GMM Pfaudler: All set to shatter its glass ceiling and create a new one

The company has given significant emphasis to organic expansion, effectively employing internal cash flows to enhance capacity

GMM Pfaudler, with more than 50 percent market share of the glass-lined equipment market, is a dominant player in the industry. Apart from supplying equipment and systems for critical applications like lab and process glass and gas-lined technology, its engineering division also offers project design, implementation, and support services.

Armed with years of expertise, GMM has plenty of levers for growth. Marcellus Investment Manager believes the company’s profit outlook is buoyant as the world is pivoting away from China and towards India for the manufacture of pharma and speciality chemicals.

As per company disclosure on August 14. GMM’s market share in global glass-lined reactors stands at 55 percent.

As Western nations grow more concerned about their reliance on China for active pharmaceutical ingredients (APIs), India naturally emerges as a solid alternative due to several key factors. First, there’s already substantial production capacity within the country. Second, India has proven expertise in process chemistry. Third, in terms of large-scale API production, only India and China are significant players on the global stage. Process chemistry is the development, optimisation, and scaling up of production processes for compounds used in the pharma sector.

Furthermore, besides partially replacing China as the preferred supplier of APIs to Western markets, India can also reduce its own dependence on China for these essential ingredients.

Superior technology: GMM benefits from a substantial stake held by Pfaudler, which gives it a technological and competitive edge in the Indian market. Pfaudler, the pioneer of glass-lining technology, remains at the forefront of industry innovation and advancement. An example of this is the Pharma Glass it has created, which is a patented enamel that's used to line the equipment in which APIs, vitamins, and similar substances are produced. This innovation become an industry standard.

Consistency: GMM Pfaudler has been operating in India for close to five decades and has been a reliable supplier to most of the large Indian companies in the pharmaceuticals, chemicals, and petrochemical sectors. Its high-quality reactors have won repeat orders from all key customers. Some customers in the pharma and chemicals space Marcellus spoke to indicate that for many years now, GMM has been their first choice for glass-lined vessels. GMM accounts for over 90 percent of the installed equipment base in these companies, the report added.

Mindful capital allocation: the management team at GMM has consistently demonstrated prudent allocation of capital. The company has placed emphasis on organic expansion, and effectively employed cash flows to enhance capacity by more than 50 percent over the past three years.

Acquisitions: the company has pursued strategic acquisitions, each designed to broaden its range of products and capture a larger share of the customer’s capex. Its first acquisition, in 2008, was Mavag AG, a Swiss-based manufacturer of equipment utilised in downstream processes in the chemicals and pharmaceutical sectors.

GMM has now embarked on a more ambitious path by acquiring the global business of Pfaudler. This gives GMM access to Pfaudler’s technology and innovation capabilities. It also enables the group to optimise manufacturing between GMM’s India factories and Pfaudler’s global facilities, which can help extract maximum value from all parts of the production process, Marcellus said in its report.

As per the company guidance, GMM plans to deliver about 15 percent CAGR growth in revenue and 25 percent CAGR growth in EBITDA. Post 2025, the management expects revenue growth to continue in the range of 13 percent to 15 percent and EBITDA growth in the range of 18 percent to 20 percent.

Broking firm JM Financial has said that the CAGR will be driven by scale-up in non-glass line segments, new acquisitions and reduction in key raw material prices.