Grindwell: Waiting in the wings

Engineering major Grindwell Norton has declared staid results in its third quarter ended December 2000. Its turnover was up 9.4% YoY, and its bottomline improved by 9% during the period. The improvement was largely contributed by a cut in interest costs.

(Rs m)	3QFY00	3QFY01	Change	9m FY00	9m FY01	Change
Net Sales	489	535	9.4%	1,508	1,521	0.9%
Other Income	16	16	0.0%	60	61	1.7%
Total expenditure	430	476	10.7%	1,344	1,352	0.6%
Operating Profit (EBDIT)	59	59	0.0%	164	169	3.0%
Operating Profit Margin (%)	12.1%	11.0%		10.9%	11.1%
Interest	11	8	-27.3%	29	26	-10.3%
Depreciation	14	15	7.1%	42	45	7.1%
Profit before Tax	50	52	4.0%	153	159	3.9%
Tax	17	16	-5.9%	50	50	0.0%
Profit after Tax/(Loss)	33	36	9.1%	103	109	5.8%
Net profit margin (%)	6.7%	6.7%		6.8%	7.2%
No. of Shares (eoy) (m)	13.8	13.8		13.8	13.8
Earnings per share*				10.0	10.5
*(annualised)
Current P/e ratio					6.6

Grindwell is a 51% subsidiary MNC Saint-Gobain. It manufactures bonded abrasives, coated abrasive products, super abrasives, engineered ceramics, and engineered fluids.

FY01 has been better for Grindwell as compared to FY00. This year the company has focussed on cutting costs (pruning of interest burden and intiating a VRS scheme). Though turnover and net profit on a nine month basis were up marginally, its net margins improved by 40 basis points. The company's continued focus on improving operating efficiencies is likely to show results in the next few years. But concerns remain over slowdown in demand in user industries like automobiles.

If the government's budget initiatives to kick start automobile demand succeed, then Grindwell Norton's fortunes will also see a consequent change. Until then, the focus will remain on tightening the belt. At the current stock price of Rs 70 the stock trades at a P/e mutiple of 6.6 times its nine month FY01 annualised earnings. The company's valuation re-rating is subject to improvement in demand from user indutries.