GMMPFAUDLRNSEQ2 FY23November 04, 2022

GMM Pfaudler Limited

7,822words
100turns
12analyst exchanges
5executives
Management on call
Tarak Patel
MANAGING DIRECTOR – GMM PFAUDLER LIMITED
Thomas Kehl
CHIEF EXECUTIVE OFFICER -
Aseem Joshi
CHIEF EXECUTIVE OFFICER -
Manish Poddar
CHIEF FINANCIAL OFFICER –
Priyanka Daga
DEPUTY GENERAL MANAGER -
Key numbers — 40 extracted
21%
afternoon to everybody. We are happy to report a strong quarter with a revenue growth of close to 21% year-on-year. Our EBITDA margins have also improved to 15.2%, and our order intake has also incre
15.2%
er with a revenue growth of close to 21% year-on-year. Our EBITDA margins have also improved to 15.2%, and our order intake has also increased 6% year-on-year. As for the order backlog, we stand curr
6%
-on-year. Our EBITDA margins have also improved to 15.2%, and our order intake has also increased 6% year-on-year. As for the order backlog, we stand currently at INR 2,119 crores, which gives us vi
INR 2,119 crore
order intake has also increased 6% year-on-year. As for the order backlog, we stand currently at INR 2,119 crores, which gives us visibility for the next 6 to 9 months as well. We continue to see a lot of tract
46%
tion system and opens new industries as well. We've also completed the acquisition of the balance 46% in the GMM International S.a.r.l. As many as you know, GMM was a subsidiary of the company and no
100%
GMM was a subsidiary of the company and now wholly owned subsidiary of GMM Pfaudler Limited with 100% of the profit accruing from Q3 onwards. We also have reaffirmed our credit ratings both by CRISIL
rs,
nalyst Day, which was held in September 2022. Now to give you a little bit more color on the numbers, both consolidated and standalone, I would like to invite Manish Poddar, our CFO of the India Busin
INR 767 crore
ro Air investment that we made in Italy. Similarly, talking about the few ratios, the net debt is INR 767 crores gross minus INR 300 crores cash, say INR 467 crores and so net debt to equity stands at 0.7. Net
INR 300 crore
ade in Italy. Similarly, talking about the few ratios, the net debt is INR 767 crores gross minus INR 300 crores cash, say INR 467 crores and so net debt to equity stands at 0.7. Net debt to EBITDA stands at 1
INR 467 crore
talking about the few ratios, the net debt is INR 767 crores gross minus INR 300 crores cash, say INR 467 crores and so net debt to equity stands at 0.7. Net debt to EBITDA stands at 1.1. Moving on to workin
INR 231 crore
he business. And then moving on to the cash flow. So there has been business cash generation of INR 231 crores and the investment of INR 251 crores on the working capital and capex and the balance has been p
INR 251 crore
the cash flow. So there has been business cash generation of INR 231 crores and the investment of INR 251 crores on the working capital and capex and the balance has been primarily on account of repayments of
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Guidance — 20 items
Tarak Patel
opening
“We continue to see a lot of traction both in the chemical and pharmaceutical spaces around the world and we believe that both international business and the India business will continue to do well, which will be driven by these two main industries.”
Manish Poddar
opening
“So going forward, you'll see 100% of the profits accruing to us.”
Manish Poddar
qa
“You may see this small number positive or negative, depending upon which quarter was higher or lower, going forward as well.”
V. Balasubramaniam
qa
“what exactly do you expect happens to the standalone numbers because, which are contracted quite sharply on a Y-o-Y basis in the first half?”
Manish Poddar
qa
“We expect this to normalize in second half of the year.”
Manish Poddar
qa
“So, we expect something like 12%, 13% to continue for them as well.”
Manish Poddar
qa
“So, India, you can expect 16.5% to go up and the international business primarily, you may expect to sustain.”
Manish Poddar
qa
“There's some collection that we need to make, and we expect this to improve in the coming quarters, and that is one.”
Manish Poddar
qa
“I think there's some 90 crores of POC addition that has happened in this H1, and we expect this to maybe something like 30-40 crores improvement over in H2, but that beyond that, should remain in the business.”
Aseem Joshi
qa
“And in fact, one of the big orders that Tarak talked about, is one such project.”
Risks & concerns — 5 flagged
So, you had earlier in the Analyst Day as well as spoken about the slowdown in the Pharma segment in terms of demand and order intake.
— Jason Soans
Now obviously, the continent of Europe is under severe stress.
— V. Balasubramaniam
Now, are your customers basically in the chemical industries and the pharma industries, are they having any of these companies having stress?
— V. Balasubramaniam
And it basically creates sulphuric acid which is weak.
— Aseem Joshi
And then that's where GMM Pfaudler comes in, and we actually help them concentrate that weak sulphuric acid into concentrated sulphuric acid, which can actually then be used.
— Aseem Joshi
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Q&A — 12 exchanges
Q
My first question is to Manish, more like a book-keeping question. I believe that if you actually look at the numbers, second quarter numbers, your EBITDA is close to around INR 119 crores for the consolidated entity. The standalone entity has done INR 42 crores, and Mavag and Pfaudler Inc. has done INR 70 crores. So, INR 42 crores and INR 70 crores adds up to 112 and there is another positive INR 7 crores. So, is there anything else in the company that we are missing here? Because ideally, if you look at the numbers, last year usually, when you added the numbers which you gave in your standal
Manish Poddar
Yes. Good catch, Venkatesh, yes that's true. That is primarily on account of accrual accounting concept per se. So, what happens is, when you export from India to say, Germany or US in this case, so you accrue to the profit in the standalone business in the earlier quarters. However, in the consol, you get the profit -- the entire profit of standalone and international business once you sell it out from the group, which happened in Q2. So therefore, the shipments for which India shipped before Q2 and international business then moved out to the ultimate customer in Q2, the entire profits of st
Q
I'll just continue on the previous question. So, does that mean that from what you reported in this quarter, the international margins should sort of normalize back towards 12, 13? That is India will pick up. Is that correct? Is my understanding correct?
Manish Poddar
Yes, that is correct, that international business has already, improved considerably in recent past from 10%. No, I asked because it's at 15 right now. This quarter was, I think around 15-ish, sorry, not 15. 15% is the consol number, international 13%. India is at 16.5%. So, India, you can expect 16.5% to go up and the international business primarily, you may expect to sustain. Sorry, I was adding INR 5 crores to INR 7 crores. No, you're right. INR 7 crores will give you that differential… Sorry, you were saying something? No. So, I say, yes, that INR 7 crores is going to give you the differe
Q
Just a couple of quick questions. So, if I look at our standalone business, though other expenses, just above the EBITDA, they have gone up by around INR 20 crores on a yearly basis. Could you kind of provide some color on that?
Manish Poddar
Yes, expenses have increased by INR 20 crores, primarily on account of power and fuel, if you refer to where we were last year, Y-o-Y. And this increase is also primarily because in heavy engineering, again, the combination of change is taking an impact. And also, there's some freight outward because we had a larger export shipment. So, freight outward particularly in this H1 or Q2 actually has been also higher. And sir, the pension liability reduction on the consol level, just purely because of interest going up, you haven’t funding or cash outflow to kind of get this number down. Am I right?
Q
–So if you could just give us some color on the demand outlook for GLE overall. So, you had earlier in the Analyst Day as well as spoken about the slowdown in the Pharma segment in terms of demand and order intake. So just a brief outlook I would want, especially amid rising costs, inflationary environment as well as whatever is happening in Europe. Just wanted to understand what's the demand outlook for pharma and chemical both from the end user segments?
Aseem Joshi
I'll start with India, and maybe Thomas can add on the international business. As far as India is concerned, Tarak mentioned earlier, we've been careful about selecting the right set of orders. So, we've made sure that we fill our factory with the kind of orders that we like. Now in recent times, we started seeing a pickup of some of the large projects that we saw on the horizon, and they're starting to move forward. And in fact, one of the big orders that Tarak talked about, is one such project. There are several more that are on the horizon, and we feel we are competitively placed on that. S
Q
Congratulations on good results. There's one thing in the international balance sheet. Pension liabilities. Can you explain how is it treated in the P&L? If it is treated on the P&L?
Manish Poddar
Sure, Saket I’ll start off, and then maybe Alex can jump in. So typically, these are non-funded pension liabilities, primarily in Germany. And these are closed plans, and no new employees are being added to the plan & existing employees age is approximately 80 years. And the accounting treatment is basically – as the interest rate rise as you would imagine, present value of the future liabilities goes down, and that gain accrues the OCI, Other Comprehensive Income. And then the balance sheet movement happens. Fully correct. In fact, on what we see in the balance sheet will start that assumptio
Q
Yes, I had a couple of follow-up questions, if I just look at the India business of glass line equipment, and I actually look at the business of one of your largest competitors here, HLE Glascoat. If you notice over the last 1.5-2 years, when you've been busy in consummating the Pfaudler Inc acquisition, HLE Glascoat has grown at much faster pace than your glass-line equipment in India part. So, have you been losing market share in India? And is this a cause of concern? Because I also observed that actually HLE Glasscoat, on an average, the India business meets almost 400 basis points lower ma
Aseem Joshi
Yes. So let me address this. So, look, I obviously can't comment on other businesses performance. What I would say is glass-line is obviously our largest business, and this is an area that we have been a leader in. We intend to remain a leader in. As we outlined earlier, we've always been careful about the orders that we use to fill our factory with, and we'll continue to do that. So, we are quite satisfied with the performance of our glass-line business. Our Hyderabad factory is also now ramped up nicely. And so, we have used our capacity to satisfy the right kind of customer needs, including
Q
The government in Germany is aiding companies which are you know keeping the plant shut. So, are we receiving any kind of incentives from the government?
Tarak Patel
No, nothing right now. But the government and what we hear, especially in Germany, there could be a bailout the package that could be kind of a program where the government will step in and help some of the companies who are facing a lot of pricing issues and production issues, but nothing that we have seen. Like I mentioned earlier and what Alex said as well is that we're actually seeing the prices now stabilized energy costs have stabilized. And in the last few weeks have also come down. So, we kind of believe that we are actually past the highest level. So, anything further improvement will
Q
Sir, on the international business front, you had several new smaller businesses, which are showing good traction apart from your glass-lined equipment business. Could you just kind of go into a little bit more detail on that? And related to that, next question you have tech services system, technologies of that we have been world number one for ages. How do you see growth in system specifically, which new business at kind of dragging attraction?
Tarak Patel
Right. So, I think maybe let me just kind of take you through what we have in our portfolio. So obviously, we have two new acquisitions that we made. Hydro Air is obviously in membrane separation the technologies. That business is about $8 million or so. We expect to kind of double that business in the short term. So, they are doing a lot of nice and interesting work that will help us not only internationally, but also here in India. They do a lot of work in bioplastics, in bio meats, proteins, EVs and things like that. So, it opens up a whole new industry segment for us. So that's where we be
Q
Two questions. First one is a follow-up. When you mentioned that there are certain businesses that don't fit the entire system that well. It reminds me of Edlon and its divestment. So, any update on that?
Tarak Patel
Right. So, Rohit, yes, Edlon was up for sale. The process is still ongoing. However, while this process has been ongoing. Edlon has done quite well. They do have a large order backlog and their profitability has also kind of improved significantly. So, we are still reviewing and we're still working on that when we have an update on Edlon, we will definitely let you know. My second question is related to Mixion - industrial paints and the development that you are doing with Mavag AG you can just take us through numbers in terms of millions or crores So, I think Mixion is a business that has see
Q
There was a talk about relocation of your Hyderabad facility some 2, 3 quarters back, and we haven't heard anything further. Can I know what's the position now?
Tarak Patel
Yes. So, the Hyderabad facility right now, there is no plan on the relocation, the Hyderabad plant, we've just invested and just commissioned a new furnace. We are also renovating some of the factory sheds. But our thought was that when Pharma City were to come up, we would then ask the government for land in the Pharma City so we could be close, obviously, to the industry that we cater to. As of now, there is no plan in place to move. And when Pharma City were to be available, we would definitely like to look at that as an alternative production facility.
Q
Just wanted to know in terms of margins and standalone results, we have seen quite a sharp dip from 25% around margins last year, now they're at around 16.4%. Just to wanted to know from you what were the reasons for the same one would probably be the higher steel prices and the higher cost of inventory which you've been holding. But some other reasons are that some of the Vatva ramp-up is you'll have lesser margins than GLE equipment, obviously, so that the product mix also has an impact on that. Just wanted some color on that, the margin bit?
Aseem Joshi
Yes, I take this I'll take it first. First of all, the basis for comparison this year is a little unfortunate last year, this time, we were really benefiting from the strong tailwinds, and we were achieving close to 25% EBITDA. That was quite abnormal. –And as Manish mentioned earlier, a year later now, we're seeing the opposite effect of the high commodity prices affecting us. So that's probably the biggest factor, the commodity prices that have let us down. Yes, you also identified the second factor around product mix. That's something that was not unexpected. So, as we scaled up in some of
Q
Thank you, Michelle. Thank you everybody for participating in our earnings call today, and we look forward to meeting you again in the next quarter. Thank you, and good night.
Management
Speaking time
Tarak Patel
23
Moderator
14
Manish Poddar
13
Utsav Mehta
9
Aseem Joshi
8
V. Balasubramaniam
7
Jason Soans
7
Saket Reddy
5
Rohit
4
Priyanka Daga
3
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Opening remarks
Priyanka Daga
Thank you, Michelle. Good evening, ladies and gentlemen. A very warm welcome to all of you into the Q2 FY23 Earnings Call of GMM Pfaudler Limited. The earnings presentation was uploaded on the Stock Exchange last evening and is also available on our website. Hope all of you had a chance to go through it. From the management, we have with us our Managing Director, Mr. Tarak Patel; our CEO of International Business, Mr. Thomas Kehl; our CEO of India Business, Mr. Aseem Joshi; our CFO of International Business, Mr. Alexander Pömpner; and our CFO of India Business, Mr. Manish Poddar. We will give you a brief overview of the performance of the company, after which we will get into the Q&A. Before we begin with the overview, a brief disclaimer, the presentation which we have uploaded on the Stock Exchange and on our website, including our call discussions that will happen now, contained or may have certain forward-looking statements concerning our business prospects and profitability, which
Tarak Patel
Thank you, Priyanka, and good afternoon to everybody. We are happy to report a strong quarter with a revenue growth of close to 21% year-on-year. Our EBITDA margins have also improved to 15.2%, and our order intake has also increased 6% year-on-year. As for the order backlog, we stand currently at INR 2,119 crores, which gives us visibility for the next 6 to 9 months as well. We continue to see a lot of traction both in the chemical and pharmaceutical spaces around the world and we believe that both international business and the India business will continue to do well, which will be driven by these two main industries. The international business has done really well this quarter, both in terms of revenue and profitability. Our European business, in spite of the higher energy costs and the cost reduction measures that we have taken, has done quite well. And we believe that looking into the future, the European business will kind of stabilizer stabilize with energy prices now stabilizin
Manish Poddar
Thank you, Tarak Good evening, everyone. So, to start with the consolidated balance sheet. We see NCI that the Non-Controlling Interest has netted that's because we just acquired the balance for the 46% of the Pfaudler International. So going forward, you'll see 100% of the profits accruing to us. Similarly, the debt has increased primarily on account of debt that we have taken in acquiring this stake. Pension liabilities have gone down substantially on account of rising interest rates and therefore the present value of the liabilities going down. Moving on to the goodwill and intangibles there have been some addition on account of the Hydro Air investment that we made in Italy. Similarly, talking about the few ratios, the net debt is INR 767 crores gross minus INR 300 crores cash, say INR 467 crores and so net debt to equity stands at 0.7. Net debt to EBITDA stands at 1.1. Moving on to working capital. There's a slight increase in the working capital. Some debtors need to be recovered
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