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On a Mission Mode

GMM Pfaudler has made strategic acquisitions, diversified its product basket and invested in new capacities with an eye on long-term growth
twitter-logoPB Jayakumar | Print Edition: September 20, 2020
On a Mission Mode
Tarak Patel, MD, GMM Pfaudler - Photograph by Mandar Deodhar

Gujarat Machinery Manufacturers (GMM), which started off in 1962 on a 20-acre facility near Vadodara, will hold a majority stake in the parent company, Pfaudler Group, owned by German private equity firm Deutsche Beteiligungs AG. GMM Pfaudler will acquire 34.4 per cent stake, while its Swiss subsidiary, Mavag AG, will buy another 19.6 per cent. The promoters - Ashok Patel and his son Tarak Patel - will buy another 26 per cent in the global business. The deal is expected to be completed over the next four-five months.

GMM Pfaudler, a leading supplier of anti-corrosion process equipment for the pharmaceutical and chemical industries, has seen a steady rise in its revenues and profits in the past five years. The stock is a clear winner in the emerging companies category.

Its main line of business is glass line manufacturing - making reactors with glass-coated linings inside vessels to avoid metal contact and corrosion while mixing various pharmaceutical or chemical ingredients. Nearly 70 per cent of the company's revenues come from glass lined equipment; the rest are from pressurised vessel manufacturing in heavy engineering (10 per cent) and proprietary products (20 per cent).

The glass lined machinery is a Rs 700- 800 crore market in India, and GMM is the market leader with a 55 per cent share. In July, it acquired French competitor De Dietrich Process System's Indian arm DDPSI for 6.25 million euros (around Rs 53 crore). The new capacities, which will be added by September, will increase GMM's market share to around 70 per cent. To boost its product mix, the company also acquired the industrial mixing solutions division of Sudershan Chemical Industries in April last year.

Founded in 1962 by J.V. Patel at Karamsad near Vadodara, GMM grew under Ashok Patel, and got listed on the Bombay Stock Exchange later. In 1988, US-based glass line manufacturing specialist Pfaudler Inc acquired 40 per cent stake in the company. By 1999, it increased its stake to 51 per cent, and renamed the company GMM Pfaudler Inc. Parent Pfaudler was acquired by National Oilwell Varco (NOV) of France in 2012, and sold to French private equity firm Deutsche Beteiligungs AG (DBAG) two years later.

"Me and my father have been mainly running the business professionally, though Pfaudler was having a majority stake. The PE owner also used our experience to run Pfaudlers global business as well," says Tarak, a management graduate from the Columbia Business School.

In 2015, the company launched Mission 2020, with ambitious revenue and profitability targets. "We brought in a cultural change in the organisation, Pfaudler and DBAG's management bandwidth. More professionals were brought into the system. We also invested heavily to create capacities, anticipating market trends, to meet the increasing demand in India," says Tarak. The product basket was expanded to include the complete line of reactors, storage vessels, columns, mixer systems, instrumentation and reglassing services. To boost its glass line manufacturing, the company is also setting up two new furnaces at its Gujarat factory, expected to become operational in October.

The numbers speak for themselves. Revenues grew 20.8 per cent to Rs 353 crore in FY17, 14.9 per cent to Rs 405 crore in FY18, 23.9 per cent to Rs 502 crore in FY19 and 17.6 per cent to Rs 516 crore in FY20. Profit after tax (PAT) during these years were Rs 31.1 crore, Rs 42.7 crore, Rs 50.6 crore and Rs 71.1 crore, respectively, an average PAT margin of above 10 per cent of revenues every year. A debt-free company with strong fundamentals, shareholders have also been rewarded with handsome dividends.

Currently, overall exports are only about 10 per cent of the company's revenues and operations are limited to pharmaceutical, agrochemical and specialty chemical sectors. But with more and more chemical companies planning to de-risk their reliance on China and move manufacturing to countries such as India, future opportunities globally are huge, says Tarak. Also, the government's recent move to set up three bulk drug parks at an investment of Rs 10,000 crore to boost manufacturing and reduce dependence on imports of key raw materials, intermediates and active pharmaceutical ingredients (API), is expected to aid growth. Despite the recent slowdown, pharmaceutical, agrochemical and specialty chemical sectors have largely remained insulated, which augurs well for GMM Pfaudler. Even though pharma growth may moderate over the years, opportunities for diversifications in heavy engineering in sectors such as oil and gas and petrochemicals, remain.

With all these in mind, Tarak Patel and the team is launching UDAAN 2025, to double revenues to Rs 1,300 crore by 2025.

@pbjayakumar

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