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Grindwell: Waiting in the wings

Mar 7, 2001

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.


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