CMP-1497
GMM PFAULDER LTD is a 100% debt free Subsidiary of 135 Years old Pfaulder Ltd headquartered in Rochester, New York USA. GMM Pfaudler Ltd(GMMPL)[ formerly known as Gujarat Machinery Manufacturers],is a 56 year old company established in 1962. The company is primarily engaged in manufacture of corrosion resistant glass-lined equipment used primarily in the Chemical, Pharmaceutical and allied industries.
The company was started with manufacturing glass-lined equipment in 1969, with technology acquired from Hampart, Hungary. In 1988, GMML entered into a technical and financial tie-up with Pfaudler Companies, US. Pfaudler, a world leader in the field, acquired a 40% stake in the company later on increasing holding to 51% thereby changing company name to GMM Pfaudler Limited in 1999.
GMML commenced manufacture of corrosion resistant fluoropolymer products in technical collaboration with Eldon Products, US, and filter dryers in collaboration with Rosenmund, Switzerland. The company has also entered into a technical know-how agreement with Chemineer Inc of USA for manufacture of certain chemical process equipment.
The company also manufactures Wiped Film Evaporators, Agitated Nutche Filters, Hiefficiency Mixing Systems, PTFE lined equipment etc apart from glass lined equipment in which the company is the largest producer in India. It’s main manufacturing plant is located at Karamsad in Gujarat.
Parent History-:
Pfaudler, Inc. is an American multinational company best known for the invention of glass-coated steel, its successful commercialisation and the subsequent production of storage tanks, reactors and other vessels for the brewing and chemical process industries. Pfaudler has been acquired by a succession of holding companies. At the current time, it is part of the Process Solutions Group of National Oilwell Varco , an American multinational public company.
National Oilwell Varco (NOV) is an American multinational corporation based in Houston, Texas. It is a leading worldwide provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry.The company conducts operations in more than 600 locations across six continents, operating through three
reporting segments: Rig Technologies, Wellbore Technologies, and Completion & Production Solutions.
National Oilwell’s two main predecessors, Oilwell Supply and National Supply, were founded in 1862 and 1893, respectively. These two companies manufactured and distributed pumps and derricks. In 1930, United States Steel acquired Oilwell Supply. In 1958, Armco Steel merged with National Supply. In 1987, National Supply merged with USS Oilwell to become “National Oilwell”.
Today Pfaudler has grown to be a truly global, multinational and diverse company with over 1,500 employees and manufacturing facilities on four continents.
Financials-:
- Compounded Sales Growth of the company over 3 Year period has been 22% while Compounded Profit Growth stands at 29%.
- Other Income has remained Steady over the last 3 years while company has remained completely debt free.
- Company has a very small Share capital which is of 1.46 Cr shares of 10 Each of which 75% share are held by the promoters while total number of shareholder is around 10,000 which leaves a very small free float in the market creating huge risk for bigger Funds or Investors to Invest posing liquidity risk while very favourable for small Investors.
- Revenue growth in Q1FY20 has put the company in a strong position for achieving its target for full year growth. Slowdown in chemical industry in china has led to production capacity shifting to India, which has triggered demand for equipment’s in domestic market. The capacity expansion in GLE segment is on track, which along with the recent acquisition in non-GLE segment augurs for high growth for the company.
Valuation / Future Prospects-:
Valuation GMM Pfaudler is well positioned in the industry owing to robust order backlog, high entry barriers and market leadership position in GLE business, strong brand name, and sticky clientele. Additionally, growing Non- GLE business, parent and subsidiary support and strong balance sheet backs it to command premium valuations. On backdrop of strong headwinds in margin owing to falling raw material prices, cost optimisation steps and increasing scale of operating in Non-GLE segment the company possesses high growth prospects.
Growth Story-:
The Company witnessed good traction in agro chemicals and specialty chemicals as Chinese chemical manufacturing is shifting to India, thus giving boost to domestic demand. Investments in the Agrochemical and Specialty chemicals sectors (~60% of GMM’s GLE revenues) have been the main drivers for growth with the companies in this space putting up capacities. Demand from pharmaceutical industry has been sluggish so far but it is expected to pick up soon with investments announced by Divis and Aurobindo in ‘Pharma City’. The company has started to receive enquiries from the Pharma City project in Telangana which will help to increase Pharma’s share in the coming quarters, giving a boost to total order book. GMM has strong order backlog and would be able to win further orders in next 2 months for achieving it FY20 revenue target.
Segment Classification-:
Glass Line Equipment (GLE) business contribution rises, capacity expansion in-line: GMM Pfaudler is the market leader in manufacturing of glass line equipments (>50% market share). In Q1FY20, GLE business grew strongly by 46% Y-o-Y and constituted ~64% of GMM’s revenues. The company has current capacity of ~2000 equivalent units (EU)/year (operating at full capacity) and is expected to increase it to 2400 EU/year by FY20 via debottlenecking and 3000 EU/year by FY21. The purchase of a new gas furnace has been shipped and would be commissioned by September 2019, margins expansion of 20-30bps is expected as they shift from electric furnace. Segments-:
- Glass Line Equipments
- Proprietary Product
- Heavy Engineering
Diversification Synergy-:
Diversifying through Non-GLE and serving new industry: Company has diversified its product portfolio and proprietary products has shown strong growth of 32% YoY. Company is also catering to new industry segment such as Oil & gas, petrochemicals and fertilisers giving new avenues to continue growth momentum. In Q4FY19, the Non GLE revenues grew to Rs. 54 Cr with substantial improvement of 340bps operating margin in proprietary business. In Heavy engineering segment, GMM has started talks with Engineer India Ltd and currently registration and other formalities are getting over. However being a cyclical business, Q1 posted weak results. Non-GLE contributed 35% during Q1FY20 and management has guided for 40% contribution for complete FY20.
Inorganic Expansion-:
Acquisition to strengthen Non-GLE: During Q4FY19, GMM acquired mixing solution business of Sudarshan Chemicals Ltd. with an investment of ~Rs. 28.5 Cr.This acquisition would help the company to access bigger market segments like metals, mining, oil & gas etc. We expect the Non-GLE segment to grow at 16% CAGR over FY19A- FY21E owing to opportunities in the application industries.
Other Highlights-:
• Exports that yields higher margin remained steady at ~12% of GMM’s revenues in Q1FY20 vs 10% in Q4FY19.
- In Q1FY20, GMM’s subsidiary, Mavag posted revenues of around Rs20 Cr and growth would be tepid due to slowdown in Europe’s economy and it is facing pricing pressure.
- Raw material prices have fallen and would be driving margins expansion further in Q2FY20.
- During the quarter company sold 550 EU while realisation over last 12 months were up 5%-7%.
(This is for reference Purpose only. All readers are advised to consult their investment advisor for any advise. The writer/ Group admin or any other person would not be responsible for your loss).
