The Hindu Business Line : Grindwell Norton: Buy

Investors can consider an exposure in Grindwell Norton (Grindwell) stock. At 13 times its expected calendar year 2006 per share earnings, the stock of Grindwell appears attractively valued. The rising demand from user industries, its strong hold in the domestic market in certain product categories and improving export prospects will help the company maintain its growth momentum over the next few quarters. Fundamentally, its debt free status, better cash flows, ability to fund capex through internal accruals and sharp improvement in realisations lend support to valuations.

Grindwell is one of the two major players in the domestic abrasives industry. Carborundum Universal and Grindwell together cater close to 75 per cent of the domestic demand. Grindwell makes abrasives and ceramics. Given the strong demand pick up and better resource utilisation, realisations have improved substantially. Operating profit margins have increased by a healthy 4 percentage points during the half-year ended June 2006.

Grindwell has acquired the bonded abrasive business of Orient Abrasives. The revenue and profitability from this acquisition will start trickling in from October 2006 onwards. Orient's bonded abrasive unit clocked revenues of Rs 30 crore and profits of Rs 3 crore for the year ended March 2006; this will add close to 10 per cent in revenues and 9 per cent to the profits of Grindwell. Orient's bonded abrasives division recorded 18 per cent growth in revenues and 103 per cent growth in profits for FY06.

The acquisition will expand Grindwell's existing product range and the excess capacity at Orient's manufacturing plant can be used for exports. Exports account for 14 per cent of total abrasive sales for Grindwell and are expected to grow at a faster rate than domestic demand. It is also expecting incremental business from the parent company, Saint Gobain. Grindwell is a cash rich company and has close to Rs 85 crore in investments and cash and has a track record of liberal dividend payment. It should also be able to comfortably fund any expansions, if necessary.

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