IGI Logo

Vision 2025: paving way for a robust growth trajectory

We attended the analyst meeting conducted by GMM Pfaudler, where management laid out its 3-year growth plan - ‘Vision 2025’, aiming revenue at INR37bn (FY22: INR25.4bn), EBITDA margin at 17% (FY22:13%) and ROCE at 25%. Key takeaways were as follows: a) maintain focus on high growth markets of India and China, to drive 13% sales CAGR over FY22-25E, b) target margin improvement of 400bps through value sourcing (higher sourcing from India and Brazil), operational excellency (turnaround in China and Germany facilities) and ramp up of new plants (Vatva and Hyderabad), c) bolt-on acquisitions and to drive cross selling (Interseal and Hydro Air) and diversification (Acid Recovery). The company has completed 7 acquisitions in last 5 years to spruce up its manufacturing capacities and develop adjacencies to capture higher wallet share from existing customers. Despite these acquisitions and 100% stake purchase of Pfaudler’s global business, its net debt to EBTIDA stands at 1.2x, as cash flows improved materially in past 2 years. We expect the company to post sales/adjusted EPS CAGR of 15%/36% over FY22-25E given robust order book of INR22bn. We maintain BUY with revised TP of INR2,300 (35x Sep’24E EPS), as we incorporate EPS accretion due to acquisition of balance 46% stake in Pfaudler International and margin improvement

* Solid growth trajectory: Management highlighted that they intend to grow revenue at CAGR of 13% over the period of 3 years and expect to clock revenues of INR37bn by FY25E. Key regions contributing to this growth would be India and China. In India, growth would be driven by strong capex in chemical and pharma industry, led by China+1 strategy of chemical companies and government support and incentives in pharma sector to promote manufacturing in India. On the international front, growth is being driven by creation of local capacities and domestic supply chain in EU and US, to defend against future supply chain shocks, thus creating strong demand for GMM.

Margin to improve with improvement in capacity utilisation: Management highlighted that margins are likely to improve from current level of 13% to 17% by FY25. This would be largely driven by operational efficiencies and better absorption of overheads with the ramp up in newly set up facilities of China, Germany and India (Vatva and Hyderabad). Further, management highlighted that in FY23, improvement in margins would be visible from 2H, as inventory levels still remain at high cost for 2Q deliveries. On the international front, margin pressure is likely to sustain in near term due to high power and fuel cost, but management remains confident on passing through these prices gradually.

Robust order book: Order inflows have improved materially in international segment, as EU and US regions are building local capacities to reduce dependence on imports. Order book as 1QFY23 stood at INR22bn, of which INR5.5bn pertains to India, orders from Europe to India is around USD5-6mn and balance order is with Pfaudler international.

* Maintain BUY with revised TP of INR2,300: We maintain BUY rating on the stock and expect the company to post sales/EPS CAGR of 15%/36% over FY22-25E, given healthy outlook across regions with improvement in margins with operational efficiencies. Our revised TP stands at INR 2,300 (35x Sep’24E EPS).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer