GMM Pfaudler Ltd.
Recommendation
BUY
CMP
Rs.451
Target Price
Rs.745
Sector
Industrial machinery
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Stock Details
BSE Code
505255
NSE Code
Not listed
Bloomberg Code
GMM IN
Market Cap (Rs cr)
660
Free Float (%)
25%
52- wk HI/Lo (Rs)
475/216
Avg. volume BSE
(Quarterly)
33680
Face Value (Rs)
2
Dividend (FY 16)
3
Shares o/s (Crs)
1.46
Relative Performance
1Mth
3Mth
1Yr
GMM Pfaudler
Sensex
23.9%
28.6%
67%
-1.5%
1.3%
3%
500.00
400.00
300.00
200.00
Shareholding Pattern
Sept’ 16
Promoters Holding
75%
Institutional (Incl. FII)
1.5%
2.4%
Corporate Bodies
Public & others
21.1%
Nandish Shah – (+91 22 3926-8021)
Research Analyst
[email protected]
Year
FY13
FY14
FY15
FY16
Net Sales
213
279
308
292
Growth %
-15.7
31.0
10.3
-5.1
EBITDA
15.3
33.2
34.6
35.0
Engineering the Growth
Established in the year 1962, GMM Pfaulder (GMM) is one of the leading suppliers
of Glass Lined Equipment and Non-Glass Lined equipment mainly for
pharmaceutical (API) Agrochemical, chemical companies. It has a state of the art
manufacturing facility spread over 17 acres of land at Karamsad, Gujarat. GMM
currently employs more than 300 people and has nearly 8 regional sales offices
across India.GMM has one 100% owned subsidiary MAVAG AG located in
Switzerland. Mavag is a supplier of highly engineered Filtration & Drying Equipment
and Mixing Systems to the pharmaceuticals, biotech and fine chemicals industries.
Investment Rationale
Outsourcing from Parent can drive the growth :
Currently around 10% of the revenues for GMM come from the export markets and
negligible revenue from parent company Pfaudler. New owner at the holding
company level has mandated Pfaudler to reduce cost which in turn has opened an
opportunity for GMM to outsource from India. First supply of reactor to parent is
getting dispatched and this can open up big opportunity for GMM in coming period.
Pfaudler has revenue of around $170-200mn and is the largest suppliers of Glass
Lined vessel in the world with market share of 40-50% Apart from this GMM is also
pursuing direct sales of Glass Lined and Non Glass Lined equipment to South East
Asian, African and Middle East countries. GMM has appointed several agents in the
Middle East, Africa, South East Asia and Eastern European countries.
To focus on Non-Glass Lined equipment market:
GMM plans to focus on the non-glass lined and Tailor made equipment markets to
grow its revenues and improve its margins. Currently Glass Lined equipment is the
biggest segment in GMM portfolio of products and contributes 70% of revenue.
Management plans to focus more on the Tailor made equipment, Filtration and
drying equipment to mine the existing customer with additional products.
Management is targeting 50:50 revenue shares of Glass and Non Glass equipment in
long run.
Improvement in Operating margins via cost rationalization:
GMM has initiated a cost reduction and operational efficiency program to improve
profitability. Main areas of focus are reduction in employee cost, power and fuel cost
and change in sales product mix along with export to improve margins. On a
consolidated basis, operating margins have recovered from 7.7% in FY 13 to 12% in
FY16 and while the PAT margins have improved from 4.6% in FY13 to 6.5% in FY16.
Valuations and Recommendation
Though the Sales have grown by only 11.5% CAGR from FY13 to FY16, EBIDTA, PBT
and PAT have grown by 28.7%, 30.5% and 27.6% CAGR respectively. ROCE has
improved from 12% in FY13 to nearly 18% in FY16 and If we excluded free cash of
Rs.67cr in the balance sheet than the ROCE for FY16 is 26%. Our initial estimate
suggest GMM to report consolidated sales, EBIDTA, PAT and EPS of Rs. 355 cr, Rs. 60
cr, Rs. 36.2 and Rs. 24.75 in FY17 and Rs.426 cr, Rs. 72.5cr, Rs. 43.5 cr and Rs. 29.8
per share in FY18. At current market price, GMM trade at 18.2x and 15.1x FY17 and
FY18 earning. We recommend a BUY on GMM with a target price of Rs. 745, upside
of 35%.
Margin %
7.2
11.9
11.3
12.0
PAT
9.7
19.1
18.9
20.1
Margin%
4.6
6.8
6.1
6.9
EPS
6.6
13.0
12.9
13.8
PE
68
34.6
35
32.8
EV/EBITDA
40.4
18.6
17.3
16.9
ROE %
8.1
13.7
12.5
12.1
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GMM Pfaudler Ltd.
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Investment Rationale
 Outsourcing from Parent can drive the growth :
Currently around 10% of the revenues for GMM come from the export markets and negligible
revenue from parent company Pfaudler Inc. Pfaudler Inc is held by Pfaudler Holding S.a.r.l
Luxembourg which in turn is held by Deutsche Beteiligungs AG, a Private Equity fund, listed on
German Stock Exchange. In December 2014, Deutsche Beteiligungs AG (Private equity) acquired
Pfaudler Inc from National Oilwell Varco Inc. The new owner at the parent company level has
mandated Pfaudler to reduce cost which in turn has open an opportunity for GMM to outsource
from India. First supply of reactor to parent is getting dispatched and this can open up big
opportunity for GMM in coming period. Pfaudler international has revenue of around $170-200mn
and is the largest suppliers of Glass Lined vessel in the world with market share of 40-50%. Apart
from this GMM is also pursuing direct sales of Glass Lined and Non Glass Lined equipment to South
East Asian, African and Middle East countries. GMM has appointed several agents in the Middle East,
Africa, South East Asia and Eastern European countries GMM has also planned to increase direct
sales.
 To focus on Non-Glass Lined equipment market:
GMM plans to focus on the non-glass lined and Tailor made equipment markets to grow its revenues
and improve its margins. Currently Glass Lined equipment is the biggest segment in GMM portfolio
of products and contributes 60-70% of revenue. Management plans to focus more on the Tailor
made equipment, Filtration and drying equipment to mine the existing customer with additional
products. Management is targeting 50:50 revenue shares of Glass and Non Glass equipment in long
run.
 Offering more solution:
In FY16, the management has taken key initiative like focusing on Key Account management.
Through this initiative, GMM aims to improve revenues by being closer to their customers and
increasing customer spend through cross-selling, relationship management and improved service
and support. GMM plans to focus on giving engineering solutions to its clients rather than just
supplying equipment. Over a period of time it want to emerge as engineering solutions company.
 Improvement in Operating margins via cost rationalization:
GMM has initiated a cost reduction and operational efficiency program to improve profitability. Main
areas of focus are reduction in employee cost, power and fuel cost and change in sales product mix
along with export to improve margins. On a consolidated basis, operating margins have improved
from 7.7% in FY 13 to 12% in FY16 while the PAT margins have improved from 4.6% in FY13 to 6.5%
in FY16.
 High liquidity position coupled with consistent dividend paying track record:
GMM is a zero debt company and has net cash and cash equivalent of around Rs. 66cr as at FY16
which is nearly Rs. 44 per share. GMM has consistently paid dividend since 1997 and has maintained
25% dividend pay-out in the past. As per the management, GMM plans to utilize the cash balances
for acquisition in the near future. The acquisition can even further increase the growth rates of
company.
 Revival in the operation of Subsidiary:
GMM acquired MAVAG AG, Switzerland in Jan 2008. Mavag AG is a wholly owned subsidiary of the
Company, located in Neunkirch, Switzerland. Mavag’s product range includes the state-of-art
Spherical Dryers, Filter Dryers, Funda Filters and Magnetic Drive Agitators. Mavag specializes in
sterile and high containment applications. Customer base of Mavag include pharmaceuticals, biotech
and fine chemicals industries. Mavag’s high end technology for top driven Spherical Dryers, Agitated
Nutsche Filters & Filter Dryers for sterile applications and Magnetic Drive Agitators has
complemented the Company’s position as a complete process solution provider for pharmaceuticals,
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GMM Pfaudler Ltd.
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bio pharmaceuticals, chemicals and allied segments. MAVAG financial had shown declining trend in
last three year with revenue declined from Rs.87.6cr in FY14 to Rs.66.92cr in FY16 and PAT declining
from Rs.4.88cr in FY14 to Rs.0.96cr in FY16 but in H1 FY17 the trend has reversed with revenue of
CHF 7.7 mn (Rs.50.5Cr) and PAT of CHF1mn (Rs.6.7cr) GMM is looking the grow the business of
Mavag also.
 High growth industries served:
GMM caters to the requirement of Pharmaceuticals, specialty chemicals and agro chemicals
industries in the glass lined equipment space. As per reports, nearly 520 Indian Pharmaceutical
manufacturing facilities are registered with US FDA and drugs worth an estimated US$25 Bln are to
go off Patent by 2016 resulting in increased production of bulk and generic drugs. As per the thumb
rule, in case of Rs 100 is spent by a Pharma company on Plant and Machinery, nearly Rs. 7-10 can be
GMM wallet share in it. The target market size for GMM in Glass line is around Rs.300-350cr and
GMM has over 50% market share. The Glass Lines Equipment industry is growing at 10-12% pa in
India.
Background of the promoters and Business
Background of the Promoter: 50.4% of the equity shares are held by Pfaudler Inc, 24.6% is held by
the Patel family and the rest is with the public. Patel family runs the day to day management of
GMM Pfaudler and Mr Tarak Patel is the managing director. Pfaudler Inc is held by Pfaudler Holding
S.a.r.l Luxembourg which in turn is held by Deutsche Beteiligungs AG, a Private Equity fund, listed on
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German Stock Exchange. On 17 December 2014, Deutsche Beteiligungs AG (Private equity)
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acquired Pfaudler Inc from National Oilwell Varco Inc. On 19 December 2014 private equity
promoters made an open offer to buy back the shares at Rs. 245.85 per share. 2 directors are on the
board of GMM Pfaudler representing the private equity owners.
Business verticals: GMM has 5 business verticals namely:

Glass Lined Equipment (GL): The GL vertical accounts for nearly 70% of GMM revenues.
GMM is a market leader in this segment. It has more than 50% market share in the Glass
Lined equipment segment in India which is growing at nearly 10-12% p.a. Total Market size
of Glass lined equipment in India is approximately around Rs. 300-350 cr.

Tailor made process equipment (TMPE): GMM has been focussing on growing its TMPE
business as it has high growth potential along with higher profitability. GMM has created a
competitive advantage in this segment by leveraging its strong brand, engineering
capabilities and proven track record of manufacturing complex equipment.

Mixing systems (MS): With the Pharmaceuticals and specialty chemical companies’ looks at
innovating solutions to improve their productivity, GMM is in a position to capture this
opportunity.

Engineered Systems (ES): GMM has extensive experience in the designing and
manufacturing complete Modular Skids built around their GL and F&D equipment. More
and more Pharmaceutical and Biotech companies are moving towards automated modular
process skids, which will contribute to the growth going ahead.

Filtration and Drying (F&D) segment: The F&D segment is a logical extension of their GL
business as the target customers remain the same. To improve the margins and
profitability, GMM plans to target critical application such as high potency and sterile
applications where GMM has a competitive advantage.
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GMM Pfaudler Ltd.
Key Risk and concern
Lower historical growth: In the last 2 years, revenues have remained flattish or have recorded degrowth. Lack of order can impact sales going ahead.
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Valuation and Recommendation
Though the Sales have grown by only 11.5% CAGR from FY13 to FY16, EBIDTA, PBT and PAT have
grown by 28.7%, 30.5% and 27.6% CAGR respectively. ROCE has improved from 12% in FY13 to
nearly 18% in FY16 and if we excluded free cash of Rs.67cr in the balance sheet than the ROCE for
FY16 is 26%. Our initial estimate suggest GMM to report consolidated sales, EBIDTA, PAT and EPS of
Rs. 355 cr, Rs. 60 cr, Rs. 36.2 and Rs. 24.75 in FY17 and Rs.426 cr, Rs. 72.5cr, Rs. 43.5 cr and Rs. 29.8
per share in FY18. At current market price, GMM trade at 18.2x and 15.1x FY17 and FY18 earnings.
We recommend a BUY on GMM with a target price of Rs. 745, upside of 35%.
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GMM Pfaudler Ltd.
Standalone Quarterly Financials
Pa r ti c ul a r s
Net Sa l es
Other Operating Income
Tota l I nc ome
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Operating Expenses
Gr os s Pr ofi t
Gr os s Ma r gi n (% of net s a l es )
(Rs in Cr)
Q2 FY1 7
Q1 FY1 6
QoQ%
Q2 FY1 6
YoY%
62.38
56.38
10.65%
53.78
15.99%
0.69
0.76
6 3 .0 8
5 7 .1 4
10.39%
5 4 .7 7
15.16%
28.61
27.12
5.51%
25.55
11.98%
3 4 .4 7
3 0 .0 2
1 7 .9 4 %
2 9 .2 2
1 7 .9 4 %
5 5 .2 5 %
5 3 .2 5 %
0.99
5 4 .3 4 %
Employee Expenses
7.43
7.23
2.75%
6.53
13.73%
Other Expenses
16.19
13.99
15.72%
14.78
9.60%
Tota l Expendi tur e
5 2 .2 3
4 8 .3 4
8 .0 5 %
4 6 .8 6
1 1 .4 8 %
EBI TDA
1 0 .8 4
8 .8 0
7 .9 2
3 6 .9 7 %
1 7 .3 8 %
1 5 .6 1 %
Depreciation
% of net s al es
1.87
1.70
9.5%
1.70
9.9%
EBIT
8.98
7.10
26.5%
6.22
44.4%
Interest
0.17
0.17
-2.87%
0.17
-2.87%
PBT & OI
8.81
6.92
27.3%
6.05
45.7%
Other Income
0.55
0.76
-27.6%
0.78
-28.8%
Forex
0.00
0.00
PBT
9 .3 6
7 .6 8
Exceptional Item
1 4 .7 2 %
0.00
21.8%
6 .8 2
37.3%
0.00
0.00
9 .3 6
7 .6 8
21.8%
6 .8 2
37.3%
Tax
3.05
2.62
16.7%
2.24
36.4%
Tax / PBT
0.33
0.34
6 .3 1
5 .0 7
PBT After Exc epti on
Net Pr ofi t
% of net s al es
0.00
0.33
2 4 .5 %
4 .5 8
1 0 .1 1 %
8 .9 9 %
8 .5 2 %
Adj us ted Net Pr ofi t
6 .3 1
5 .0 7
4 .5 8
Other Comprehensive Income
0.00
0.00
0.00
6 .3 1
5 .0 7
4 .5 8
2.92
2.92
2.92
4.3
3.5
3.1
Tota l Compr ehens i ve I nc ome
Equity
EPS (Unit Curr.)
3 7 .6 5 %
Source: Company data, Nirmal Bang Securities



GMM sales have grown by 16% YoY and 11% QnQ with Chemical process equipment business growing by 16%
YoY and Filtration/ separation equipment business growing by 80% YoY.
Gross margins improved from 54.3% from Sept 2015 to 55.3% in Sept 2016 and EBIDTA margins improved
from 14.7% to 17.4% in Sept 2016 on the back of reduction in cost and change in sales mix.
PBT increased by 37% YoY and 21.8% QoQ and PAT improved from 37.6% and 24.5% during the same period
respectively.
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GMM Pfaudler Ltd.
Consolidated Financials
Income Statement (Rs. In Cr)
FY13
FY14
FY15
FY16
Balance Sheet (Rs. In Cr)
Sale of Services
212.9
278.8
307.6
292.1
Other operating income
0.00
0.00
0.00
0.00
Revenues - Net
212.9
278.8
307.6
292.1
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% change
FY13
FY14
FY15
FY16
Issued Share Capital
2.9
2.9
2.9
2.9
Prefernce share capital
0.0
0.0
0.0
0.0
Reserves & Surplus
116.4
136.0
147.5
163.9
Net Worth
119.3
139.0
150.4
166.8
0.0
0.0
0.0
21.0
5.3
0.0
23.9
2.8
44.9
196.0
54.9
0.9
11.0
29.1
61.3
29.0
9.8
0.0
196.0
4.7
0.0
28.5
4.4
58.0
234.6
52.6
1.6
11.6
29.9
85.1
43.2
10.6
0.0
234.6
3.9
0.0
35.7
4.7
39.6
234.4
46.5
4.8
11.7
47.0
74.3
38.0
12.0
0.0
234.4
3.8
0.0
31.2
4.1
49.7
276.7
53.4
4.3
13.7
53.6
70.9
48.7
32.1
0.0
276.7
FY13
FY14
FY15
FY16
-15.7%
31.0%
10.3%
-5.1%
EBITDA
15.3
33.2
34.6
35.0
EBITDA margin
Depreciation
Operating income
Interest
Other Income
Forex
PBT
Exceptional (Gain)/ Loss
PBT
Tax
PAT
Adj PAT
Shares o/s ( No. in Cr.)*
EPS
Cash EPS
Quarterly (Rs. In Cr)
7.2%
7.2
8.10
0.7
6.1
0.0
13.4
0.0
13.4
3.7
9.7
9.7
1.5
6.6
11.6
11.9%
8.9
24.32
1.1
3.8
0.0
27.1
0.0
27.1
8.0
19.1
19.1
1.5
13.0
19.2
11.3%
9.8
24.81
0.5
3.9
0.0
28.2
0.0
28.2
9.3
18.9
18.9
1.5
12.9
19.7
12.0%
8.1
26.84
0.7
3.6
0.0
29.8
0.0
29.8
9.7
20.1
20.1
1.5
13.8
19.3
Dec.15
Mar.16
Jun.16
Sep.16
Total Liahilities
Net Fixed Assets
CWIP
Investments
Cash & Bank
Inventories
Sundry Debtors
Loans & Advances
Misc Exp
Total Assets
Cash Flow (Rs. In Cr)
EBITDA
Dep
PBIT
Interest
Other Inc.
PBT
Tax
60.53
9.10
1.60
7.50
0.16
0.47
7.80
2.71
59.65
9.94
1.68
8.26
0.25
0.77
8.77
2.99
57.14
8.80
1.70
7.10
0.17
0.76
7.68
2.62
63.08
10.84
1.87
8.98
0.17
0.55
9.36
3.05
EBITDA
Exceptional and forex
Change in WC
Tax
CF from Operations
Capex and change in WIP
Investment
Other Income
15.3
0.0
-7.6
3.7
11.5
5.9
2.5
6.1
33.2
0.0
19.9
8.0
61.1
0.1
0.6
3.8
34.6
0.0
-3.5
9.3
40.5
0.4
0.1
3.9
35.0
0.0
24.3
9.7
68.9
16.1
2.0
3.6
EO & forex
PAT
EPS (Rs.)
0.00
5.09
3.49
0.00
5.78
3.96
0.00
5.07
3.47
0.00
6.31
4.32
Cash from Investment
Dividend paid
Share Capital and Premium
14.45
4.6
0.0
4.57
5.1
0.0
4.38
5.2
0.0
21.69
5.3
0.0
Operational Ratio
FY13
FY14
FY15
FY16
Loan
0.0
0.0
0.0
0.0
Adj EBITDA margin (%)
EBIT margin (%)
Adj.PAT margin (%)
Adj. ROE (%)
ROCE (%)
Debt Equity Ratio
7.2%
3.8%
4.6%
8.1%
11.9%
0.0
11.9%
8.7%
6.8%
13.7%
20.3%
0.0
11.3%
8.1%
6.1%
12.5%
19.1%
0.0
12.0%
9.2%
6.9%
12.1%
18.3%
0.0
Interest Paid
Others
Cash from Financing
Net change in Cash
Opening cash
Closing Cash
0.7
-0.5
4.8
30.8
17.2
29.1
1.1
-0.6
5.6
71.3
29.1
29.9
0.5
-0.8
5.0
49.8
29.9
47.0
0.7
-0.1
5.8
96.5
47.0
53.6
Valuation Ratio
FY13
FY14
FY15
FY16
Per Share Data
FY13
FY14
FY15
FY16
Price Earnings (x)
68.0
34.6
Price / Book Value (x)
5.5
4.7
EV / Sales
2.9
2.2
EV / EBIDTA
40.38
18.60
Source: Company data, Nirmal Bang Securities
35.0
4.4
2.0
17.34
32.8
3.9
2.0
16.94
Adj EPS
BV per share
Cash per share
Dividend per share
6.6
81.7
27.47
2.80
13.0
95.2
28.48
3.00
12.9
103.0
40.23
3.00
13.8
114.3
46.13
3.00
Revenue including OI
Long term provisions
Net Deferred Tax liahilities
Total Loans
Trade Payahles
Provisions
Other CL
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GMM Pfaudler Ltd.
Disclaimer:
Nirmal Bang Securities Private Limited (hereinafter referred to as “NBSPL”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and MCX stock Exchange Limited. We have been granted certificate of Registration as a Research Analyst with
SEBI. Registration no. is INH000001766 for the period 23.09.2015 to 22.09.2020 .NBSPL or its associates including its relatives/analyst do not
hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst NBSPL or its associates/analyst has not
received any compensation from the company covered by Analyst during the past twelve months. NBSPL /analyst has not served as an officer,
director or employee of company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst. The
views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the
market conditions/risks involved before making any investment decision.
Nirmal Bang Research (Division of Nirmal Bang Securities Pvt. Ltd.)
B-2, 301/302, Marathon Innova,
Opp. Peninsula Corporate Park,
Off Ganpatrao Kadam Marg,
Lower Parel (W), Mumbai-400013
Board No. : 91 22 3926 8000/8001
Fax. : 022 3926 8010
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