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.