GMM Pfaudler Limited (505255) Earnings Call Transcript & Summary

Sorry. Can you hear me?

Yes. We can hear you. Yes.

So this is for the notice of meeting of the AGM?

Yes. So just the second one, the ladies and gentlemen, the notice dated, yes.

Yes. Ladies and gentlemen, the notice dated June 28, 2021, convening the Annual General Meeting and a copy of the annual report for the financial year ended March 31, 2021, has been circulated to the members of the company electronically. With your permission, I should take them as read. The auditor's report on the stand-alone and the consolidated financial statements do not contain any qualification, reservation or any adverse remark. The comments made in the secretarial audit report for the financial year ended March 31, 2021, are self-explanatory. Accordingly, the reports are not required to be read out as provided in the Companies Act 2013.

Thank you, Acting Chairman. We would now go back to MD and let him brief the shareholders on the working of the company. Thank you. And sorry, shareholders, for the technical glitch.

Good afternoon, dear shareholders. A very warm welcome to GMM Pfaudler Limited's 58th AGM. To start with, FY '21 has been a very uncertain and the difficult year for most of us. With challenges and obstacles, successes and victories, we've all had our ups and downs, both at a personal as well as in the business front. However, these challenges, like in the past, have helped us adapt, evolve and be more prepared for what is to come. As we bring in this new financial year, there is much to look forward to. GMM Pfaudler continued to grow during the FY '21 financial year despite the uncertainty and volatility that was prevailing both in the domestic as well as the international markets. We continued to show significant improvement in terms of revenue. We reported a stand-alone revenue growth of 24%, and the profit after-tax was up by 53%. On a consolidated basis, our stand-alone and Mavag revenue showed a growth of 28%, and profit after-tax grew by 48%. The company continued to remain committed to enhancing shareholder value, reflected in its increasing market capitalization of over 8x in the last 5 years. We take pride in the fact that GMM Pfaudler is one of the top 500 listed companies in terms of market capitalization, ranking 351 on the BSE and 345 on the NSE as of March 31, 2021. On the business front and from a strategic perspective, FY '21 has been an eventful and memorable year for us. We completed 3 important and transformative transactions that will help us sustain business growth and continuity over the long term. In June 2020, we announced the acquisition of a manufacturing facility in Hyderabad for a total consideration of nearly EUR 6.25 million, approximately INR 54.5 crores. This facility will give us access to ready-made glass lined equipment manufacturing capacity in Hyderabad, which will further strengthen our presence in the region. We are now well poised to better serve our -- the customers in the south, especially in Hyderabad and the Vizag area, big hub for both pharmaceutical and chemical manufacturing. We have commenced operations at this unit on October 19, 2020. In August 2020, we announced the acquisition of a majority stake in the global business of our parent, the Pfaudler Group, for a total consolidation of USD 27.43 million, approximately INR 205 crores. Pfaudler's global business will bring immense value to the table, which over the medium term promises to enhance GMM Pfaudler's business prospects significantly. In March 2021, we announced the acquisition of a manufacturing facility near Ahmedabad in a town called Vatva for a total consideration of INR 58.4 crores. This state-of-the-art facility will significantly enhance our capacity in heavy engineering and will also help us free up our glass lining capacity at our current facility. This fits quite well in terms of long-term growth of both business lines, and we expect this business to significantly improve in the quarters that we are seeing going forward. It was also a very timely opportunity as we would have a runout of heavy engineering capacity by the end of the current financial year and a new factory would take anywhere between 24 to 28 months. And this is something that is ready-made and is already now operational. On a personal level and as a third generation of a family business that began in 1962, it is a moment of great pride to see GMM Pfaudler now enter the global stage. Over the last 5 decades, we have predominantly focused on the domestic market. Now as we have gone global, we embark on the next phase of our journey, JOURNEY 2.0. This acquisition will allow us to chart our own course and control our destiny, at the same time, de-risk our dependence on the Indian market. As we join hands and begin working closely with the Pfaudler Group, I'm particularly excited of what we can achieve together. With 13 manufacturing facilities across 8 countries and employing more than 1,500 people, GMM Pfaudler now is truly a global business. Of course, this comes with its own set of challenges. However, I am confident that we will rise to the occasion and create value for all our stakeholders. Further, this acquisition has strengthened our balance sheet with a stronger liquidity and robust cash flows. While the acquisition was particularly debt funded, our net gearing remained comfortable at 0.5x in FY '21. Also, despite the size of the acquisition, our credit ratings remain intact. Our ratings were reaffirmed by CRISIL in April and consequently by IC -- while ICRA rated us at a similar scale, a very low risk, indicating a high degree of safety. Of all the transactions, Pfaudler acquisition is unique from a business perspective as it will bring synergies at different levels within the organization. This strategic move is aligned to our commitment to further invest and grow the business. While we began thinking of this acquisition, we came up with 3 areas that we believe would create synergies and help improve revenue and profitability. Value sourcing, operational excellence and cross-selling are the 3 simple pillars of our integration effort. Value sourcing will focus on using low-cost production sites like India to improve market share in price-sensitive markets. Operational excellence will focus on improving throughput across our manufacturing sites. And lastly, cross-selling will focus on selling a wider range of products to our existing customers. This integration process will take time and will need constant monitoring. However, having worked with Pfaudler for nearly 2 decades, we are well aware of their culture, systems and processes. Moreover, the senior management team of the international business are completely aligned and will continue to be part of the JOURNEY 2.0. The journey ahead of us is indeed exciting. Our passion, professionalism and the perseverance of working with our clients, partners and with each other provides us with an exceptional outlook for the future. On the sustainability front, our vision is to emerge as an industry leader by promoting responsible manufacturing, employee safety, environmental and social welfare with effective corporate governance practices to nurture long-term business sustainability. Keeping these goals in mind, some of the important initiatives in the areas of ESG have been aligned with the UN Sustainable Development Goals. At GMM Pfaudler, technological advances play an integral part when it comes to energy efficiency and emission control. We are implementing measures that will improve our energy efficiency levels such as using solar power, wind energy and shifting from electric furnaces to natural gas furnaces. Also as a responsible corporate citizen, our company is committed to improve and enrich the lives of the communities that we operate in through sustainable development and inclusive growth. As for the company's CSR policy, we will continue to focus on issues relating to health care, education and the environment. In line with our strategy, we have partnered with Charutar Arogya Mandal in Karamsad, JVP ITI and ReefWatch Marine Conservation to help us in our CSR goals. We are thankful for the hard work that our CSR partners have continued to put in, tirelessly working to improve the economic, social and environmental aspects of our society. COVID has changed our lives. And in March last year, most businesses were facing unprecedented times. With a subsequent nationwide lockdown, work-from-home became the new norm, supply chains were thrown into chaos, our customers postponed investment decisions and logistics and transportation came to a standstill. Our immediate focus was not only on business stabilization and continuity, but also on the health and wellbeing of our employees. We launched multiple initiatives that would keep the safety, motivation and the wellbeing of our employees at the forefront. As part of our COVID relief efforts, we provided financial assistance to Shri Krishna Hospital, a designated COVID-19 district hospital for the treatment of COVID-19 cases and providing critical care to the growing number of COVID patients in and around Anand, Gujarat. On the governance front, the Board of GMM Pfaudler has an optimum combination of executive and nonexecutive and independent directors. The directors are professional, have expertise in their respective functional areas and bring a wide range of skills and experiences to the Board. Our governance principles and the charters of the Board's standing committees establish a framework for governance of the Board and oversight of the company. Each committee plays a key role in reinforcing our commitment to doing business in accordance with the highest corporate standards. At GMM Pfaudler, our plants are ISO certified. We have been recognized with 14 international accreditations, which is a testament to the commitment to quality, service and reliability. These accreditations are a gate pass that enables us to explore and enter new geographies and cater to the diverse needs of our international clientele. The year FY '22 started off with a strong order book, which is significantly higher than the previous year, with Hyderabad and Ahmedabad facilities in operation, along with the synergies from the Pfaudler International acquisition. The management remains confident that GMM Pfaudler will continue to dominate the corrosion-resistance technologies markets, and we continue to be the big player in this area. I have always believed that our employees are our most important asset. Without their hard work and determination, we would not be where we are today. They have always risen to the challenge. And even today, as I write this and I read this letter, I must convey my heartfelt gratitude and recognize each and every one of them for the incredible effort that they have put in during these challenging times. Before I conclude, I would like to place on record my appreciation of the Board of Directors for ensuring effective corporate governance and thank them for their continued support and guidance. I would also like to acknowledge our employees, customers, suppliers, partners and shareholders for their support and faith in GMM Pfaudler. Thank you for being a part of our exciting journey. Thank you.

I now invite the shareholders to express their views or ask questions pertaining to the performance of the company during the year under review or any other resolution place for approvals of the shareholders. The shareholders who have sent their queries on the e-mail ID of the company provided in the notice of the meeting will be answered during the meeting. Now I actually invite the stakeholder -- the shareholders who have registered themselves as speakers to express their views and ask questions and give suggestions. The first speaker that we have is [ Ravi Kumar Naredi ]. If you can please log on and ask his question.

Thank you so much, sir. [ Ravi Kumar Naredi ] is not present in the panel. So we can move to the next speaker, sir.

The next speaker is Mr. Aspi Bhesania, if he can log on and please ask his question.

Sir, can you see me and hear me?

We can hear you. Yes, we can see you and hear you, yes. Please go ahead, Aspi.

Sir, Q1 stand-alone year-on-year was very good. But quarter-on-quarter, net profit reduced by 18%. What was the reason for that? However, consolidated, you have incurred a loss. When do you expect the subsidiaries to turn around? Overseas revenues increased by 40%, but profit has reduced by 10%. Can you inform onetime expense per merger, if any, which we can exclude from the P&L account? Sir, Pfaudler is owned by GMM 54%, 20% by previous owners and 26% by owners of GMM, that is the Patel family. And they, in turn, own stake in GMM. It's very confusing. Why don't you have direct holding by the Mavag and Patel family in GMM rather than through all this in-between companies? And sir, you always mentioned orders at hand, but you never mentioned how much orders are there. So what are the orders as of today in hand in Indian company and also in the subsidiaries? And how much of our turnover comes from -- stand-alone turnover comes from supplying to our overseas subsidiaries? Sir, thank you, and all the best.

Thank you, Aspi, and I wish you a happy new year. I think the Parsi New Year was on Monday, right? So in advance, wishing you a happy new year. Let me start off a little bit in terms of the Q1 results, which you just asked some questions on. There is a reported loss in terms of PBT and PAT. However, this has to be seen in context of onetime expense of PPA, which is purchase price allocations, which we had to account for. This was also done in Q4 of the last financial year as well as Q1 of this financial year. This is a noncash entry and accounting entry, and this will no longer be charged to the P&L from next quarter onwards. So there is a net charge, a deduction of INR 46.5 crores. That number will now be added back next quarter onwards. So on a consolidated level, both companies are profitable. Obviously, GMM Pfaudler India has an EBITDA margin of close to 26%, and Pfaudler has -- International business has an EBITDA margin of close to 10%. So the companies -- both the companies here in India as well as the International business are doing very well, much better than expected. We've also seen a turnaround in the international businesses, where 2 of the loss-making units have now turned positive. This is the German site as well as the Chinese site. So that's a big positive for us. The turnaround is quicker than expected. And in terms of order book, we are very, very happy that both here in India and internationally, we have a very strong order book that gives us visibility not only for the next few quarters, but also for the entire financial year. In terms of the numbers for the order book, the current order book, I think -- Manish, what is the order book between...

The global order book is -- can you hear me?

Yes.

Yes. So the global order book is at INR 1,700 crores. INR 500 crores is on the stand-alone basis for India, so Mavag and PFI combined.

Yes. So INR 1,700 crores of backlog is available on hand right now, out of which INR 500 crores is here in India. So that's a substantial increase over previous year. And like I said, that gives us a very positive feeling in terms of what we can close this financial year at. The industries that we cater to, both chemical and pharma, continue to invest, both in India and internationally. So we believe that this is not a short-term cycle. This is more of a long-term cycle that we expect to continue. Also, you asked about the shareholding pattern in the international company. I think the idea, when we decided to create this structure, was to give confidence to the people that the promoters are also investing in the business internationally. We believe that there is tremendous scope for improvement on the international business and basically show to the market that we are also interested and committed to turning around the international business. And that's why we invested our own money into that international business as well. Having said that, there's always been a plan, and I've always said that we, at some point, will make GMM Pfaudler the 100% owner of the international business. And that's something that we plan to do, and we will end up doing that as well. I think that pretty much answers Aspi's questions. I don't think we have -- sorry, I think we have one more. Yes. So we have a question from [ Guruprasad Venkateshwar ] from Mysore. He asks us about, could you articulate what level of ROCE and annual growth -- revenue growth for GMM would like to achieve over the next 3 to 5 years? We've already guided towards a turnover of INR 2,800 crores by 2015 with a 16% EBITDA margin. And we've said that this is not including the synergies. So any of the synergies that we expect will come on top of that. In terms of ROCE, I think, Manish, do you have the numbers in front of you? We expect numbers -- see numbers to return to normal after a 3- to 4-year period, right?

Yes. Today -- So we -- at the current profitability, we are running at a 16% ROCE. And of course, over a period of time with efficiencies coming up, they have to improve.

Okay. So I think that's the last of the questions now from the shareholders. Chairman, can you read the next points?

Yes. Thank you, Tarak. I will now put resolutions #1 to #8 as mentioned in the notice of AGM dated June 28, 2021, to vote. Resolution #1 is adoption of accounts; Resolution #2, payment of dividend; Resolution #3, reappointment of Mr. Ashok Patel as Director; Resolution #4, reappointment of Mr. Harsh Gupta as Director; Resolution #5, ratification of remuneration payable to the cost auditors; Resolution #6, appointment of Mr. Malte Woweries as Director; Resolution #7, adoption of amended articles of association of the company; Resolution #8, revision in payment of remuneration to Mr. Tarak Patel as Managing Director. Our company secretary will now brief you on the e-voting process.

Thank you, Chairman. Dear shareholders, the electronic voting lines are now open. All the shareholders who have not voted through remote e-voting will vote through the electronic voting platform. This line shall remain open 30 minutes after the conclusion of this meeting. The combined result of e-voting as well as the voting and the AGM, along with the scrutinizer's report, will be declared and uploaded on the company's website, gmmpfaudler.com, and shall be submitted to the stock exchanges within 48 hours after the conclusion of the meeting. On behalf of the Board of Directors, I thank all the shareholders for their continued faith and support in the company. Once again, very sorry for the technical glitch that we had today. The meeting now stands concluded. Thank you.