GMM Pfaudler Ltd Management Discussions.


1. Global economy:

Global economic growth is expected to slow down from 3.6% in 2018 to 3.3% in 2019. This is due to increasing trade tensions between US and China, uncertainty related to Brexit and decline in business and consumer confidence across economies. However, the economy is expected to pick up in the second half and as such global economic growth is expected to return to 3.6% in 2020.

2. Indian economy:

According to IMF estimates, Indian economy grew at 7.1% in 2018-19 and is expected to be the fastest growing economy in the world in 201920, with a GDP growth of 7.3%. Lower oil prices, softening interest rate and ongoing structural policy reforms will further strengthen our economy. The sweeping environmental reforms in China has led to closures and dislocation of several industries in their chemicals sector. This disruption has benefited the Indian chemical industry which has added additional capacities to meet global demand.

The Reserve Bank of India is expected to reduce the interest rate in response to slowing economic growth and low inflation outlook. The announcement of incentives for the middle-class and the farmer community in the form of tax exemptions, income support to farmers and pension schemes for unorganized sector is likely to further boost the rural sector and stimulate consumer spending.

The Indian economy remains well placed to achieve robust growth in light of favourable government policies, low inflation leading to decline in interest rates and increased government spending on infrastructure and rural economy.


GMM Pfaudler caters to the following industries - Pharmaceuticals, Specialty Chemicals and Agrochemicals. Most of the companies in these industries continue to invest in increasing their capacity to cater to the growing demand for their products.

1. Pharmaceuticals

The Bulk Drugs or Active Pharmaceutical Ingredients (API) industry is expected to retain its growth trajectory and grow at a CAGR of 8% through FY25.

In the short term, however, there could be growth acceleration, owing to several large proposals of companies investing to build capacity ahead of demand, with a CAGR of 15% through FY19-22. Indian pharma companies capitalised on export opportunities in regulated and semi-regulated markets. The export market has also been thriving due to strong presence in the generics space. The domestic pharmaceutical market turnover reached Rs. 1,290 billion in 2018, growing 9.4% year-on-year from Rs. 1,164 billion in 2017. With 71% market share, generic drugs form the largest segment of the Indian pharmaceutical sector and account for 20% of global exports in terms of volume, making the country the largest provider of generic medicines globally.

India remains an attractive destination for generic R&D and manufacturing of pharmaceutical owing to its strong capabilities across the value chain. The ‘Pharma Vision 2020 by the governments Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. The Indian pharmaceutical sector is expected to grow at a CAGR of 15% in the near future, driven by the following factors:

• Increasing demand in global markets

Generic penetration in high value healthcare markets has grown significantly, with India supplying more than 20% of the generics demand in major geographies.

• Stable growth in domestic market consumption

Indias pharmaceutical market has grown rapidly over the last decade and is likely to become one of the Top 3 Pharma markets by 2030, owing to rising lifestyle-related diseases and expansion in healthcare penetration due to Ayushman Bharat. This is expected to boost volume growth.

• Low cost manufacturing capability in India

Indian bulk drugs manufacturers have a distinct advantage in terms of their low manufacturing costs and advanced chemistry skills. Low direct input costs (labour and raw material) will give Indian bulk drug companies an added advantage over their peers operating in regulated markets such as the US. Cost of production in India is 65% lower than in the US and 50% of that in Europe.

India has the second largest number of US-FDA approved facilities outside the USA. The cost of manufacturing formulations in India remains 30-40% lower than other comparative manufacturing hubs such as China and Eastern Europe.

• Patent expiry

About 120 drugs are expected to go off-patent in the next ten years, with expected worldwide revenue between Rs. 5,528 billion to Rs. 17,275 billion.

• China slowdown

API supply disruption from China will urge domestic companies to produce APIs and key materials inhouse, thus increasing sales domestically.

2. Specialty Chemicals

According to India Ratings, the domestic specialty chemical sector is expected to grow by about 10% annually to almost double the market size by FY25. This will be driven majorly by growth in end-user industries like textile, glass, construction and paints, all of which are expected to register double digit growth by FY22. The market size of this sector in India is expected to touch Rs. 5,864 billion by FY25. Stringent environmental regulations and their enforcement in China, have led to rising labour costs for their companies, thus becoming favourable to Indian players. India, with its competitive manufacturing cost, skilled manpower, stringent intellectual property protection laws and favourable government policies, has been able to capture the resultant opportunity and thus build global competitive capacity. Chemical companies in India have also been able to fetch better realizations due to production cuts in China, leading to gradual scaling up of operations and capacity addition.

Government of India has allowed 100% foreign direct investment in the chemicals sector and the industry remains one of the focus areas of the government under its "Make in India" initiatives. Chemical hubs have been established to provide the ecosystem for sustainable growth in the industry. The governments focus on affordable housing, agriculture and increased expenditure on infrastructure development will further spur demand for performance-enhancing chemicals. Future market drivers also include regulatory factors like the launch of the PCPIR (Petroleum, Chemicals and Petrochemicals Investment Region), that will boost domestic manufacturers through scale of manufacture and increased cost effectiveness.

The current penetration of specialty chemicals within the domestic end-markets is low as compared to international benchmarks. Higher-than-expected growth in demand, stable feedstock availability at low prices and ability to comply with regulatory norms promises favourable growth in the industry.

Sharp changes in oil prices due to an unfavourable macroeconomic scenario, uncertainty about feedstock procurement and an uptick in global capacity expansion pose major challenges.

3. Agrochemicals

India is currently the 4th largest manufacturer of agrochemicals after the USA, Japan and China and is the 13th largest exporter of agrochemicals globally. Currently, its agrochemicals market is valued at Rs. 283.31 billion and is expected to grow at a rate of 8.35% to reach Rs. 559.71 billion by 2025.

Indias agrochemical consumption is one of the lowest in the world, with a per hectare consumption of less than 1 kg as compared to the United StatesRs. 5-7 kgs per hectare and Japans 11-12 kgs per hectare. Per hectare productivity is also very low at 3 MT per hectare versus world average of 4 MT per hectare, due to lack of scientific agricultural methods. Exports contribute about 50% of the Indian agrochemical market and is expected to grow at a CAGR of 8-10% over the next 7-8 years.

Over the past couple of years, the exports from China have seen a slowdown. This is owing to the implementation of stringent environmental norms by the Chinese government and impending duties from the US on Chinese products. The main drivers of growth for agrochemical exports from India include low-cost manufacturing capability, availability of technically trained manpower and around Rs. 207.3 billion worth of agrochemicals going off-patents globally. Many Indian and global players are investing significantly in capacity expansion in India to meet the rising domestic demand and potentially creating an agrochemical manufacturing hub in India. Structural rise in pest infestation, coupled with rising awareness amongst farmers, growing rural income and the resultant willingness to spend on crop protection chemicals, is expected to provide a significant fillip to the domestic consumption of agrochemicals.

Amidst rising rural distress, both central and state governments have provided significant help to farmers by resorting to loan waivers, compensating farmers for difference between the model rate and minimum support price, providing free power, Life Insurance at minimal premium, etc. Doubling farmers income, making them tech savvy, boosting agriculture research and education and building farm related infrastructure are some of the major goals on which the government is working, for the growth of the agricultural sector and farmers welfare.

The government also intends to implement a comprehensive action plan to empower farmers throughout the farming cycle. Increasing rural spending, consistent monsoon and decreasing arable land will only increase the application of agrochemicals, thus boosting growth.

4. Other Industry Segments

While pharmaceutical and chemical remain our largest industry segments we are seeing significant traction in Oil & Gas, Petrochemical, Fertilizer and Metals & Minerals. We will continue to build our capabilities to cater to these industry segments especially through our Heavy Engineering and Mixing Systems businesses. These sectors will see significant investment in the coming years and we need to be to prepared to address these opportunities as and when they arise.


Revival in economic growth along with necessary policy initiatives by the government, for boosting industry growth, is likely to result in capacity upgradation by our end user industries through both new facilities and adding to existing manufacturing capabilities. Hence, demand outlook remains positive for the next couple of years.


Established in the year 1962, GMM Pfaudler is a leading supplier of engineered equipment and systems to the global pharmaceutical and chemical markets. GMM Pfaudler has a state-of-the-art factory with a covered area of over 41,000 square meters.

GMM Pfaudler is a leading supplier of process equipment to the pharmaceutical and chemical industries. It is the market leader and has more than five decades experience in manufacturing Glass lined Equipment. Over the years, GMM Pfaudler has diversified its product portfolio to include Mixing Systems, Filtration & Drying Equipment, Engineered Systems and Heavy Engineering Equipment and is today a one stop shop for the chemical process industry.

Mavag AG is GMM Pfaudlers wholly owned subsidiary based out of Switzerland. It was acquired in 2008 and is a supplier of Filtration & Drying Equipment to the Pharma, Biotech and Fine Chemical industries.


GMM Pfaudler continued to accelerate its growth amid challenging and dynamic economic conditions in both domestic and global environments in the past year. The Company ended the fiscal on a high note, registering a significant revenue and profitability growth. GMM Pfaudler remains committed to meeting expectations and enhancing shareholders value, which is reflected in increase in its market capitalization of over 11 times in the last 5 years.

In the financial year 2018-19, GMM Pfaudler recorded standalone revenues of Rs. 4,187.02 million, up by 34% from the previous years Rs. 3,124.10 million and consolidated revenues of Rs. 5,026.43 million, up by 24% from the previous years Rs. 4,056.99 million.

Standalone Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) increased by 37% to Rs. 728.05 million as compared to Rs. 532.32 million in FY 2018 and consolidated EBITDA increased by 20% to Rs. 854.16 million as compared to Rs. 714.71 million.

Profit Before Tax (PBT) increased by 40% to Rs. 612.73 million as compared to Rs. 438.95 million in FY 2018 on standalone basis and increased by 21% to Rs. 732.70 million as compared to Rs. 606.51 million in FY 2018 on a consolidated basis.

The initiatives taken in last few years, namely Comprehensive Plant Transformation Program to increase throughput, commissioning of new Natural Gas furnace and adding new production Bays helped to increase output across all product lines which resulted in higher revenue and profitability. Further our new cloud based ERP solution, which went live this year, will help us to strengthen internal systems and processes, improve efficiencies and reduce costs and expenses. In the current year, the Company has been able to reap the benefits from these investments and will continue to do so in the coming years as well.


The Company has five business verticals:

i) Glass Lined Equipment (GL)

GMM Pfaudler is the largest manufacturer of Glass Lined equipment in India, which is primarily used in Pharmaceutical, Speciality Chemicals and Agrochemical Industries. In FY19, 68% of the Companys total revenue came from the GL business.

The Company adopted a new rationalised method of measuring production output: Equivalent Units (EUs), which is based on the amount of effort that goes into making one unit rather than the actual count of the units produced.

This year, the Company manufactured 1860 EUs versus 1552 EUs in the previous year. GL hit a new high of 200 EUs manufactured in a single month. The Company is making continuous efforts to make this a new benchmark for throughput.

GL shipment and orders grew by 33% from Rs. 2,185.99 million to Rs. 2,850.05 million and by 21% from Rs. 2,412.70 million to Rs. 3,512 million respectively in the FY19. This business segment will continue to remain the Companys largest and most important business vertical in the coming year.

ii) Heavy Engineering (HE)

The HE business accounted for 13% of the Companys total revenue. This business line has been a focus area for the Company in FY19 and will continue to be so in the future. Significant steps have been taken to further improve its position in the market. The Company has been able to create a remarkable competitive advantage for itself by leveraging its brand, strong engineering capabilities, multiple code accreditations and proven track record of manufacturing complex equipment.

During the year, a new manufacturing Bay was commissioned for HE and the Company handled equipment with a total weight of 770 MT. In terms of value, the break-up of the materials used was Carbon Steel (12%), Stainless Steel (55%), Clad Steel (26%) and Exotic Materials (7%).

The HE division manufactured the biggest equipment with a length of 41 meter, diameter of 4.8 meter and a weight of 154 MT which puts GMM Pfaudler in a small and exclusive group of companies that can handle such large sizes.

The Company exported Stainless Steel Reactors received through the Pfaudler network.

As the Company has ambitious growth plans for this segment, steps have been taken to add capacity and capability. This involved adding key equipment in the new bay to handle heavier thickness steel in-house. Simultaneously, GMM Pfaudler will work to get the necessary qualifications and approvals from large Engineering & Construction companies in the Oil and Gas sector to increase its presence in this segment.

iii) Mixing Systems (MS):

The MS business accounted for 5% of the Companys total revenue. The Companys cost effective and user-friendly agitators have helped Pharmaceutical, Agrochemical and Specialty Chemical Companies to improve their efficiencies and productivity.

Recently, the Company acquired the Industrial Mixing Solutions Division ("IMSD") of Sudarshan Chemical Industries Ltd., Pune. The acquisition of IMSD is expected to enhance GMM Pfaudlers industrial mixing business vertical by bringing in new products, technologies, customers and industry segments. With this acquisition, GMM Pfaudler would now have access to other markets, including minerals, metals, sugar, food, etc. and have deeper penetration in paint manufacturing industry. Significant cost synergies are expected due to economies of scale, value engineering and leveraging the strength of both the organisations in their markets. The two businesses, once consolidated, would become Indias premier industrial mixing solutions provider.

iv) Engineered Systems (ES):

The ES business accounted for 6% of the Companys total revenue. The Company has extensive experience in designing and manufacturing complete Modular Skids, Wiped Film Evaporators, Temperature Control Units and Kilo labs. As the Company moves from being an equipment supplier to a solution provider, it is developing process engineering capabilities to provide complete modular Engineered Systems along with process guarantees to its customers.

v) Filtration & Drying (F&D):

The F&D business accounted for 8% of the Companys total revenue. The Company continued to strengthen its position in the market by targeting critical applications, such as high potency and sterile applications, where it has a competitive advantage. This business line has seen significant growth over the last few years and the Company will continue to focus on critical applications in both domestic and export markets. The business also provides low cost components and assemblies to Mavag AG.


Mavag AG currently contributes 17% and 16% to the consolidated revenue and profit respectively. Mavag has been able to cement its position as a technology leader in Europe and with its low-cost

sourcing initiative, they have been able to significantly increase their market share. Mavag is also working with Pfaudler, USA to develop the US market and has already had some success. They will continue to leverage the Pfaudler sales network to further increase their penetration and increase their market share around the world. Mavags profitability has also improved considerably over the last couple of years and their performance is expected to further improve in the coming years.


As chemical companies set up new facilities and Pharmaceutical companies begin to upgrade their plants and equipment, their need for good quality equipment and latest technologies will enable GMM Pfaudler to remain their preferred supplier.

Competitive sourcing strategy within the Pfaudler group will also result in increased business for GMM Pfaudler.

The global economic slowdown may have an impact on the Companys exports business. Uncertain monsoons, weak investment and volatile industrial output are ongoing concerns for sales in the domestic market.


The Company has a well-documented Risk Management Policy. The policy is reviewed periodically by the Management and the Risk Management Committee. It is appropriately modified, as and when necessary. Based on the operations of the Company, risks are identified and steps are taken to mitigate them.

i) Foreign Exchange: GMM Pfaudler has market exposure to foreign exchange mainly on account of exports and imports and therefore, is subjected to foreign exchange fluctuation risk.

Mitigation: Foreign exchange risk arising from mismatch of foreign currency assets and liability is monitored and managed within the Companys risk management framework. The Company adheres to foreign exchange regulations and ensures its compliance.

ii) Raw Material: The Companys primary raw material is steel. Any fluctuation in its pricing will impact the profitability of the Company. Certain orders with long manufacturing cycle time may be exposed to the risk of material price volatility.

Mitigation: The Company follows a typical rolling forecast process to procure and stock primary raw material largely to cover its backlog. Any significant increase in the price of raw material is passed over to the customer by way of upward revision in the price list.

iii) Cyclical business: The Company is into a cyclical business and is highly dependent for revenue generation on its end user industry expansions.

Mitigation: The Company has strategically diversified into other businesses like Heavy Engineering, Mixing Systems, Engineered Systems and Filtration & Drying Equipment businesses for cross-selling opportunities.

iv) Skilled Manpower: Skilled labourers are key input for the Company.

Mitigation: The Company provides Swiss

Vocational Education & Training ("Swiss VET"), a course approved by National Skill Development Corporation, that includes course content, training aids and assessment as well as Train the Trainer methodologies. Fresh ITI apprentices are trained under Swiss VET program in GMM Pfaudler for 2 years and later absorbed into the Company. This helps in maintaining a steady supply of skilled workforce along with adequate bench strength.


The internal controls of the Company operate through standard operating procedures, policies and process guidelines. The Company has an adequate system of Internal Financial Control commensurate with its size and nature of business, which helps in ensuring orderly and efficient business conduct.

Policies have been laid down for operation, approval and control of expenditure. Investment decisions involving capital expenditure are subject to formal detailed appraisal and review by appropriate levels of authority. Capital and Revenue expenditure are monitored and controlled with reference to preapproved budgets and forecasts.

The Companys Financial Statements are prepared on the basis of the Significant Accounting Policies selected by Management and approved by the Audit Committee and the Board. These Accounting policies are reviewed and updated from time to time. The Company uses LN ERP System as a business enabler and as a means to maintain its Books of Account.

The transactional controls built into the LN ERP systems ensure appropriate segregation of duties, appropriate level of approval mechanisms and maintenance of supporting records. The Information Management Policy reinforces the control environment.

Significant internal audit observations are reported to the Audit Committee on a quarterly basis. The Audit Committee reviews these observations and assesses the adequacy of the actions proposed and monitors their implementation. Internal Auditors conduct a quarterly follow up for implementation/ remediation of all audit recommendations and the status report is presented to the Audit Committee regularly. The Management undertakes a periodic review and ensures appropriate actions.

In accordance with the requirements of Section 143(3)(i) of the Companies Act, 2013, the Statutory auditors have confirmed the adequacy and operating effectiveness of the internal financial control systems over financial reporting.


Human Resource ("HR") in GMM Pfaudler has come a long way from being a transactional and administrative function to now co-partnering in the Business Strategy.

HR Strategy is an important part of a successful Business Strategy. All HR processes - Selection, Remuneration, Performance Appraisal, Training & Development, Talent Management & several others have a direct impact on the business. Several initiatives have come to life in the last two years. The focus of our Company has been on ensuring effective corporate governance, making available critical talent for key positions and engagement of key talent.

While we tread further on the business-driven HR strategy, we took the first step into the digital world - taking our appraisal process online. The online Performance Management System was introduced in FY19 which captured Goal Setting, Mid-year Review, Annual Appraisal followed by data calibration on a cloud-based platform.

The new system brought in work-flow transparency, authenticity & structure to the entire process. FY18 saw the launch of "Parivartan", an employee engagement survey. Subsequently, department- wise Action Planning workshops were conducted in FY19 to sensitize teams on focus areas to improve employee engagement.

Campus hiring was initiated in FY19. Premier Business schools & Technical institutes were approached and following a rigorous evaluation process, the Company selected eight Management Interns, three Engineering Interns and four Management Trainees. While the interns returned to their academics post the internship period, the Management Trainees will be inducted into the Management Acceleration Program (MAP) - an initiative to build a young leadership pipeline. They will work on Action Learning Projects, addressing real time business challenges, directly guided by the senior management team.

FY20 will focus on a more structured Learning & Development program and also create a Reward and Recognition platform - both of which are crucial to a growing organization.

l) Cautionary Note

Certain statements in the "Management Discussion and Analysis" section may be ‘forward-looking. Such ‘forward-looking statements are subject to risks and uncertainties and therefore actual results could be different from what the Directors envisage in terms of future performance and outlook.

By Order of the Board of Directors

Dr. S. Sivaram Tarak Patel
Chairman Managing Director
Din: 00009900 DIN:00166183
Place: Mumbai
Date: May 30, 2019