GMMPFAUDLRNSEQ3 FY23February 10, 2023

GMM Pfaudler Limited

8,831words
91turns
10analyst 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
DGM- STRATEGIC FINANCE, GMM PFAUDLER LIMITED
Key numbers — 40 extracted
Rs. 792 crore
ing our FY '25 guidance. In terms of financial performance this quarter, we reported a revenue of Rs. 792 crores, which is a growth of about 23% and EBITDA of Rs. 118 crores, translating to a growth of 44% w
23%
ial performance this quarter, we reported a revenue of Rs. 792 crores, which is a growth of about 23% and EBITDA of Rs. 118 crores, translating to a growth of 44% with an EBITDA margin of 14.9%. I
Rs. 118 crore
is quarter, we reported a revenue of Rs. 792 crores, which is a growth of about 23% and EBITDA of Rs. 118 crores, translating to a growth of 44% with an EBITDA margin of 14.9%. I would like to also highlight
44%
2 crores, which is a growth of about 23% and EBITDA of Rs. 118 crores, translating to a growth of 44% with an EBITDA margin of 14.9%. I would like to also highlight here that there are 2 one-time e
14.9%
f about 23% and EBITDA of Rs. 118 crores, translating to a growth of 44% with an EBITDA margin of 14.9%. I would like to also highlight here that there are 2 one-time exceptional items: One is on the
Rs. 8 crore
her one is for the acquisition-related expenses, again, one-time and that is to the tune of about Rs. 8 crore. The PAT was also impacted by a onetime mark-to-market forex loss which is a non-cash item. And o
rs,
a onetime mark-to-market forex loss which is a non-cash item. And obviously, in the first 2 quarters, we had a forex gain, but in this quarter because of intercompany loans, we had a forex net loss. I
Rs. 2,247 crore
ss, the opportunity pipeline remained quite strong. The order backlog as it stands today is about Rs. 2,247 crores, which gives us about 6 to 9 months of revenue visibility. We've also done a large stock in sale
7 million
ixel Agitator Company Limited in France and China. The total consideration for this was about EUR 7 million. Mixel has a revenue of EUR 13.2 million, with an EBITDA margin of about 12%, and the backlog and
13.2 million
and China. The total consideration for this was about EUR 7 million. Mixel has a revenue of EUR 13.2 million, with an EBITDA margin of about 12%, and the backlog and the business visibility remains quite st
12%
was about EUR 7 million. Mixel has a revenue of EUR 13.2 million, with an EBITDA margin of about 12%, and the backlog and the business visibility remains quite strong. This is a good acquisition for
17.3%
this was the right time to start DBAG's divestment. The recent liquidity event and sale of nearly 17.3% stake held by DBAG to high-quality investors shows that the strong demand and interest in our bus
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Guidance — 20 items
Tarak Patel
opening
“Our overall performance remains on track, and we are confident of meeting our FY '25 guidance.”
Tarak Patel
opening
“However, we will be reapplying for the export license, and there is a good chance that this export license will come through.”
Tarak Patel
opening
“But as many of you know, we outperformed and completed our 2020 guidance 1 year ahead of plan, and it was hence decided that this was the right time to start DBAG's divestment.”
Tarak Patel
opening
“Regarding the balance stake of DBAG, it will be sold to the right set of investors at the right time.”
Manish Poddar
opening
“Therefore, you will observe that we are on track to achieve our guidance for FY '25, which is Rs.”
Manish Poddar
qa
“Apart from that, we, of course, have some $25 million of cash to net debt will be there to that.”
Utsav Mehta
qa
“800 crores of debt, sort of what is the target in terms of bringing this number down?”
Tarak Patel
qa
“However, we do have a plan to be debt free by FY '28.”
Tarak Patel
qa
“However, we believe that it will be sooner than that.”
Tarak Patel
qa
“And we obviously have a plan to remain below the 1x Debt to EBITDA.”
Risks & concerns — 7 flagged
At the same time, I would still like to mention that commodity and energy costs do remain a concern.
— Tarak Patel
Therefore, you would have seen Q1 and Q2, we had a positive impact of Rs.
— Manish Poddar
We were hoping for some positive impact of metal pricing reducing and old inventory actually moving out.
— Tarak Patel
Obviously, material costs still remain a concern.
— Tarak Patel
So, how should we think about this in terms of is this largely a timing issue where client seem to be taking longer or you are seeing genuine slow down while people seem to be talking to you, but there is a general slowdown happening particularly in Europe?
— Jonas Bhutta
Yes, we’ve seen some slowdown in the systems business internationally, but the opportunity pipeline remains strong.
— Tarak Patel
Plus, we now have the Hyderabad facility, which also has capacity, like you rightly said, there has been a little bit of a slowdown when it comes to pharmaceutical, but then the agrochemical and specialty chemical sectors are making up for that shortfall, right?
— Tarak Patel
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Q&A — 10 exchanges
Q
First one, what is the gross debt as it stands currently and how much of that is in foreign currency?
Manish Poddar
Utsav, the gross debt stands at Rs. 800 crores of which Rs. 400 crores is in the international business, which is obviously all in foreign currency, local currency in those countries. And another $5 million of ECB, which is there in India. Apart from that, we, of course, have some $25 million of cash to net debt will be there to that. And this excludes the employee liabilities, right, pension liabilities? Yes, this is the total debt. This is the only debt to the bank. I just wanted to understand the Rs. 18 crore foreign currency translation loss on an international debt of Rs. 400 crores, that
Q
Just following up on the margin question on international side. I think when we had guided originally to improve our margins to somewhere about 16%, the expectation was that although we maintain standard margins around 20%, there would be a significant step up in the international margins, which has kind of played out in the first 9-month period. So, just want to understand where all do you further see scope of improvement in international margins from this 12.7% what is reported in the current quarter? Or do you think largely all of those improvement plan has materialized and this is where st
Tarak Patel
So, yes, I think the international business today is in par with our India business. In the past, India business was accounting to nearly 70-odd percent of our total profit. While today, the international business is nearly as big and as strong as the India business. So, that's definitely a very kind of a heartening situation for us. We also see that this margin in the international business will continue. Some of the new acquisitions that we've done will only help us kind of improve and maybe grow this margin as well. One of the recent acquisitions that we've done with Mixel, again, mixing is
Q
Hi Team, I have a question. Manish, if you can help me understand this. If I look at EBITDA in the International business, this is the number on Slide #21 of your presentation, this is about Rs. 71 crores odd, right, which is the International businesses EBITDA, right? And if look at the EBIT in the overseas business, I’m assuming these are like-to-like comparison and the EBITDA is close to Rs. 14 crores odd, Rs. 14.15 crores. The part of the difference obviously is depreciation, which I did --
Tarak Patel
Salil, we can't hear you very clearly. Can you maybe just slow it down a little bit and speak up a little bit, so we can hear you a little bit more clearly. Sure, sure, I’ll do that. So, I think EBITDA in the International business is Rs. 71 crores and the EBIT in overseas business, which is part of the segment results is some Rs. 14.15 crores. So, I’m just trying to see how do we get from Rs. 71 crores to Rs. 14 crores, right? I saw some depreciation could be about Rs. 20 crores odd. But if you could help understand the rest of the bridge, it would be really helpful? This seems like a pretty
Q
Just trying to put in place the commentary to the numbers. So, basically, what we’ve seen is in the last 2 quarters, our order intake has sequentially declined from a peak of almost Rs. 990 crores odd down to Rs. 770 crores. But on the other hand, we also heard your comment where you said inquiries seem to be still robust. So, how should we think about this in terms of is this largely a timing issue where client seem to be taking longer or you are seeing genuine slow down while people seem to be talking to you, but there is a general slowdown happening particularly in Europe?
Tarak Patel
So, I think it’s a combination of multiple things, generally the business environment is a bit subdued over the last maybe 2 quarters. I think the Ukraine war, the global inflationary issues and problems going on. But the inquiry still continue, maybe the time they take to finalize has kind of increased. But we are seeing again some kind of a reversal in those trends. We have over the last quarter seen significant project here in the glass line part of our business here in India, like I mentioned to you. Yes, we’ve seen some slowdown in the systems business internationally, but the opportunity
Q
I just wanted to understand on the valuation front. So, can you just give me a brief on the valuation, what we like acquired the pending or the remaining 46% which we acquired on that front?
Tarak Patel
Manish? Valuation of the 46%. So. I think we have a detailed presentation penned out for this at the time of acquisition. And it compares all about I think both the EV EBITDA multiple, it was 6-6.5. That was the valuation multiple effect, that’s what we’re looking at. And just on the 2014 DBAG one? DBAG had acquired in 2014. They acquired the Pfaudler Group. I’m not sure at that point it was done directly with another Company, what DBAG ended up paying, I have no idea. That’s something that is not in the public domain and that was done between NOV, who is an American Company and DBAG. Not sure
Q
I actually had one question for Manish and one question for Tarak. Now, firstly, Manish, last year, if you actually see the fourth quarter results, fourth quarter last year, effective tax rate was almost 60% odd in the fourth quarter. Are we expecting a similar level of effective tax rate in the fourth quarter? This is a question for Manish.
Manish Poddar
So, effective tax rate for the organization stands at 27%. However, there have been fluctuations on the positive and the negative side through the quarters as we’ve seen. There have been deferred tax reversals and further credit in the last quarter as we saw. Similarly, if you look at the current quarter, Q3, you have a PAT of Rs. 19 crores, a reported number. And if you add 27% of normal tax rate, you give us Rs. 5 crores of taxes. And then the FOREX MTM that we spoke about that Rs. 18 crores, that is obviously is nontaxable. So, that's a Rs. 6 crore impact. And these are the minor deferred t
Q
When we say our hands are full with the order book of 6 to 9 months, what kind of capacities do we have in hand currently, as in what kind of utilizations are we at and where can we reach?
Tarak Patel
So, I would definitely see that in our India glass line business, we are not at full capacity. India has a backlog of about 6 months. So, there is definitely potential to kind of improve the capacity in India and take more orders like I mentioned to you. Orders have been between choosing and picking orders carefully to make sure that we do a good margin business. But in Europe and the other geographies, we do have a higher capacity utilization and I think the order backlog there is much stronger. They have about 9 months in most of the glass line factories, so there the utilization rates are m
Q
Two questions. The first one is related to this holding of Pfaudler Inc. So, is there any binding clause or binding agreement or contract because we had some of these contracts in the past for 3 years. So, are there any more contracts or are they willing to extend it going forward?
Tarak Patel
No. So, there is no real contract in place. But again, I mentioned that DBAG is a responsible shareholder and they will only sell when the time is right and with the right set of investors. So, again, there is no specific timeframe. As and when the demand is there, the right price and the right set of investors, we would like to do the transaction. And obviously, the private equity investors, they have a financial timeframe that's been announced in 2014. It's already now nearly 9 years. So, the timeframe is probably at the end of the timeframe. So, when we find the right position for them, I'm
Q
One question. If I remember right, I mean in the previous call, you had mentioned that the reason why you're not participating, especially in the kind of orders that your domestic competitor usually gets into is because these are on the lower end of the F&D. Now when I look at their margins, that is whether be the gross margin or the EBITDA margin, they seem much better despite having the higher mix of that lower end of F&D. So, could you just help me understand and probably provide your perspective as to how probably they are able to make better margins, despite being on the lower end?
Tarak Patel
I'm not sure what you're speaking about, but in terms of glass line, obviously, we are the market leader. In F&D, filtration and drying, we are definitely not the market leader, and we focus on the high end of any kind of filtration and drying which requires technology, that's what we’re really focus on. I mean, I have access to my competitor’s numbers, I don't really know how and why those numbers are the way they are. What we can tell you is that being a market leader, we drive price. Price is important for us, and we make sure that we will only do business in the glass-lined segment at a pr
Q
Thank you very much, everybody, for joining the call. Have a nice weekend, and we will talk to you after our Q4 results. Thank you very much.
Management
Speaking time
Tarak Patel
25
Manish Poddar
15
Moderator
12
Utsav Mehta
11
Aseem Joshi
3
Thomas Kehl
3
Salil Desai
3
Jonas Bhutta
3
Bhavesh
3
Ronak Vora
3
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Opening remarks
Priyanka Daga
Thank you, Nirav. Good afternoon, ladies and gentlemen. A very warm welcome to all of you into the Q3 FY '23 Earnings Call of GMM Pfaudler Limited. The Earnings Presentation was uploaded on the stock exchanges 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 uploaded on the stock exchange and our website, including our call discussions that will happen now, contained or may have certain forward-looking statements regarding our business prospects and profitability, which ar
Tarak Patel
Thank you, Priyanka. Good afternoon, everyone. I am pleased to report another good quarter driven by strong execution across geographies. Our overall performance remains on track, and we are confident of meeting our FY '25 guidance. In terms of financial performance this quarter, we reported a revenue of Rs. 792 crores, which is a growth of about 23% and EBITDA of Rs. 118 crores, translating to a growth of 44% with an EBITDA margin of 14.9%. I would like to also highlight here that there are 2 one-time exceptional items: One is on the basis of an inventory provision where we were actually going to supply a large reactor from U.K. to China, and the application of this export license was rejected by the U.K., the government. Obviously, we have taken the most conservative approach and provided for the entire order. However, we will be reapplying for the export license, and there is a good chance that this export license will come through. And obviously, at that point of time, we would the
Manish Poddar
Thank you, Tarak. Good afternoon, all. We start with the consolidated numbers. The revenues for Q3 of FY '23 stood at Rs. 792 crores, a decent 23% growth Y-o-Y. EBITDA margin stood at 15% at Rs. 118 crores. This is a 2% increase in the margins Y-o-Y. PAT also is up Y-o-Y. However, in the current quarter, we were hit by a couple of exceptional items worth Rs. 22 crores, first one was the inventory provision of Rs. 14 crores that Tarak explained. This was a GLE equipment shipment plant from U.K. to China. Because of the rejection of the export license, we could not ship it out. And therefore, we took a conservative view of providing 100% of the Rs. 14 crores. The second exceptional item was on the legal costs on the recent acquisitions and the Edlon sale back proposed of Rs. 8 crore. Apart from these 2 exceptional items, we also had a forex MTM loss of Rs. 18 crores, which is a non-cash item on the foreign currency forex. This is on intercompany loans in Euro and as you know, this quarte
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