Key highlights from GMM Pfaudler Q3FY23 concall

Key highlights from GMM Pfaudler Q3FY23 concall:

CMP: ₹ 1,566

The company had applied for an export license to supply a large reactor from the U.K. to China where they had made the inventory provision of ₹14 crore for the entire order. The application was however rejected by the U.K. government. The company has reapplied for an export license and they expect to receive the license this time. If they don’t get the license, they would either sell that equipment to somebody else or they would probably remove the glass lining and send it to China where they will reglass the equipment once again.

 The order backlog as of 9MFY23 stands at ₹2247 crore which will give a revenue visibility of 6-9 months. The company has shipped 24 vessels in Germany out of which 7 have been sold and the reordering of new equipment is in process. The company completed the acquisition of Mixel France SAS and its wholly owned subsidiary Mixel Agitator Company Ltd in France and China for a consideration amount of €7 million. The company plans to improve their mixing portfolio, get access to new industries and technologies with the help of this acquisition. WIth the help of Mixel, the company right now has presence in Europe and China as Mixel has facilities in these regions.

The company has hired a person who will join as the Head of the Mixing business eventually.

The company has a gross debt of ₹800 crore on its balance sheet and since the company has a track record of generating good cash flows, they plan to become debt free by FY28 or probably before that. The net debt of the company stands at around ₹500 crore. The company is stuck with high cost inventory right now and with the reduction in metal prices right now, they are facing some pressure on their margins on a consolidated basis. The company has tried to pass on the price increase as much as possible to its customers. The heavy engineering(HE) business of the company is a lower margin business as compared to the glass lined equipment(GLE) business and the change in product mix due to the large shipment of a specific job in heavy engineering has had an impact on the margin. 

The company has taken some steps however to reduce the margin pressure. In glass lined business, they are working on increasing the prices of their products and for heavy engineering, they are looking to take high margin orders. The HE business needs more working capital as compared to the GLE business both on the inventory and receivables side as the manufacturing cycle for HE takes 6-9 months while for GLE it is normally around 3 months.

The company has done 2 acquisitions in Hyderabad and Vatva in the previous years. They acquired De Dietrich which is their competitor in GLE who had a plant in Hyderabad. De Dietrich was anyway planning to exit India and since GMM Pfaudler wanted to have a presence close to their key customers in the Andhra Pradesh- Telangana belt they did this acquisition. In the last 2 years post-acquisition of this plant, the company has ramped up production to a point where they are doing almost 2.5x of what the plant was doing before the acquisition in terms of revenues. The company acquired Hindustan Dorr-Oliver(HDO) which has a plant in Vatva to expand their capabilities in the HE business and that plant has also ramped up nicely in the last 2 years.

The company recently commissioned their new 80,000 liter furnace in Karamsad and they have received 6 orders for 80,000 liter tanks. This capacity handled by the company can’t be handled by other players and the new furnace will be used to support the orders which the company has received for the CPVC project.