry of global players in Bonded and Coated and reduction in import duties more

international players entering the market as the Indian economy grows rapidly. This

competition from Imports will further increase and Business must be cost-

competitive and, on the other, it must offer products, services and solutions, that fully

meet the customers’ expectations as well as substantial expansion and modernization

is key and local competitors will continue to be a challenge.

6

Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 7023.60 7807.40 9076.84 10347.60

Other Income 243.10 274.20 358.98 423.60

Total Income 7266.70 8081.60 9435.83 10771.20

Expenditure -5786.10 -6658.70 -7764.98 -8857.55

Operating Profit 1480.60 1422.90 1670.84 1913.66

Interest -2.50 -2.80 -4.58 -5.95

Gross profit 1478.10 1420.10 1666.27 1907.71

Depreciation -177.90 -163.20 -168.66 -178.77

Profit Before Tax 1300.20 1256.90 1497.61 1728.93

Tax -425.20 -400.60 -461.65 -535.97

Profit After Tax 875.00 856.30 1035.96 1192.96

Equity capital 276.80 276.80 276.80 276.80

Reserves 3254.60 3724.90 4760.86 5953.83

Face value 5.00 5.00 5.00 5.00

EPS 15.81 15.47 18.71 21.55

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 2011.50 2268.20 2220.90 2576.24

Other income 87.20 72.20 100.80 98.78

Total Income 2098.70 2340.40 2321.70 2675.03

Expenditure -1715.20 -1942.70 -1914.70 -2192.38

Operating profit 383.50 397.70 407.00 482.64

Interest -0.60 -0.90 -1.50 -1.58

Gross profit 382.90 396.80 405.50 481.07

Depreciation -41.90 -42.50 -41.10 -43.16

Profit Before Tax 341.00 354.30 364.40 437.91

Tax -104.20 -109.80 -111.90 -135.75

Profit After Tax 236.80 244.50 252.50 302.16

Equity capital 276.80 276.80 276.80 276.80

Face value 5.00 5.00 5.00 5.00

EPS 4.28 4.42 4.56 5.46

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 55.36 55.36 55.36 55.36

EBITDA Margin (%) 21.08% 18.23% 18.41% 18.49%

PBT Margin (%) 18.51% 16.10% 16.50% 16.71%

PAT Margin (%) 12.46% 10.97% 11.41% 11.53%

P/E Ratio (x) 17.15 17.52 14.48 12.58

ROE (%) 24.78% 21.40% 20.56% 19.15%

ROCE (%) 46.96% 39.64% 36.51% 33.58%

Debt Equity Ratio 0.00 0.00 0.00 0.00

EV/EBITDA (x) 10.13 10.54 8.38 7.84

Book Value (Rs.) 63.79 72.29 91.00 112.55

P/BV 4.25 3.75 2.98 2.41

Charts:

9

P/E Ratio (X)

EV/EBITDA (X)

10

P/BV

Outlook and Conclusion

At the current market price of Rs.271.00, the stock is trading at 14.48 x FY12E

and 12.58 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.18.71 and Rs.21.55 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 14% and

11% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 8.98 x for FY12E and 7.84 x for

FY13E.

Price to Book Value of the stock is expected to be at 2.98 x and 2.41 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.306.00 for Medium term investment.

11

Industry Overview

Despite of heave competition in the changing domestic market scenario, The Indian

economy is expected to witness sustained growth in 2011-12, though industrial

growth may be moderate. Abrasives business registered an all-time high growth of

41% over the previous period mainly due to increase in domestic demand higher sales

of new products and in new markets and gains in market share. The Indian abrasives

market expected to grow at 10% annually and expecting 12% Growth in demand for

bonded abrasives and 10-12% growth likely to be in coated abrasives.

The Indian abrasives market size is estimated to be about 19.0 millions in value and

its overall capacity utilization in the bonded abrasive industry is about 85% and

bonded abrasives industry in India has eight Units in the organized sector and large

number of units exist in Unorganized sector with total installed capacity of 15881

tonnes per annum.

The coated abrasives industry has six units in organized sector with installed capacity

of 54000 reams per annum and unorganized sector caters to the lower end

requirement with the installed capacity about 75000 reams per annum. Total size of

the industry estimated at about 11.0 millions by value and 60% of capacity utilization.

Abrasives are industrial consumables which find wide application in metals, auto,

construction, fabrication and various machining industries and CUMI & GNL

together account for 70% of the market. Estimating in next five –years Indian

abrasives industry grows to Rs 15.6 bn organized Indian abrasives industry.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

12

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