Initiating Coverage

GMM Pfaudler Ltd

Gro wth prospects galore;
Business, Parent, Subsidiary and more…

Non Glass
Glass Line
Line
Equipment
Equipment

Parent Subsidiary
Pfaudler Mavag
 7 Apr 2017 C o mpany Report

Buy
Target Price: Rs. 634

CMP : R s. 535
Potential Upside : 19%

M AR KET DATA

No. of Shares : 1 .46 Cr.

Market Cap : R s. 781 Cr.
Free Float : 2 5%

GMM Pfaudler Ltd Avg. daily vol (6mth)

52- w High / Low
Bloomberg
:
:
1 3086
5 92/233
: GM M IN
Industrial Machinery
Promoter holding : 7 5%
FII / DII : N .A
Growth prospects galore; Business, Parent, Subsidiary and m ore…
Price perform ance
400

200

0
A p r-16 J u l-16 O c t-16 J a n-17 A p r-17

G M M Pfaudler B SE_SENSEX

Financial Sum m ary Shareholding pattern

Y/E S al es P AT EPS Ch ange R o CE
P /E (x) R o E (%) E V /EBITDA DP S (Rs) De c- 16 Q - o-Q Chg
M ar ch ( R s Cr) ( R s Cr) ( R s) ( %) ( %)
FY15 308 19 12.9 (1.1) - 12.8 19.3 - 3.0 Promoters 75 0.00
FY16 292 20 13.8 6.6 - 12.5 18.8 - 3.0 FPIs 0 0.00
FY17E 344 29 19.9 44.6 26.9 16.0 23.9 14.7 4.0 MFs / UTI 0 (1.09)
FY18E 393 34 23.0 15.7 23.2 16.3 24.4 12.7 4.0 Banks / FIs 0.4 0.00
FY19E 446 39 26.4 14.9 20.2 16.5 24.5 10.9 4.0 Others 24.6 1.09
Source: Company, Axis Securities CMP as on Apr 6, 2017

R o h it Chawla – M anager, Research 2

(022) 4267 1741, rohit.chawla@axissecurities.in
 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Investment Rationale Se ctor: Industrial Machinery

Established in 1962, GMM Pfaudler Limited is a leading supplier of engineered equipment and systems for critical applications in the
chemical and pharmaceutical industries. It has manufacturing facility in Karamsad, Gujarat. It is currently the market leader in glass-
lined equipment, storage vessels and alloy steel equipment. Over the years, the Company has diversified its product portfolio to
include Tailor Made Process Equipment, Mixing Systems, Engineered Systems and Filtration & Drying Equipment to grow revenue
and reduce the cyclicality of the business.
We expect revenues to increase at 16% CAGR from Rs. 292 Cr. in FY16 to Rs. 446 Cr. in FY19E and earnings to grow at 29%
C AGR o ver next 3 years driven by:
 Steady growth in Glass Line Equipment (GLE) business and increasing focus on Non-Glass Line Equipment (Non-GLE) business
 Increasing exports opportunities from parent Pfaudler and turnaround in the operations of subsidiary Mavag
 Cost reduction initiatives and focus on increasing wallet share in customers through cross selling

We initiate coverage with BUY rating with a target price o f Rs.634 i.e. ~19% upside (implies 24x F Y19E)

M arket leader in Glass Line Equipment (GLE) business and High growth industries s erved

GMM Pfaudler is the market leader in manufacturing of glass line equipments (>50% market share), this constitutes ~63%
(Rs. 184 Cr.) of its revenues on a consolidated basis. It finds application in pharmaceuticals (50% revenue
contribution), agrochemicals (25%), and specialty, dyes, paints, etc. (25%). The opportunities in all the three industries are significant
with the estimates pegging a growth CAGR of 10-15% over the next five years.

3
 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Investment Rationale Se ctor: Industrial Machinery

Growth expected from Non Glass Line Equipment (Non-GLE) business

Currently, Non-GLE business i.e. Mixing systems, engineered systems, heavy engineering, filtration & drying constitute ~37%
(Rs. 108 Cr.) of the revenues on a consolidated basis, extending its applications to fertilizer, oil & gas, petrochemicals, etc. The Non-
GLE business will be the main focus area for the company going forward. GMM targets jobs that require intensive engineering, one
that needs a proven track record, thus creating a niche for itself in this segment.

Parent Pfaudler’s outsourcing to boost exports

On a standalone basis, only ~7% revenue comes from the international markets. Pfaudler, the parent company, is a leading supplier
of Glass Lined vessel having revenues of around $220mn (2014 revenues). GMM would act as a manufacturing hub for the Pfaudler
group worldwide; Pfaudler’s rationalization of its manufacturing footprint in Europe and US would lead to increased export
opportunity and better margins for GMM.

Turnaround in the operations of the s ubsidiary

Mavag AG, wholly owned subsidiary, located in Switzerland is a supplier of highly engineered Filtration & Drying Equipment and
Mixing Systems. Acquisition rationale was to use India as a low cost sourcing hub for Mavag to sell into Europe improving their
margins. After declining revenues (Rs. 88 Cr. to Rs. 67 Cr.) and profits (Rs. 5 Cr. to Rs. 1 Cr.) over 2014-16, Mavag is on its path to
reverse the trend by posting strong revenues and profitability in FY17E, has a healthy order backlog and is poised for growth.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Investment Rationale Se ctor: Industrial Machinery

M ajor triggers of Setting up of Pharmacity in Telangana and Govt’s push on domestic API manufacturing

Telangana government’s decision to set up a ‘Pharma City’ (1st phase by 2018) is expected to attract investments to the tune of Rs.
75,000 Cr from Pharma, Biotech and related industries. About 65% of APIs of all drugs manufactured in India are imported from
China (imports of Rs. 13,853 Cr). With over 350 firms planning to set up projects in the first phase of Pharmacity and Government’s
focus to expand API manufacturing facilities in India opens up plethora of opportunities for GMM.

Cost reduction initiatives to improve margins; cross-selling to improve revenues

GMM has initiated a cost reduction and energy efficiency program, main focus areas being reduction in procurement and power &
fuel costs. Strategic cap-ex in energy saving initiatives like installation of natural gas furnaces, LED lighting, windmills and efforts
made towards technology absorption will help in cost savings of 2-3% in FY17E with new goals being set every year.
GMM aims to improve revenues by being closer to the customer and increase wallet share in a pharmaceutical project from 5-6% to
10-11% through cross selling.

Debt-free, consistent dividend paying, s trong financials

GMM is a debt-free company, has had a long standing track record of paying consistent dividends (Dividends have been paid at
150% of share capital in last few years), has improving margins and good return ratios. It has net cash of Rs. 53 Cr. in FY16 which
it plans to utilize for acquisitions in future.

5
 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Organization and Business Overview Se ctor: Industrial Machinery

Organization  P a rent: Pfaudler Inc

 Headquartered in Germany, Pfaudler Inc
Deutsche manufactures glass lined vessels and other glass lined
A Private Equity F irm
Beteiligungs AG components in Germany, Italy, UK, US, Brazil, China and
India. Revenues ~$220mn (2014)
 About 70% of its products are sold to the chemical
industry and 30% to the pharmaceutical industry
Established provider o f  Pfaudler also provides aftermarket parts and services as
Pfaudler Inc well as complete engineered systems for the chemical
gl ass l ined reactors
and the pharmaceutical industries.
50.44%
s ta ke
 Su bsidiary: Mavag AG
L eading supplier of process  Mavag AG, wholly owned subsidiary of GMM
GM M Pfaudler L imited Pfaudler, located in Switzerland is a supplier of highly
equipment and systems
engineered Filtration & Drying Equipment and Mixing
100%
Systems
s ub sidiary  GMM Pfaudler acquired Mavag in 2008 with an
intention to get business presence in Europe, get access
S trong presence in the
to latest technology for Indian market and use India as a
M avag AG supply o f highly
low cost sourcing hub to sell into Europe improving their
engineered equipment margins.

The equipments manufactured b y Pfaudler Inc, GMM Pfaudler Limited a nd Mavag AG f ind applications mainly in
P harmaceutical, Chemical a nd other p rocess industries

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Product Portfolio Se ctor: Industrial Machinery

Glass Lined Equipments Non - Glass Lined Equipments

Agitated Magnetic
Glass lined reactors Glass lined m ixing system s Spherical dryer Nutsche Filters Drive Agitators

Wiped Film
Kilo Lab units Pipes and Fittings Evaporators Pressure Vessels

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Industry Dynamics – Glass Line Equipment Industry Se ctor: Industrial Machinery

Glass Line Equipment Industry Major players and their market share (FY16 revenues)
600
7%
500 13%

400 53%
(Rs . Cr.)

27%
300

200

100
GM M Pfaudler S w iss Glass Coat
0
D e D ietrich O thers (Local manufacturers)
F Y 11 F Y 12 F Y 13 F Y 14 F Y 15 F Y 16 F Y 17EF Y 18EF Y 19E
Source: Company, Swiss Glass Coat Annual report, Axis Securities Ltd.

 Hig h g rowth Industries served – P ositive outlook for G lass Line Equipment Industry
 Historically, Glass Line E quipment (GLE) industry has grown at a CAGR of 9.5% over FY11-FY16. Glass line equipments find application
in the pharmaceutical, agrochemicals and specialty chemicals industries. The opportunities in all the three industries are significant with
the estimates pegging a growth CAGR of 10-15% over FY16-FY20E.
 The industry has high entry barriers as unique competitive advantages of the players are many years of e xperience in glass making & skill
of its staff, as key production steps are done manually. The vessels must provide superior levels of resistance to corrosion, pressure & heat.

 G M M Pfaudler – Market Leader in the Glass Line Equipment Industry

 GMM Pfaudler is the market leader in manufacturing of glass line equipments (>50% market share). It derives 50% of its revenue from
pharmaceutical industry, 25% from agrochemicals, and 25% from specialty, dyes, paints, etc.
 GMM competes with two major players; Gujarat based Swiss Glass Coat and French Multinational De Dietrich having its Indian
subsidiary De Dietrich Process Systems in H yderabad. These two players, combined together, corner around 40-45% market share in the
Glass Line Equipment industry.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Positive outlook in end-user sectors Se ctor: Industrial Machinery

Pharmaceuticals Agrochemicals Specialty chemicals

8 40
60

(I US$ bn)
30
(I US$ bn)

(I US$ bn)
40 20
55 4 33
20 37 10 19
2
0 0
0
F Y 16 F Y 20E F Y 14 F Y 19E
40 F Y 14 F Y 19E
Do m estic Ex ports
30
Co n sumption pattern of agrochemicals
(I US$)

20 20  Indian specialty chemicals sector grew at

13% CAGR from FY11-FY16 and is
10 10
17 13 12 7 7 5 5 0 .5 expected to grow at 12% CAGR to reach
0 0 US$ 33.2bn by FY19E. Following are
t h e long term growth drivers:

T a i wan

F r ance
C hi na

K o rea

I nd ia
J a pan
2 0 0 92 0 1 0 2 0 1 12 0 1 22 0 1 32 0 1 4 2 0 1 52 0 1 6

USA

UK
P e r capita sales of pharmaceuticals
P e r kg/ hectare
 Tightening regulations of China’s
chemical industry leading to plant
 Indian pharmaceuticals sector grew at  Indian agrochemicals sector grew at 8- shutdowns and declining exports
17.9% CAGR from 2005-2016 and is 10% CAGR from FY01-FY16 and is  Wide applications across consumer
expected to grow at 11% CAGR to expected to grow at 12% CAGR to industrial and infrastructure segments
reach US$ 55bn by 2020. Following reach US$ 7.5bn by FY19E. Following  Growth in Construction and Automotive
ar e the long term growth drivers: ar e the long term growth drivers: industry to drive demand for related
 523 facilities registered with US FDA  Declining arable land chemicals. Demand for water treatment
 Significantly lower cost of production and polymer chemicals to drive growth
 Low penetration of agrochemicals
 Increasing per capita sales of  Low cost labour and raw material
 Poor crop yields availability leading to India’s
pharmaceuticals. Increased Govt.
and private sector expenditure  Rising farmer income emergence as a major export hub

T hus, the demand for Glass Line and Process Equipment is being supported by strong positive outlook in the end user sectors

Source: Department of Pharmaceuticals, PwC, McKinsey, TechSci Research, Avendus analysis 9

FICCI, XII year plan, Ministry of agriculture
 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Strong and stable customer base Se ctor: Industrial Machinery

Pharmaceuticals Agrochemicals Specialty chemicals

3 0 years > 2 0 years

1 5 years

2 0 years 2 5 years 2 5 years

1 5 years > 1 5 years

2 5 years

> 1 5 years 3 0 years

1 0 years 3 0 years > 1 5 years
3 5 years
1 5 ye ars
> 2 5 years
> 1 5 years
2 0 years 2 5 years
2 0 years
3 0 years

2 0 years
2 0 years
1 5 years

2 0 years > 1 5 years

2 5 years
2 0 years
Source: Company

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

‘MAKE IN INDIA’ story in the Indian pharmaceutical industry … Se ctor: Industrial Machinery

P H ARMACITY TO BE SET UP IN HYDEARABAD, TELANGANA GOV ERNMENT’S PUSH ON DOMESTIC API MANUFACTURING

2 0 000

S i n gapore
1 5 000

( R s . Cr.)
Ital y
1 0 000
U SA
5 0 00
G e r many
0
C h i na
F Y 14 F Y 15 F Y 16

Over-dependence on China for Ri s ing API imports of top 5

A PIs - A rising concern c o untries

 Leveraging on the industry environment in
Hyderabad, the ‘Bulk drug capital of India’; a
‘ Pharma City’ is being planned on 12,500 acres land
 Phase I of Pharma City will come up on 6,000
acres, to commence operations by end of 2018
 Expected to attract investments up to Rs 75,000 Cr.
from pharma, biotech and related industries
 Over 350 firms to set up projects, including about
120 big players. Land allotment to be completed by
April 2017
 To speed up the project, the government has formed a
SPV 'Hyderabad Pharma City Limited‘
 About 84% of APIs of all drugs manufactured in
India were imported in 2015-16; 60% from China
alone to the tune of Rs. 13,853 Cr.
 Chinese industry enjoy low manufacturing
cost, pricing power, and huge support from the
government in the form of incentives and subsidies
 Steps taken by Indian Government to reduce import
dependence:
o Withdrawal of exemption of Custom duties to
certain drug categories
o To invest Rs. 600 Cr. for creating manufacturing
facilities for 3 green-field bulk drugs/ API parks

GMM Pfaudler derives 50% of the revenue from pharmaceutical industry. The company with a strong brand name and long term
rel ationships with pharmaceuticals players is set to be the major beneficiary
Source: CMIE Economic Outlook

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

GMM’s geographical presence Se ctor: Industrial Machinery

Location of GMM’s manufacturing facility, sales and services offices Manufacturing Capabilities

N e w Delhi

A hm edabad

K ar amsad
V a dodara Plant spread over 20 acres at Karamsad Gujarat having latest
Head Office
A nkales hwar
equipment required for quality fabrication

M u mbai H y derabad  Exp ansion to increase presence in aftermarkets

Corporate Office
 GMM Pfaudler derives 12-15% of its revenues from
V i s hakapatnam
B e nglaru Indian aftermarket business, which it intends to increase
C he nnai M a nufacturing Facility to close to 20% in next few years as guided by the
S a les Office management, resulting in better margins.
S a les & Service Office
 Subsequently, it has opened new chemical zones in
Vizag and Ankaleshwar, and it plans to open 2 more in
Major client c oncentration in Ahmedabad,
Vizag, Mumbai as well as some in North (New Delhi) Vapi in Gujarat and Lote, Maharashtra thus stocking
spare parts and providing better service to the customers
Source: Company

12
 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Glass Line Equipment (GLE) Business Se ctor: Industrial Machinery

Revenues from Glass Line Equipment Healthy Operating Margins from GLE business
200 25%
18% 19% 19% 19% 19%
20% 17%
150
12%
( Rs . Cr.)

15% 11%
100
10%
50 5%

0 0%

F Y 11 F Y 12 F Y 13 F Y 14 F Y 15 F Y 16 F Y 17EF Y 18EF Y 19E F Y 12 F Y 13 F Y 14 F Y 15 F Y 16 F Y 17E F Y 18E F Y 19E

Source: Company, Axis Securities Ltd. O PM (%)

 M a intain Market leadership in G lass Line Equipment Business

 Revenues from Glass Line Equipment business constitutes ~63% (Rs. 184 Cr.) of the GMM Pfaudler’s revenues on a consolidated basi s
and ~80% on a standalone basis. It is a market leader in GLE industry commanding more than 50% market share.
 With increasing opportunities in the pharmaceuticals, agrochemicals and specialty chemicals, this segment is poised for growth
 The company continues to focus on the premium segments of the market where the emphasis would be on differentiating products by
quality, size, technology and after sales service. It plans to introduce a Tier II product offering that can take on other peers.
 Thus with new product offerings and focus on faster deliveries, it will look to maintain its market leadership position in this segment.
 Ca pacity in p lace to achieve the FY20 revenues
 GMM manufactures around 1300-1400 glass line equipments every year and operates at ~80% capacity utilization
 The company has increased capacity in GLE by 30% in last 2 years & a part of that is going to be commissioned in next few months
 GMM has cap-ex in place to achieve FY20 revenue numbers. We project it to grow at 12.5% CAGR from FY16-FY19E
 The operating margins from the GLE business has been improving every year; it increased from 11% in FY12 to 19% in FY16 due to
operational leverage coming into play and company’s continued focus on increasing cost efficiencies.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Non Glass Line Equipment Business – Main Focus area for GMM Se ctor: Industrial Machinery

Revenues from Non Glass Line Equipment Margins from Non Glass Line Equipment
200 0.12 10% 10% 11%
10%
9%
0.10
150
0.08 6%
( Rs . Cr.)

6%
100 0.06 5% 5%

0.04
50
0.02
0 0.00
F Y 11 F Y 12 F Y 13 F Y 14 F Y 15 F Y 16 F Y 17EF Y 18EF Y 19E F Y 11 F Y 12 F Y 13 F Y 14 F Y 15 F Y 16 F Y 17E F Y 18EF Y 19E
O PM (%)
Source: Company, Axis Securities Ltd.

 G rowth to come f rom Non Glass Line Equipment business

 Non-GLE business i.e. Mixing systems, engineered systems, heavy engineering, filtration & drying constitute ~37%
(Rs. 108 Cr.) of the revenues on a consolidated basis, extending its applications to fertilizer, oil & gas, petrochemicals, etc.
 The Non-GLE business would be the main focus area for the company going forward. 100% Swiss subsidiary Mawag also operates in this
segment. Historically, the Non GLE business for GMM has grown at a CAGR of 8.3% in FY11-FY16
 GMM targets jobs that require intensive engineering, one that needs a proven track record, thus creating a niche for itself in this se gment.
We project it to grow at ~19% CAGR over FY16-FY19E.

 Focu s on being a process p rovider, not just a n equipment supplier

 Focusing on initiatives like Key Account Management, GMM aims to improve revenues by being closer to the customer and increase wallet
share in a pharmaceutical project from 5-6% to 10-11% through cross selling.
 It focuses on offering engineering solutions where clients need process guarantee, piping, heating-cooling, etc. rather than just supplying
equipment. It competes with players like Anup, Praj, Alfalaval but has an edge over competitors due to brand name & quality of product.
 In Non-GLE, the company is making exotic materials and exotic jobs which will result in good margins going forward.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Subsidiary Mavag’s performance and Exports Se ctor: Industrial Machinery

Export trends on a Standalone basis Export markets soft in

3 0 .0% last 2 years. To  P a rent Pfaudler’s outsourcing to boost exports
2 1 .5% increase to 20% by
2 0 .0% 1 5 .2% FY20 driven by
i. Pfaudler using India  Parent Pfaudler has started sourcing GLE from India. In
7 .6 % 6 .1 % 7 .5 %
1 0 .0% 2 .4 %
as a low cost Q3FY17, 1st order has been shipped after it was
sourcing hub to sell granted export license from the govt. of India. We
0 .0 % GLE
ii. Pfaudler selling expect the sourcing to increase in coming years
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16
GMM’s Non GLE in
Ex ports as a % of revenues US and Europe  GMM would act as a manufacturing hub for the Pfaudler
group worldwide and Pfaudler’s rationalization of its
manufacturing footprint in Europe and US would lead to
Revenues from Mavag (subsidiary)
- To continue to increased export opportunity & better margins for GMM.
90 post good growth
100
88
due to company’s  Export margins are 2-3 times more than the margins in
67 increased focus on the domestic market.
(Rs . Cr.)

N o n GLE business.
50 - To benefit from
5 6 Pfaudler’s network
 Tu rnaround in the operations of the Mavag AG
1
0 and manufacturing
capabilities of  After declining revenues (Rs. 88 Cr. to Rs. 67 Cr.) and
F Y 12 F Y 13 F Y 14 F Y 15 F Y 16 F Y 17E
GM M Pfaudler profits (Rs. 5 Cr. to Rs. 1 Cr.) over 2014-16, Mavag is
T u r nover PA T on its path to reverse the trend by posting strong
revenues and profitability in FY17E, has a healthy order
Consolidated Revenue break-up (FY16) Includes backlog and is poised for growth.
- Exports for M avag
( 7 8%)  Almost 80% of equipments sold in Europe has Indianised
72.7% - Exports for Pfaudler components, finishing and testing is done in Switzerland
27.3% - Other Exports to
Africa, Middle  Mavag is working with Pfaudler to enter into US &
East, South East Asia
an d Bangladesh
Chinese markets. Pfaudler network has helped Mavag
ALL THREE SET TO generate more enquiries. GMM Pfaudler has helped
D o mestic Ex p orts GR O W Mavag increase its market share

Source: Company, Axis Securities Ltd. 15

 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

BCG Matrix– GMM Pfaudler Se ctor: Industrial Machinery

RELATIVE MARKET SHARE

(CASH GENERATION)

Non Glass Line Equipment Business Exports from parent and subsidiary
High growth rates, catering niche s egments Triggers of tomorrow
MARKET GROWTH RATE

 Healthy order backlog till  Exports from Parent Pfaudler to boost

Q1FY18E, sustained demand revenues and margins
(CASH USAGE)

 Catering niche segments, thus margins  Mavag’s impressive H1FY17 performance

improving to replicate in coming years

Glass Line Equipment Business Domestic Replacement market

Continual healthy trends Limited s cope of growth

 Healthy volumes and margins, Steady  Typical life of the GLE is 7-10years
cash flows
 Growth mainly driven by new projects
 Positive outlook for application industries

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Strong Financials Se ctor: Industrial Machinery

Cash and Cash Balance Profit Margins  Profit margins will

 With cash in its
1 0% 8% 9% 9% i m p rove led by
books, GMM is looking for
100 86 7% 7% - New product offerings
acquisitions more into 8% 6%
72 in GLE business and
80 63 processes and syste ms
54 6% 5% entering into niche
47 w hi ch adds t echnology 4%
60
( Rs . Cr.)

4% segments in Non-GLE
29 30
40 17 b u siness
 Also GMM plans to use the 2%
20 - Cost reduction and
cash for strategic cap-ex
0% energy efficiency
0 like gas furnaces, as
program, main focus

FY1 7E

FY1 8E

FY1 9E
FY1 2

FY1 3

FY1 4

FY1 5

FY1 6
FY1 7E

FY1 8E

FY1 9E
natural gas is cheaper than
FY1 2

FY1 3

FY1 4

FY1 5

FY1 6

areas being reduction in

e l e ctricity, t hus saving cost
procurement, power &
fuel, also reduction in
P AT (%)
Cas h and Bank Balance o t her overheads

Return ratios Debt free, consistent Dividend payout

 Return ratios will improve  GM M Pfaudler is a debt free company since l ast 5 years
30 2 4.5
g o ing forward du e to
25  GMM has consistently paid dividend since 1997 and
1 8 .8 - Operating leverage
20 p l aying out dividends have been paid at 150% of share capital in last
15 - No more capacity
1 6 .5 addition required to
few years
10
1 2 .5 achieve the revenues for
5  The company’s cash conversion cycle has improved from
F Y 20
0
- Improving margins in both 141 days in 2014 to 117 days in 2016 due to considerable
FY1 7E

FY1 8E

FY1 9E
FY1 2

FY1 3

FY1 4

FY1 5

FY1 6

GLE and Non-GLE

reduction in the number of inventory days from 127 days to
b u sine ss
101 days l eading to better working c apital management
R O E (%) R O CE (%)

Source: Company, Axis Securities Ltd.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Valuation Charts Se ctor: Industrial Machinery

Two year Fwd P/E band Valuation

800  We estimate GMM Pfaudler to post revenues at a CAGR of
GM M Pfauder 12m fwd P/E band
16% and profits at 29% over FY16-FY19E
600
25x
 GMM Pfaudler is well positioned in the industry owing to
20x
40 0 high entry barriers and market leadership position in GLE
15x
business, strong brand name, sticky clientele, growing Non-
200 10x
5x GLE business, parent and subsidiary support, strong balance
0
sheet and thus deserves premium valuations.
Ap r-11

Ap r-12

Ap r-13

Ap r-14

Ap r-15

Ap r-16
 We value GMM Pfaudler at 24x FY19E given the growth
prospects to arrive at a target price of Rs 634 (19% upside)

12mth fwd P/E (x) Key Risks and Concerns

 The global economic slowdown may have an impact on
GM M Pfaudler-12mth fwd P/E (x) GMM’s exports business. Uncertain monsoon, weak
30
investment and volatile industrial output are some of the
25
concerns.
20
 GMM has market exposure to foreign exchange rates mainly
15 on account of exports as well as investments in foreign
10 subsidiary Companies. Due to increasing volatility in major
5
foreign currencies, the export realization is subjected to the
exchange fluctuation risk.
0
 The Company’s primary raw material is steel; any fluctuation
A p r-12

A p r-13

A p r-14

A p r-15

A p r-16

A p r-17

in pricing will impact profitability of the Company. Certain

orders with long manufacturing cycle time may be exposed
Source: Company, Axis Securities to the risk of material price volatility.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Financials (Consolidated) Se ctor: Industrial Machinery

Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)

Y E M arch F Y 15 F Y 16 F Y 17E F Y 18E F Y 19E Y E M arch F Y 14 F Y 15 F Y 16E F Y 17E F Y 18E
Net s ales 308 292 344 393 446 T o tal assets 154 171 193 220 252
Other op erating income 0 0 0 0 0
Net Block 46.5 53.4 57.2 60.2 62.3
Total income 308 292 344 393 446
CWIP 4.8 4.3 2.3 2.3 2.3
Cost of goods sold 247 233 268 306 347
Investments 0.7 0.7 0.7 0.7 0.7
Contrib ution (% ) 19.7% 20.2% 22.1% 22.2% 22.2%

Advt/Sales/Distrn O/H 24.7 24.1 26.8 31.2 35.5 Wkg. cap . (excl cash) 55 59 70 84 100

O p erating Profit 36 35 49 56 64 Cash / Bank b alance 47.0 53.6 62.9 72.4 86.4
Other income 3 4 3 4 5
Misc. Assets 0.0 0.0 0.0 0.0 0.0
PBIDT 39 39 52 60 68
Dep reciation 10 8 9 10 11 Ca p ital emp loyed 154 171 193 220 252

Interest & Fin Chg. 1 1 1 1 1 Equity cap ital 2.9 2.9 2.9 2.9 2.9
E/o income / (Exp ense) 0 0 0 0 0
Reserves 148 164 186 212 244
Pre-tax p rofit 28 30 43 50 57
Tax p rovision 9 10 14 16 19 Pref. Share Cap ital 0.0 0.0 0.0 0.0 0.0
(-) Minority Interests 0 0 0 0 0 Minority Interests 0.0 0.0 0.0 0.0 0.0
Associates 0 0 0 0 0
Borrowings 0 0 0 0 0
A d justed PAT 19 20 29 34 39
Rep orted PAT 19 20 29 34 39 Def tax Liab ilities 3.9 3.8 4.2 4.6 4.9
Source: Company, Axis Securities

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GMM Pfaudler Limited

Financials (Consolidated) Se ctor: Industrial Machinery

Cash Flow (Rs Cr) Ratio Analysis (%)

Y E M arch F Y 15 F Y 16 F Y 17E F Y 18E F Y 19E Y E M arch F Y 15 F Y 16 F Y 17E F Y 18E F Y 19E
S o urces 17 22 31 37 43 Sales growth 10.3 (5.1) 17.7 14.2 13.6
OPM 11.7 12.0 14.3 14.3 14.3
Cash p rofit 29 29 38 44 50
Op er. p rofit growth 8.1 (2.7) 40.2 14.2 13.6
(-) Dividends 5 5 7 7 7 COGS / Net sales 80.3 79.8 78.0 77.8 77.8
Retained earnings 24 24 31 37 43 Overheads/Net sales 8.0 8.2 7.8 8.0 8.0
Dep reciation / G. b lock 8.7 6.5 6.5 6.5 6.5
Issue of equity 0.0 0.0 0.0 0.0 0.0
NPM 6.1 6.9 8.4 8.6 8.6
Change in Oth. Reserves (1.7) 1.6 (0.0) 0.0 0.0 Net wkg.cap / Net sales 0.17 0.18 0.17 0.18 0.19
Borrowings 0 0 (0) 0 0 Net sales / Gr b lock (x) 2.7 2.3 2.5 2.6 2.7
RoCE 19.3 18.8 23.9 24.4 24.5
Others (6) (3) (0) (0) (0)
Deb t / equity (x) 0.00 0.00 0.00 0.00 0.00
Effective tax rate 33.1 32.5 32.5 32.5 32.5
A p p lications 17 22 31 37 43 RoE 12.8 12.5 16.0 16.3 16.5
Payout ratio (Div/NP) 28.2 26.4 24.4 21.1 18.4
Cap ital exp enditure 5.0 12.7 10.7 12.8 12.8
EPS (Rs.) 12.9 13.8 19.9 23.0 26.4
Investments 0.1 2.0 0.0 0.0 0.0
EPS Growth (1.1) 6.6 44.6 15.7 14.9
Net current assets (3.7) 0.5 11.3 14.4 15.7
CEPS (Rs.) 19.6 19.3 26.0 29.7 33.7
Change in cash 15.2 6.7 9.3 9.5 14.0 DPS (Rs.) 3.0 3.0 4.0 4.0 4.0
Source: Company, Axis Securities

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GMM Pfaudler Limited

Disclaimer Se ctor: Industrial Machinery

Di s c losures :

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Securities Ltd. (ASL ) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the busines s of
providing Stock broking services, Depository participant services & distribution of various financial products. ASL i s a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public
company and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management , NBFC, Merchant Banking, Trusteeship, Ve nture Capital,
Stock Broking, the details in respect of which are available on www.axisbank.com.
2. ASL is registered with t he Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) for
distribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Rohit Chawla – Manager, Research, MBA (Finance), author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this res earch report accurately
reflect my/our views about the subject is suer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, i s, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or its Associates may
have beneficial ownership of 1% or more in the subject company at the end of the month im mediately preceding the date of publication of the Re search Report. Since associates of ASL are
engaged in various financial service businesse s, they might have fi nancial interests or beneficial ownership i n various companies including the subject company/companies mentioned in thi s
report. I/we or my/our relative or ASL or it s as sociate does not have any material conflict of interest . I/we have not served as director / officer, etc. i n t he subject company i n the last 12-month
period.
Any holding in stock – No
5. ASL has not received any compensation from the subject company in the past twelve months. ASL has not been engaged in market making activity for the subject company.
6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates may have:
i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or;
ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;
iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report;

ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.

T e r m& Conditions:

This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in
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report at the same time. ASL will not treat recipients as customers by virtue of their receiving this report.

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 7 Apr 2017 C o mpany Report

GMM Pfaudler Limited

Disclaimer Se ctor: Industrial Machinery

Di s c laimer:

Nothing in this report constitutes investment , legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s specific circumstances.
The securities and strategies discussed and opinions expressed, if any, in this report may not be su itable for all investors, w ho must make their own inve stment decisions , based on their own
investment objectives, financial positions and needs of specific recipient.

This report may not be taken in substitution for the ex ercise of independent j udgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at
an independent evaluation of an investm ent i n the securities of companies referred to in t his report (including the merits and risks involved), and s hould consult its own advisors to determine the merits
and risks of such an investment. Certain transactions, including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not
suitable for all i nvestors. A SL, its directors, analysts or employees do not take any responsibility, financial or otherwise , of the losses or the damages sustained due to the investme nts made or any
action taken on basis of t his report, including but not restricted to, fluctuation in the prices of shares and bonds, changes i n t he currency rates, diminution in the NAVs, reduction in the dividend or
income, etc. Past performance is not necessarily a guide to future performance. Investors are advice necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document
to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and
may be subject to change without notice.

ASL and its affiliated companies, their directors and employees may; (a) from time to time , have long or short position(s) in, and buy or sell t he securities of the company(ies) mentioned herein or (b)
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and opinions. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting this document.

ASL and / or its affiliates do and s eek to do busi ness including investment banking with companies covered in its research reports. As a res ult, the recipients of this report should be aware that ASL
may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts i s not based on any specific merchant banking, i nvestment banking or
brokerage service transactions. ASL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither this report nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or
distributed or redistributed in Japan or to any resident thereof. If thi s report is inadvertently sent or has reached any individual in such country, especially, USA, t he same may be ignored and brought
to the attention of the sender. This report is not directed or intended for distribution to, or use by, any person or entity who i s a citizen or resident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ASL to any registration or licensing requirement wit hin such
jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors.

The Di sclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the vie ws expressed in the report. The
Company reserves the right to make modifications and alternations to t his document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s)
and the Company may or may not subscribe to all the views expressed therein.
Copyright in this document vests with Axis Securities Limited.

Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 18002100808/022-61480808, Regd.
off.- Axis House, 8th Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Compliance Officer: Anand Shaha, Email: compliance.officer@axisdirect.in, Tel No:
022-42671582.

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