GMM Pfaudler: A safe way to play the Pharma/Chemical cycle


GMM Pfaudler Acquires Industrial Mixing Solutions Division (IMSD) of Sudarshan Chemicals Industries Ltd.

Mumbai, April 12th, 2019: GMM Pfaudler Ltd (GMMP), a leading supplier of process equipment to the pharmaceutical and chemical industries, has acquired the Industrial Mixing Solutions Division (IMSD) of Sudarshan Chemical Industries Ltd., Pune. The transaction is subject to completion of specific conditions.

PL Capital Markets Pvt. Ltd., part of Prabhudas Lilladher Group, is the exclusive M&A Advisor to GMMP. L&L Partners (formerly, Luthra & Luthra, Law Offices) are the legal advisors to GMMP on this transaction.

The acquisition of IMSD would enhance GMMP’s industrial mixing business vertical by bringing in new products, technologies, customers and industry segments. Significant cost synergies are expected due to economies of scale, value engineering and by leveraging the strengths of both the organisations. The two businesses once consolidated would become India’s premier industrial mixing solutions provider.

Management Comment

Commenting on the acquisition, Mr. Tarak Patel, Managing Director of GMM Pfaudler said “We are pleased to announce the acquisition of Industrial Mixing Solutions Division (IMSD) from Sudarshan Chemical Industries Ltd. With this acquisition we will create a business vertical that will have a greater focus in the industrial mixing space and will provide our customers with innovative mixing technologies which will help them improve efficiencies and reduce costs.”

He further added "We believe that this acquisition is a strategic fit and will reinforce our strategy of growing profitably and creating long term value for our shareholders.”

Commenting on the divestment, Mr. Rajesh Rathi, Managing Director of Sudarshan Chemical Industries Ltd said “The divestment is in line with our stated objective of focusing on our core business of pigments and follows our recent divestment of masterbatch business.”

Ernst & Young LLP acted as the exclusive M&A advisor to Sudarshan for the transaction.


I understand that Pfaundler Inc holds approx 50% holding in the co.
What exactly is contribution of Pfaundler to this co.

I believe technology would be one aspect. Can any1 throw some light
Since there is news that PE fund of Pfaudler may exit after 4-5 years as per concall.


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Order backlog: Order backlog more than 50% of last year. Order book is well diversified across all products line and good visibility for FY. More than 60% of backlog is from GL.

Margins:Gross margin was low due to product mix. Generally we have 70%of revenue from GL. Q4 we had 37% from NGL business. Certain large order with low margins was executed in Q4. Raw material cost passed on with quarter lag.Margins should improve further this FY as we are holding on to price increases taken. Effect of low raw material cost will reflect in next quarters. RM cost is on reducing trend.

Glass liner equipment: GMM market share is 60%. Nobody else has the capability to do larger turnkey orders like us. Order size and quality requirement from chemicals/agro chemicals is much higher and they will come to us. Customers are willing to pay premium price to GMM. PI industry order for 27 equipments worth 25 cr order entirely given to GMM.
First time we crossed 200 eq units per month, going ahead that is our target.
GL margins are stable and will improve further with low RM prices and present backlog which has higher margins.
Sales volume: more than 2000 eq units for fy19.
Avg price /eq units is 15.5 lac for present backlog.

Heavy engineering: Growth was good but margin was low due to execution of strategic order of 15Cr with lower margin in Q4. With good profitable order book and export orders margins will improve from 16 to 17% for FY20.

Proprietary products: Shown good growth and order book is strong. Filtration equipments comes in the downstream of GL reactors. If GL business is strong even filtration equipment will do well. Our market share in filtration and drying equipment is low.
Market size is 400 cr for filtration and drying equipment and growing as GL business.
Many customers are moving to agitator nutra filters which we make. 70% of the market is controlled by the top 4 players .

Mavag: sales were low by 2millions due delay in shipment of two large equipment which impacted margins by 1 million. For fy20 will reach 15-16 millions of revenue with EBIT of 1.5 million.
Exports:10% of GL revenue is from exports. Current order book 10-15% is for exports. Export will happen through Pfaudler as they have good network. Not much traction happened on indigenisation of Pfaudler products. GMM focussed on domestic presently.

Expansion /capex: capex of 17Cr for new manufacturing shed which is commissioning in June and new furnace purchased last year will be installed by Sept.
For FY20, GL capacity expansion to 2400 eq units and 20% more for next year. Outsourcing and improving internal efficiency to increase output.

Acquisition : Acquired mixing solution business of Sudarshan chemicals. Revenue of 32 Cr with EBIT margins 22% for FY19. We paid 4 times EBIT for acquisition. GMM was already into mixing solutions with sudarshan unit, mixing business will be 60- 70 cr business. Sudarshan was catering to different industries like fertilisers,minerals,metals which gives good opportunity for GMM to grow.
Total market size of mixing solutions is 250-300Cr with better margins. Its widely used across industries. Even Though we have technology we may need technology partner to develop it further.

Competition: 4competitors in GL business. We are trying to maintain balance between gaining market share and maintaining margins.

5 year plan: Our 5 year plan which will end on 2020 is as per target. We already in the process to finalize plans for the next five year to take business further.
Dicl: invested


Q4 & FY19 - Results Key Highlights
GMM Pfaudler Ltd has continued its growth momentum and posted a Standalone Revenue of INR121 crores, increased by 37% YoY basis. Company’s EBITDA (ex OI) grew by 18% YoY basis to INR 17 crores. Net Income came at INR 11 crores in this quarter, rise of 28% YoY basis.

Their core and largest segment i.e. Glassline segment has posted revenue of INR76.3 crores, a rise of 19% from last year same quarter. EBIT margin for this segment has remained stable at 21.6% in Q4FY19.

EBIT from Heavy Engineering segment has fallen sharply to INR0.5 crore in Q4FY19. The management has mentioned that some large orders got delayed and shifted to Q1FY20.

Overall the gross margins have fallen by 800 bps YoY to 49.6% in Q4FY19 on the back of higher COGS.

The company sold more than 2000 EU in the Glass Line segment in FY19.

Lower margins from Heavy Engg segment has dampened the profitability margins

Disc; Watching from side lines Not invested



Revenue for Q1 grew by 40%. Ebitda margins increased from 16 to 18%.
Order visibility: good order backlog for next two quarters. To grow at 25%.

Outlook on industry and macroeconomic factors: Q1 order enquiry remained strong. Considering the current overall economy & liquidity issue there may be possibility of order slow down in future.There may be impact on auto slow down as many speciality chemicals used in auto industry.
Current China situation continue to benefit Indian agro chemical and specialty chemical industry and capex is continuing.
Indian pharma industry which has not done much capex from last few years which is expected to revive now. Telangana(Hyderabad) pharmaceutical companies started investing. Some industrial areas have come under red zone by recent NGT orders which will make companies to relocate.

Raw materials: current softening of raw materials helps to expand margins for Q3/Q4
Price increase of 5 to 7% over the last few quarters mostly due to rise in RM cost.

Glass liner: margins are low due to high RM cost. 50% of order book…new demand: replacement is 70:30.
Proprietary products: Good order backlog. Large orders with better margins from Pfaudler USA and China. Expect more orders from them. Mavag has good technology for proprietary products and support with exports.
In India GMM to focus on high margin and critical products like filtration and drying equipment. We have advantage of designs from Mavag. Proprietary products will have better growth than GL segment.

Heavy eng :Difficult and cyclical business but confident of scaling up. Got approvals of Engineers India ltd. Started entering new areas of oil and gas sector. Looking for critical equipment with eng requirements like heat exchangers,pressure vessels,columns. Building capacities, rolling machine & people with a track record in heavy eng. To reach 20% of GMM revenue in future.

Mavag: not to expect high growth considering the slow down of Europe. Will do 15 to 16 M( Swiss Franc)sales and 2M profit.

Mixing solution business: integration with acquired Sudarshan chemical is going on. GMM will get access to new sectors like mines, minerals. Looking to double the revenue from mixing solutions.

Exports: 12% of revenue and continuing for FY20. Margins are 1.5 times the domestic sector.
Capex/capacity: Routine maintenance capex 3% of revenue. Capex done for gas furnace will be installed by October.( results in 30bps margin expansion). ?Capacity of 3000 eq units. Produced 550 eq units in Q1. ?Target of 2800 eq units for year.


Results for the Qtr ending Sept’19…came out y’day afternoon
Could not have asked for anything better. Systematic execution, in my opinion
Discl - got a tracking position

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While studying the company, came across this interesting research report (though bit dated but covers broad triggers for the company):

Also, latest transcript on this company is a good read:



*Healthy backlog of order in all three segments. GL is >50% backlog…Heavy eng is around 20% and the rest is from proprietary products. Orders were lower in Q2 but has improved again to 160 cr in Q3.

Chemical companies continue to invest. Not witnessed any slow down in agro and speciality chemicals.
Pharma companies(Hyderabad based) started doing capex. Many pharma companies will revamp their factories. Business from Hyderabad pharma city will take more than one year to materialise.

Udan:next 5 year plan: will come into effect from April 2020 for next level of growth. May do M&A to improve growth.

Capex/capacity plan: New gas furnace operationalised month back which will make present GL capacity of 200 eq units/month more sustainable.
Ordered for two more gas furnaces which will improve both capacity and margins from Q2 of FY21

Raw materials: RM required for next few quarters have been purchased. Typically GL business prices are fixed and sales prices are adjusted as per RM cost when we anticipate increase in RM. In Heavy eng business, steel is procured based on each order. Ultimately increase in RM is pass through with a few months lag.

Heavy engineering: have strong order backlog of more than 6months. Good revenue from Q1 of FY21.
Current capacity can have revenue of 150-200 cr depending on order mix.
Depend on oil & gas refineries,fertilizers ,chemicals industries. we are L1 in some tenders of Oil and gas refineries and recently registered with EIL.
More competitive area and less margins than GL business.
Plan to increase Heavy eng business to 30-40% of revenue in the future.

Glass liner equipment: 30% growth lead by both price and volume.1600 units for 9months. Revenue of 16 lac /eq unit.
Presently have 800 units of backlog. With additional gas furnace commissioned both GL capacity and profitability will increase.
Demand is mainly led by new capex …replacement demand by pharma companies with 8- 10 year old plant may start .
Market size is 800 cr…we have around 55% market share. Incase demand slows down we can gain market share.

Proprietary products: expect good ramp up in all divisions. Margins depend on order mix and competition which is high.
ANFD: follows GL business with good potential. GMM is not market leader and dont have the capability to get market share.
Acid recovery product line one or two orders may get executed(10-20cr).

Mavag: with slowdown in Europe,Mavag revenue will be same as last year and remains profitable. Looking for new markets for Mavag.

Exports: Currently 10% of revenue, plan to increase exports to 20% of revenue in the long term.
Exports is focussed area for Heavy eng business and gained traction through Pfaudler network in the USA,Saudi,Middle East market…etc. For GL business India remains focussed area.

Competition: Dedietrich stopped taking orders at Hyderabad plant and they may be reducing their exposure to India. Other than GMM and HLE, there are three competitors in India doing 30 to 70cr business.


Hi guys,
does anyone have a view on how to value this stock? Considering that it is linked so intricately with the capex cycle of pharma, speciality and agrochem?

Base don my estimates next year PAT on a consol basis will be about 100-110cr (Kindly correct me if this seems off)

Based on the same stock seems to be valued at 35-37x (based on today’s mcap of 3700cr)

Does it seem like the company might be richly valued now?

In my experience it is very difficult to have a fixed valuation or even a close valuation range. At the cost of repetition valuation is a function of intrinsic parameters of a business like earnings, quality of earnings, management quality, growth, longevity, opportunity size. Since business do not exist in isolation, valuation is also a function of perception, liquidity and other comparable investment opportunities. My suggestion is that instead of being fixated on a multiple or a close range in terms of valuation, take a much broader valuation range, and act accordingly. The other thing is to control your allocation in a way that in case of a negative outcome/event the impact is not very significant.
When I started the thread one of the first few comments was on valuation.


Is it now not too expensive for a capital good company?

Is not HLE better in terms of valuation?

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For the last few days I was puzzled about the rise and rise of this scrip. But now, probably, I have found the reason behind it. This company is on radar of Saurabh Mukharjee led Mercellus Little Champs PMS portfolio. Saurabh is inderectly talking about GMM Pfaudler. Where Mr. Saurabh Mukharjee holds the stake the PE of that stock shoots up. Probably I am right in my analysis. Here is the source of the my analysis.


GMM Pfaudler had a PE of 10-11 in 2013 and now it is 55. If one would have used DCF method in 2013 to evaluate this business then the whole math would have gone wrong. Thus, in foresight, one should factor in the potential rerating or derating of a business in future while evaluating any business.


the very fact that a stock advisory firm is bullish or is buying a particular stock, going with that conviction and buying the stock is horribly wrong most of the times( Rain industries,Nocil, Va tech bawag being some examples)
The stock for sure is going thru a thing called “irrational exuberance”
I have been invested since 1000 levels( a little amount) courtesy @hitesh2710 sir who pointed out this stock as a chemicals proxy play 7-8 months when I asked him about chemicals companies in his radar.
Having said that, there is no method in the madness with which the stock is up 8-10% everyday for the last 20-25 trading sessions.
Let us not forget some hindsight:(Which is good most of the times, although we make fun of it)

  1. It is a small cap cyclical stock (yes the industries it cater to is a cyclical one)
  2. The same exuberance was there in 2017 for Graphite stocks- see where they are now
  3. PE expansion of almost twice in a month: well its your money- do not want to add anything.
  4. Stock is trading at 56 PE and its a super cyclical play

My apologies if I sound harsh, but I am acting a devils advocate :slight_smile:

Disclosure: had till recently, but looking at its movement, exited now.
But indeed company and management is quite good.


Recent management interview on Bloombergquint:

Few summary points (request to verify with video):

  • Huge tailwinds from chemical and pharma industry
  • EBIDTA margin increased by ~400bps due to incremental revenue and kicking of operating leverage
  • No. market leader and able to dictate the prices
  • Quality is very critical and we are able to provide that
  • Gas furnaces boosted profitability due to near monopoly in Indian market
  • Exports could rise from 12% to ~30%
  • Margins could be maintained at least for 1 to 2 years
  • Export business on heavy engineering expected to continue to pickup due to low cost arbitrage from parent
  • Revenue contribution of 30%-40% could come from heavy engineering; Market is enormous
  • 2 furnaces from key Japan customers will come during June-July 2020; Some orders went to competitor due to lack of capacity
  • New business lines will be coming up

Disclaimer: This is not a buy/sell recommendation. Kindly do your own due diligence or consult your advisor.


The company’s growth has been phenomenal in 2020. Is it because of Corona Virus Outbreak on Dec-31-2019 and all the pharma & speciality chemical companies in India have been on a rise. Is this the reason for such a sudden surge in the GMM Pfaudler share price?

Sorry, the timeline does not match, volumes jumped on 17 Jan and stayed elevated after, covid-19 had not caused a single death that time. First death only happened after 28 Jan. Q3 results were out on 23 Jan and that has more to do with this.
There is a structural shift in chem and pharma etc. to India and equipment demand has been very good. GMM has enjoyed constant growth since 2013, 25-30% cagr.


Disc: Invested in HLE Glascoat since yesterday, 5% of holdings.


People familiar with the below questions, kindly reply.

  1. Does GMM Pfaudler have R&D? I could not find any expenses or assets for R&D. If Pfaudler is trying to provide technology, I cannot find any royalty paid to Pfaudler by GMM for the technology. Without R&D such companies will collapse when any able competitor from China or Europe steps in the country.
  2. After the company purchased Mavag AG, it shows it has been using technology for agitators from Mavag. Does that mean the company is using Mavag AG as its R&D company?
  3. Is the person in the link “Ashok Jethabhai Patel vs State of Gujarat” the same guy as the promoter of GMM. If so, the company might have had some Law & Order issues too.

Thank you.

#1. There is a royalty payment of INR 17.81M for FY18. to parent. Please check AR under other expenses table.
#3. Hope you got a change to review the URL thoroughly. What I am able to gather from point 1 is that “petitioner has a grievance to redress as regards the inaction on part of the police authority in not registering FIR…”



One thing which got missed out from the entire demand/supply scenario is changing in favor of GLE equipment. If one goes back a few years the pharma industry in India would have a 20:80 ratio between GLE: Non GLE (SS) reactors. With USFDA getting stringent and also the gradual evolution of Indian phrama/chemical industries this ratio is flipping over slowly from 20:80 to 80:20. This also means that a lot of SS vessels which are coming for replacement are being replaced by GLE reactors. The other thing is that reactor replacement is a difficult thing to do. In case a reactor blows up the entire line will remain shut from 2 to 8 weeks.

A similar thing is happening on HLE side of the world. Besides the above movement from SS Tanks to GLE reactors which is helping GL side of business, more and more pharma companies are moving from Centrifuge based filters to ANFD. This is also triggering a lot of latent demand for ANFD where HLE is the market leader.

Discl: Invested in both GMM/HLE.


How does one assess the longevity in GLE industry? Its just a 500 mn usd industry globally as per my understanding. How does one quantify the growth potential in India beyond the next 2 years?

Is GLE 10 % of plant and equipment cost ony or 10% of total capex(icl land + power , utilities etc?