Stock To Buy: Engineering Equipment Maker On Strong Outlook, Strong Traction

GMM Pfaudler, an engineering equipment and glass-lined equipment for the global chemical and pharma industry is witnessing a strong traction and the stock remains a Buy, says Anand Rathi.

Robust demand

Standalone revenue was Rs 2.1 billion (up 26% y/y); and consolidated revenue, Rs 6.4 billion. "Domestic and export demand was healthy with robust traction in pharma and chemicals. GMM is trying to lever the best out of its international presence by offering a basket and capturing customers' wallet-share. It has a robust consolidated order book of Rs 20.7 billion," Anand Rathi has said.

Capacity expansions to address robust demand

With the PFI integration and greater cross-selling efforts, domestic and international demand in all its business categories rose markedly. Hence, it realigned its businesses, ramping up production at several locations and sharpening its focus on low-cost sourcing. To address ongoing demand and its record order book, it is adding capacities at Hyderabad and Karamsad, and the recent operational furnace in Brazil.

Strong traction from user industries, outlook bright; maintaining a Buy

Internationally and domestically, in Q3 FY22 GMM Pfaudler (consolidated) business momentum was good.

The strong revenue thrust continued in the standalone business (Rs2.1bn, up 26% y/y, in line), which, though, was hit by a lower margin (18.1%). Higher raw material & gas prices, and expenditure at the new facilities curbed profitability in India.

"The international business profitability was unaffected due to higher service revenue (45%), faster turnaround in the Europe and China operations, cost controls and better negotiations with suppliers. Orders and the order book hit record highs, propelled by greater demand across regions. We expect the robust execution to continue; however, cost headwinds would persist. We adjust our estimates accordingly. We introduce FY24e, and retain our Buy rating at a target price of Rs 5,803 (34x FY24e)," Anand Rathi has said.
The shares of GMM Pfaudler was last seen trading at Rs 4871 on the BSE.

Disclaimer

Investing in equities is risky and investors must therefore understand the risk. The author and Greynium Information Technologies Pvt Ltd would not be responsible for any losses caused based on the article. The author and his family do not hold shares of GMM Pfaudler.