GMM Pfaudler Limited Q4 FY24 Earnings Conference Call Insights

Key highlights from GMM Pfaudler Limited (GMMPFAUDLR) Q4 FY24 Earnings Concall

• Financial Performance
  • Consolidated revenue grew by 8% to INR3,446 crores.
  • EBITDA increased by 11% to INR477 crores with an EBITDA margin of 13.8%.
  • Q4 revenue was INR741 crores, and EBITDA stood at INR91 crores with a margin of 12.3%.
  • Profitability margins improved in the international business, while margins in India remained stable.
  • Cost control measures and focus on operational excellence contributed to improved profitability.
  • Completed consolidation of MixPro in Q4 Canada.
• Order Intake
  • Q4 order intake grew by about 14% to INR861 crores.
  • Growth driven by long-distance technologies and system platforms.
  • New industries like semiconductor contributed to order intake growth.
  • Strong opportunity pipeline, and Q1 order intake expected to continue similar trend.
  • In India, orders booked till November can be shipped by March 31.
  • For international business, orders booked till August can be shipped by March 31.
  • 30% of international revenue from services, which can be booked closer to year-end.
• Debt Repayment
  • Repaid INR145 crores of long-term debt in FY24, exceeding the target of INR140 crores.
  • Repaid and closed entire debt related to Hyderabad and Vatwa acquisitions.
  • Repaid INR96 crores of long-term debt in India and INR50 crores in the international business.
  • Improved financial ratios: net debt to equity at 0.4 and net debt to EBITDA at 0.8.
  • Plan to continue debt repayment journey in the upcoming years.
• Cash Flow
  • Generated INR253 crores of pre-cash flows, around 50% of EBITDA of INR477 crores.
  • Significant improvement in cash generation in H2 through inventory optimization and cash collection.
  • Working capital expanded in H1 due to operational reasons but brought back to basic levels in H2.
• Competitive Environment
  • Demand in domestic GLE (glass-lined equipment) space remains sluggish.
  • Intense competition requires vigorous efforts to secure orders.
  • Measures taken to improve manufacturing efficiency and reach broader customer base.
  • Significant improvement in Indian glass line order intake over the last two quarters.
  • Market share likely increased, but pricing pressures persist until market recovery.
• International Order Intake
  • International revenue grew, but order intake declined.
  • Customers pausing or delaying some projects due to global environment.
  • Large orders received from U.S. market in Q4 and current quarter.
  • Strong opportunity pipeline, but decision-making slower than usual.
  • Recovery signs in U.S. and Europe, with order intake improving.
  • China market remains slow, but recovery expected soon.
• Semiconductor Industry Demand
  • Receiving good demand from semiconductor industry, particularly for PTFE-lined vessels.
  • Edlon (U.S. subsidiary) specializes in corrosion-resistant vessels for high-purity applications.
  • Semiconductor industry requires extremely low metal contamination levels.
  • Potential for other product lines to cater to semiconductor chemical facilities.
• Margin Guidance
  • Previous guidance of INR3,700 crores revenue and INR630 crores EBITDA (17% margin) was provided 2-3 years ago.
  • Industry downcycle, especially in agrochemicals, impacted performance versus guidance.
  • Focus on improving cost efficiency measures during downcycle.
  • Expectation of better margins as market recovers, leveraging benefits of ongoing efforts.
• Edlon Business Growth
  • Edlon’s semiconductor business size grew from $10-12 million to $25-20 million in two years.
  • Significant growth expected due to investments in semiconductor industry in America and Europe.
  • Well-positioned with outstanding quality and purity of PTFE lining for tanks.
  • Investing in new site to provide tanks of all sizes required by the industry.
• International Business Outlook
  • International business expected to maintain similar margins in the next financial year.
  • Challenges in China with slow order intake and potential absorption issues.
  • Restructuring exercises in Europe, including setting up a low-cost sourcing facility in Eastern Europe.
  • Positive outlook compared to 12 months ago, but complete turnaround expected in 6-9 months.
  • Other business lines like heavy engineering helped offset slowdown in chemicals and glass-lining.
• Guidance Recalibration
  • Previous guidance of INR3,700 crores revenue and INR630 crores EBITDA (17% margin) seems difficult for FY25.
  • Management working on cost optimization and operational efficiency measures.
  • Confident of growing EBITDA in the next financial year, but no specific guidance provided.
  • Plan to present a new strategic plan and 3-year outlook to investors in a couple of months.
• Product Replacement Cycles
  • Replacement cycles vary based on application, customer maintenance, and geography.
  • In India, typical replacement cycle for reactors is 7-9 years.
  • In Europe, reactors are used more carefully, leading to longer replacement cycles.
  • Installed base in India, built over the last 10-12 years, is aging and may require replacements or re-grafting.
• Business Diversification Strategy
  • Executed 704 MW against internal target of 900-950 MW for FY24.
  • EPC is a long-haul business with project preparatory work.
  • Conscious effort to diversify product portfolio and end-user industries to mitigate risk.
  • Glass-lined equipment (GLE) business reduced from 80-90% to 50% of revenue.
  • Exposure to chemicals and pharma industries also reduced from 80-90% to 50%.
  • Focus on growing new high-potential businesses with low market share.
  • Catering to new-age industries like semiconductors and machinery.
• Service Center Expansion
  • Opened new service centers in existing facilities in Malawi (Switzerland), Brazil, and the U.S.
  • Inaugurated a new service center in Italy recently.
  • Acquired 50% stake in a joint venture facility in Georgia, U.S., specializing in repair and service stations.
  • The new facility in Georgia will be inaugurated in July, further expanding service footprint in the U.S. and Mexico.
• Mixing Business Growth
  • Target to reach $100 million revenue from mixing business in the next 3 years (currently at $40-50 million).
  • Consolidating designs, brands, and go-to-market strategy for the mixing business.
  • Leveraging acquisition of MixPro to enter new industries like metals, minerals, and wastewater treatment.
• Altilium Collaboration
  • Partnering with an engineering company, Altilium, to combine equipment and process technology.
  • Aim to offer a combined package to customers, leveraging respective strengths.
  • Extends market outreach by providing a comprehensive solution to customers.
  • No plans to acquire Altilium currently, but exploring collaboration opportunities.
• Capacity Utilization
  • Glass-lined equipment business currently operating at around 65% capacity utilization.
  • Other businesses have higher capacity utilization levels.
  • Glass-lined equipment can technically operate at 90% utilization, with longer lead times.
  • Implementing measures to improve throughput from existing assets to cater to market recovery.
• Gross Margin Expansion
  • Increase in gross margins was due to higher product revenue contribution compared to services.
  • As product revenue grew quarter-on-quarter, material cost of consumption decreased as a percentage of revenue.
  • The company expects gross margins to revert to normal levels once the situation stabilizes.