| GMM Pfaudler Limited | ||||||
| Ratings continues on ‘Watch Developing’ | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL’s ratings on the bank facilities of GMM Pfaudler Ltd (GMM Pfaudler) continue to be on ‘Rating Watch with Developing Implications’.
On August 20, 2020, CRISIL Ratings had placed its ratings on bank facilities and debt instruments of GMM Pfaudler on ‘Watch with developing implications’, after the company made an announcement on its acquisition of 54% stake in 9 Pfaudler group companies (target entities) across USA, Europe, Brazil and China, from the current holding company, Pfaudler UK Ltd. GMM Pfaudler will acquire 34.4% in these entities by itself, and the balance 19.6% through its wholly-owned subsidiary, Mavag AG. The consideration for the acquisition stands at Rs 205 crore (US $ 27.4 million), which is to be funded through fresh debt of Rs 80 crore (US $ 11 million) and balance through internal accrual and cash surplus.
This acquisition would consolidate the company’s businesses globally and make GMM Pfaudler the market leader in corrosion-resistance technologies, systems and services. However, the consolidated debt position is also expected to rise to over Rs 550 crore post acquisition, given the sizeable debt in the books of the target entities which will be taken over, coupled with debt to be availed to partly fund the acquisition.
Nonetheless, the target entities also hold cash and bank balances of about Rs 230 crore (US $32 million), which would partly offset the impact on leverage. Besides, the debt of the target entities will be rolled-over prior to closure of the transaction. Further, repayment obligations in the next 3-4 years is expected to be low with bulk of the amount due after 4 years. This should in turn support the liquidity position as well.
The company has received regulatory approvals for acquisition and integration process is underway. CRISIL Ratings is in discussion with GMM Pfaudler’s management to better understand the expected business synergies and impact of the acquisition on the company’s financial risk profile. CRISIL Ratings will remove the ratings from watch, once there is better clarity on the above aspects.
The ratings on the bank facilities of GMM Pfaudler continue to reflect its leadership position in the glass lined equipment (GLE) market. The ratings also factor in the company’s strong financial risk profile, aided by the conservative capital structure and comfortable liquid surplus. The business risk profile is backed by strong technological expertise and market presence of the Pfaudler Group (Pfaudler) in the overseas markets. These strengths are partially offset by modest growth prospects for the domestic GLE market, and large working capital requirement.
For the nine months ended December 31, 2020, revenues grew 18% to Rs 543 crore, backed by steady demand from end user segments specifically the pharmaceutical sector. Operating margin remained healthy at 20% in the first nine months of the current fiscal, driven by a favourable product mix and healthy operating efficiencies. The company should sustain its growth momentum and maintain profitability above 15%, driven by stable demand from end-user industries such as pharmaceuticals, despite the Covid-19 pandemic. |
Analytical Approach CRISIL Ratings has combined the credit risk profiles of GMM Pfaudler Ltd and its subsidiaries, GMM Mavag AG, and Mavag AG, collectively referred to as GMM Pfaudler. CRISIL Ratings has also amortised the goodwill on the acquisition of Mavag AG over 10 years through fiscal 2019.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
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Liquidity: Strong Liquidity is strong, marked by net debt-free balance sheet and healthy cash surplus of over Rs 100 crore, adequate to cover the entire capital expenditure and debt obligation over the next 2-3 years. Modest albeit improving cash accrual and minimal capital spending in the recent past led to the build-up in GMM Pfaudler’s cash surplus, enhancing liquidity. Furthermore, bank limit utilisation has also been low in the past five years. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company GMM Pfaudler was originally incorporated as Gujarat Machinery Manufacturers Ltd (GMM) in 1962. The company manufactures GLE, heavy engineering and proprietary products. In 1987, Pfaudler Inc, the world leader in GLE and glass-lining technology, acquired a 40% stake in the company, and increased its stake to 51% in 1999, following which GMM was renamed as GMM Pfaudler. The parent of Pfaudler Inc 'Robbins and Myers Inc' was acquired by National Oilwell Varco, Inc (NOV) in February 2013; NOV sold its stake in Pfaudler to Deutsche Beteiligungs AG (DB AG), a German private equity firm in December 2014. GMM Pfaudler's products are used primarily in the chemical, pharmaceutical and allied industries. Its facilities are located in Karamsad, Gujarat and Pune, Maharashtra.
GMM Pfaudler is listed on the Bombay Stock Exchange and the National Stock Exchange. As on December 31, 2020, the promoter and the group entities held about 54.95% stake and the general public held the remaining.
For the nine months ended December 31, 2020, the company’s operating income and profit after tax (PAT) stood at Rs 543 crore and Rs 69 crore, respectively, against Rs 459 crore and Rs 60 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators*
*CRISIL Ratings Adjusted numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Fully interchangeable with each other |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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| * Fully interchangeable with each other | ||||||||||||||||||||||||||||||||||||||||||
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