Pfaudler Sells 13.56% Stake In GMM Pfaudler
#GMMPfaudler's MD Tarak Patel shares details on the company's recent block deals and the demand outlook for the chemical industry. #BQLive
Transcript
00:00 So tuning into this conversation,
00:01 GMM Fodler is in use for multiple reasons.
00:03 They came out with a fairly decent set of numbers
00:06 at quarter one.
00:07 We haven't spoken to them post that,
00:08 but in between our conversation now and the results,
00:11 there is also a large deal that happened
00:13 where in Fodlering sold about 13.56% stake as well,
00:17 which was lapped up by a couple of fairly interesting,
00:20 prominent names, including Atreides Investments
00:24 and Infinity Partners, which are funds
00:26 presumably controlled by Chris Capital, if I'm not wrong.
00:28 Tarak Patel Johnson to talk about all of that and more.
00:31 Tarak, great having you.
00:32 Thanks for taking the time out.
00:33 - Neeraj, thanks so much.
00:34 - Tarak, before I get to the fundamental performance,
00:38 just a word on the shareholding.
00:40 There are changes that has happened.
00:42 There was a large transaction happened a year and a half,
00:44 two years ago,
00:45 then a large transaction happened on Friday as well.
00:48 Just fill us in with what's the current state
00:50 of shareholding, because you are on record saying
00:52 that you want to increase your stake as well.
00:56 - Yes, so Neeraj, you might remember 2014,
00:59 DBAG comes in, our company at that point in time
01:02 was about 250 crores of revenue.
01:04 I think this year we're tracking towards about 500 crores
01:07 of dividend margin, right?
01:09 So significant change of size and scale.
01:12 And as of last Friday, DBAG have sold out
01:15 their entire stake, leaving 1%,
01:17 which we will acquire from them at 1700 rupees
01:20 as promised in the December 2020.
01:24 So from our standpoint, DBAG been a great partner for us,
01:27 long-term, very supportive.
01:29 And obviously it's, you know, one,
01:31 the journey comes to an end and a new one begins.
01:33 And like you rightly said,
01:34 Chris's capital has come in with 9.9%.
01:37 And over the next few months, we will engage with them
01:40 and kind of hopefully start the next phase of growth.
01:43 - Okay, you are on record saying that you want
01:46 to increase the stake from where it is right now
01:48 to a particular level as well, right?
01:50 - Yeah, so 24.2 is what we currently have as a family,
01:53 1% stake after the acquisition would take us to 25.2 odd.
01:58 We would cross the 25% mark as well,
02:01 and then puts us as the biggest single,
02:03 the biggest promoter in this company.
02:06 - Okay, Tarak, tell us about the plans now,
02:09 because as you said, you are a significantly large player.
02:12 You are the market leader per se,
02:15 but I'm guessing that with this transaction happening,
02:18 Fodler in its truest sense kind of moves out as well.
02:21 And please correct me if I'm wrong.
02:22 So now tell us what's the way ahead for GMM Fodler,
02:25 not just for FY24, and I'll come to that also,
02:29 but over the course of the next few years.
02:31 - Yeah, so just to correct you,
02:32 when you say Fodler moves out,
02:33 it's not really Fodler that moves out,
02:35 it's DBAG, the private equity fund that moves out.
02:37 The Fodler brand name still remains within the group.
02:41 As you rightly also said,
02:42 we are the biggest in the business.
02:44 We have about $350 million of revenue.
02:46 The next biggest one is about 200 million.
02:48 So in terms of size and scale, global presence,
02:51 we are definitely the market leaders.
02:54 But having said that, obviously we are diversifying M&A,
02:58 acquisitions have been an important part
03:00 of our growth strategy as well.
03:01 So we have a couple of things that we are working on,
03:04 obviously to kind of build on the good foundation
03:06 that our Glassline business has created,
03:08 but then add new products, technologies
03:11 that will help us grow much quicker,
03:12 especially in some of the Western markets
03:14 like the Europe and the US.
03:17 - Could you talk about that?
03:19 - Yeah, sure.
03:20 So one of the platforms that we are trying to build right now
03:22 is a mixing platform, right?
03:23 So in India, we have a mixing business
03:25 that's about 150 odd crores.
03:27 We acquired a French company very recently
03:29 with a presence in France and in China.
03:32 There's about 12 odd million euros of business,
03:35 and we are close to acquiring a small company in the US.
03:38 That would kind of put us really a global player.
03:41 We would rebrand this strategy,
03:42 come out with a clear go-to-market strategy,
03:44 have a clear brand name,
03:46 and mixing very complimentary to Glassline
03:48 goes into chemical and pharma,
03:49 but also opens up new industry segments for us, right?
03:52 Oil and gas, petrochemical, food and beverages.
03:55 So really a nice growth play for us.
03:58 And again, from a market standpoint,
03:59 not too many competitors,
04:01 and really, I think that's one area
04:03 that we can see significant growth
04:04 that will come in the next few years.
04:06 - Okay, so does this in some way,
04:10 if not insulate you, then diversify
04:12 from maybe the concentration risk of chemicals and pharma?
04:16 Because I think the last 12 months,
04:18 you would have seen that risk impacting your numbers.
04:21 - So exactly, I think what we're trying to do
04:22 in the last few years,
04:23 obviously when we started up,
04:24 we were only a glass-lining company.
04:26 We have now added multiple product lines,
04:29 new technologies that go into chemical and pharma,
04:32 but absolutely right, we are trying to kind of diversify,
04:35 take a little bit risk out of being only
04:37 chemical and pharma focused,
04:38 and be really a much wider industry player, right?
04:41 So that's something that we're working on.
04:43 And like you said, metals and minerals,
04:45 oil and gas, petrochemicals,
04:47 again, good growth markets, very large markets,
04:49 and these new technologies and products
04:51 will open up these markets for us.
04:53 - Tarek, what would the right to win be
04:56 into some of these others?
04:57 Because in chemicals and pharma, glass-line equipment,
04:59 one can understand that you have a clear right to win.
05:02 The other, what is the right to win?
05:04 - So again, I think a few things here.
05:05 One is obviously the brand name of Fodler
05:07 is quite well known across industry,
05:09 so we would definitely leverage that.
05:11 We have a global footprint in terms of aftermarket,
05:13 sales and service, we can get that,
05:15 something that we can offer customers all over the world.
05:18 We don't have to kind of bring stuff back to India
05:20 all the time, we can get it repaired and serviced locally.
05:23 And then lastly, I think some of the acquisitions
05:26 that we've made already have a strong presence
05:29 in these markets, right?
05:29 So their brand name by themselves
05:31 would also be kind of opening doors for us.
05:34 - Okay, okay.
05:36 Performances, you've done,
05:39 did you do as per expectation in quarter one,
05:41 part one of my question?
05:42 And I think in some of the other interactions,
05:44 you said that you're probably on track to exceed
05:46 in a small way, the guidance that was given earlier.
05:50 What, where does the confidence come from
05:52 considering the fact that chemicals globally,
05:56 from what I hear the commentary
05:57 from the global chemical majors,
05:58 still seems to be in a bit of a limbo, if you will.
06:02 - So very true.
06:04 I think starting off, just talking a little bit
06:06 about the industry segments,
06:07 chemical is in a soft spot right now.
06:09 However, we do expect the next couple of quarters,
06:12 things should improve.
06:13 I think things have kind of,
06:14 the bottomed out now.
06:16 I think you will see some investments
06:17 and improvements in the next few quarters.
06:19 We also expect pharma to come back strong next year.
06:22 So pharma has been kind of silent for the last few years,
06:24 but I think there's definitely
06:26 some positive news in the horizon.
06:28 I think there will be some investments that will come in.
06:30 Having said that, I think the positive for us
06:32 is that we do have a large backlog,
06:34 about 2000 odd crores of backlog already on our books
06:37 that gives us maybe six to nine months of visibility.
06:40 And then again, we've been kind of aggressive
06:42 in the market, right?
06:43 Being a market leader is kind of the right,
06:45 right of first refusal is always with you.
06:47 So you can be a little bit more aggressive
06:49 and still build a lot more of the business as well.
06:53 But having said that, I think from a number standpoint,
06:56 3,700 crores of revenue and 630 crores of EBITDA margin
07:00 was what we guided towards 2025.
07:03 We're already at 3000 odd crores last year.
07:05 We're tracking towards definitely hitting that number
07:08 much faster than expected.
07:10 On the margin front, absolutely right.
07:12 It has been a bit slow.
07:14 There has been a slowdown,
07:16 but I think because of what we have in the group
07:18 within the diversity in terms of aftermarket products,
07:21 technologies, we have a good mix around here
07:23 that we can definitely look to increase margins as well.
07:26 A short term, definitely pressure,
07:28 but I think long term, I think we're in good standing
07:30 to hit the numbers that we guided towards.
07:32 - And probably exceed them.
07:33 So here's the other question.
07:36 Where is it that capacities
07:38 and utilization levels stand currently?
07:41 And if indeed this pickup in chemicals
07:43 or pharma next year happens,
07:45 would you be in a position to be able to service
07:49 all of those demands and therefore
07:50 does operating leverage come into play?
07:52 - Yeah, so I think from the capacity standpoint,
07:54 we have capacity available today.
07:56 We are not running at full capacity.
07:58 So I would say anywhere between 60 to 75%
08:01 is what we are running at.
08:02 So definitely if the demand were to pick up,
08:05 we have capacity in place definitely.
08:07 We have local manufacturing here in India.
08:09 We can outsource stuff to India as well.
08:11 So there's multiple plays that we can kind of do,
08:13 but there's no real constraint
08:15 when it comes to capacity, right?
08:17 So I think the only real capex that we would have to make
08:20 would be after 2025, maintenance capex,
08:22 and then maybe a little bit more capex,
08:24 but no significant capex,
08:26 at least for the foreseeable future.
08:28 - Got it, okay.
08:30 So all good on the numbers front.
08:32 I just have one final question, Tarek, if you will.
08:34 - Sure.
08:35 - And that is, if you believe in your wisdom or knowledge,
08:39 any large shareholding related transaction
08:43 that could be on the anvil
08:45 over the course of the next six months,
08:47 or is it now kind of steadied out?
08:49 - So now I think it's steady state now.
08:52 I think there was a little bit of uncertainty
08:54 with the last stake that got sold on Friday.
08:57 I think people were kind of not sure
09:00 how and when it would happen,
09:01 but it's done with now.
09:02 We have stability, Chris Capital, again,
09:05 long-term investors,
09:07 have a good track record here in India as well.
09:10 So I think we just have to put our heads down now,
09:13 focus on work and kind of deliver on the numbers
09:15 over the next few years.
09:17 - Okay, well, we wish you all the best for that
09:19 and more, Tarek.
09:20 Thank you so much for taking the time out
09:21 and speaking to us today.
09:22 - Thank you, Nitesh, bye.
09:24 - Bye-bye, and viewers,
09:25 thanks for tuning into this conversation.
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