GMM Pfaudler Limited - Initiating Coverage - Angel Broking

GMM Pfaudler Limited (GMM) is the Indian market leader in glass-lined (GL) steel equipment used in corrosive chemical processes of agrochemicals, specialty chemical and pharma sector. The company is seeing strong order inflow from the user industries which is likely to provide 20%+ growth outlook for next couple of years.

Market leader in niche space: Supported by patented technology of its global parent - Pfaulder Inc, GMM commands 50%+ market share in Rs. 400 cr Indian GL space (~67% of the standalone business). The second player - Swiss Glascoat is just 1/5th of GMM's business. GMM has a strong and sticky clientele comprising global giants in chemicals and pharma space.

Robust demand from user industries: In the last 7 years, GMM has seen a CAGR of 9% in revenue. This is expected to cross 15%+ over the next few years mainly led by uptick in demand from user industries. Indian agrochemicals and specialty chemicals players are seeing a buoyant demand due to slowdown in Chinese competition. Most of these companies are expanding or upgrading their manufacturing facilities which will augur well for GMM.

Non-GL business and exports to boost growth: GMM has increased focus on the non-GL business, which includes mixing equipment, filtration and drying equipment for the chemical processing industry. It is expecting to increase its share of non-GL business to 50% by 2020. Pfaudler Inc has been taken over by DB AG (a German PE firm) in 2014 which is keen on increasing exports from its Indian entity to supply to Europe. GMM is targeting to increase exports to 15-20% of revenue from 6% in FY2017.

Outlook & Valuation: GMM is likely to maintain the 20%+ growth trajectory over FY18-20 backed by capacity expansion and cross selling of non-GL products to its clients. The stock is currently trading at 16.5x FY2020 EPS, which offers good opportunity to enter the stock. We are initiating coverage on GMM with a Buy recommendation and Target Price of Rs. 861 (20x FY2020E EPS), indicating an upside of ~21% from the current levels.

Shares of GMM PFAUDLER LTD. was last trading in BSE at Rs.729.9 as compared to the previous close of Rs. 712.35. The total number of shares traded during the day was 440 in over 28 trades.

The stock hit an intraday high of Rs. 729.9 and intraday low of 701.5. The net turnover during the day was Rs. 319015.

Source : Equity Bulls

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