GMM Pfaudler: A safe way to play the Pharma/Chemical cycle

Q1Fy24 – Rev – 912 CR PBT – 86CR EPS – 12.22

• 23.41% Revenue growth YoY. OM margins seem to have improved marginally to 14% yoy.
• There is slowdown in chemical industry and this is impacting the order book but are hoping that order book will pick up in Q2. Systems business is underperforming.
• Order back log is currently 9 months
• EBIDTA is 35% higher YoY however other income and PAT is lower, if PAT is lower how is EPS higher? – values have been rebased, so in JuneFy23 the actual profit was higher but amount to group was smaller, this is worrying though as it means profit has regrown YoY but this is primarily due to higher tax, PBT is more or less level.
• On track for EBIDTA guidance and will surpass Revenue growth.
• Confident of Similar levels of growth going forwards – Consolidated 13-15% Revenue growth and EBIDTA growth 18-20%.
• India business to growth 17-18% Rev and 20% EBIDTA.
• Future CAPEX they are saying 3-5% including maintenance for future growth targets.
• He is committed to increase stake by 1% at 1700Rs/share. Shows management commitment to this.
• Currently there is overhang in share price due to anticipated stake sale by institutional investor hopefully this should clear soon.
• They feel they are growing market share vs the likes of Glasscoat
• Debt 800CR – net debt 500CR – in 2 years they should be able to clear the debt completely with 800cr of free cash flow vs generating roughly 1600cr of EBIDTA. Any reduction in debt could provide a 10-15% pump up to PAT.
• Focusing on service centres – will try to make 15-20% of total revenues in india and china.
• Tax should be 26% yearly this Q is higher.
• Other expenses – repairs, consumables, legal professional etc
• North America acquisition for mixing company is in final stages

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