Grindwell Norton rating retained

ICRA has retained the A1 plus rating assigned to the Rs. 25 crore short term debt programme (including Commercial Paper) of Grindwell Norton (GNL). The rating indicates highest safety.

The rating takes into account GNL's status as the Indian flagship of the French conglomerate, Saint Gobain, its strong position in the duopolistic market, a stable financial performance during April 2000-March 2001 despite the slowdown in user industries and comfortable financial flexibility.

GNL is a 51 per cent subsidiary of Saint Gobain. The two major players in this industry, namely Carborundum Universal and GNL account for about 80 per cent of the total market. In an industry where technology is a key success factor, GNL benefits from its technical collaboration with its parent.

Its principal products, bonded and coated abrasives, mainly find application in the automobile and auto ancillary industry, besides other sectors such as steel, fabrication, bearings and construction. During April 2000-March 2001, the performance of most of the user industries witnessed a slowdown, thereby restricting GNL's performance.

GNL has changed its accounting year to January-December during 2000, to bring it in line with the accounting year of Saint Gobain. GNL's sales registered a small growth of one per cent to Rs. 152.10 crores, during April-December 2000 as compared to Rs. 150.80 crores during the corresponding period in the previous year.

The net profit however improved by 6 per cent to Rs. 10.90 crores during the period under review (Rs. 10.30 crores). The return on capital employed improved marginally to 15.73 per cent as on December 31, 2000 from 15.61 per cent as on March 31, 2000.

GNL's sales for the quarter ended March 2001 dropped by one per cent to Rs. 47.20 crores from Rs. 47.60 crores during the corresponding period in the previous year. It incurred a loss of Rs. 50 lakhs during the quarter under review as compared to a PBT of Rs. 4.30 crores during the corresponding period last year. The loss was on account of the Rs. 4.60 crore extraordinary expense towards VRS, for the employees at the Mora plant and Head office, implemented during February 2001. The performance for the quarter is not strictly comparable with the corresponding period last year due to the strike at Mora plant during February 2000.

With no major capex plans or additional investments in Saint Gobain ventures in the near future, the rating agency expects the conservative gearing (total debt/tangible net worth ratio of 0.22 times as on December 31, 2000) of GNL to be maintained.

Although any significant improvement in sales and profitability would be driven by an improvement in demand conditions, ICRA expects GNL's operating performance over the medium term to be supported by its strong management, market position and its technological edge. In addition, the significant unutilised bank limits provide adequate financial flexibility to the company.

- Corporate Bureau

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