GMM Pfaudler Ltd Management Discussions.


1. Global Economy:

Global economic growth slowed down to 2.9% in 2019 as trade tensions and Brexit delays led to a decline in worldwide manufacturing activity and trade. Amid rising concerns over global growth, central banks across the globe cut interest rates to shore up their economies. Despite increased monetary policy accommodation and reduction in the trade war, global economic growth is expected to remain subdued and decline below 2.0% in 2020 owing to the spread of coronavirus disease (COVID-19) which has disrupted economic activity. Responding to the economic and financial fallout from the COVID-19, Federal Reserve cut the benchmark U.S. interest rate by half a percentage point while the US senate passed fiscal package worth two trillion dollars. Despite all these measures, the state of the global economy continues to be fragile and uncertain.

The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity. In a baseline scenario which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8% in 2021 as economic activity normalizes, helped by policy support.

2. Indian Economy:

The Indian economy remained in the grip of a slowdown in 2019-20 with growth plunging below 5.0% owing to decline in manufacturing activity and a slump in investment and household consumption on the back of liquidity crisis in the non-banking financial (NBFC) sector. The policymakers loosened monetary policy and provided a stimulus to the ailing NBFC sector to prevent further deepening of the crisis in the financial sector. Moreover, the government-induced capital and announced the mega-merger of PSU banks to strengthen their credit capacity and stimulate credit offtake. Corporate tax rate was reduced to spur investment and boost economic growth. The Indian economy is expected to slow considerably with growth falling substantially below 5.0% in 2019-20 despite low oil prices and softening interest rate due to the Covid-19 pandemic which has brought the economy to a near standstill andstifled . growth prospects

Despite the government making a slew of policy announcements to improve credit growth, increase capital inflows and encourage private investments, the spread of coronavirus has slightly dampened the hope of economic upturn. Responding to the crisis, the RBI reduced the policy rates to inject liquidity in the system while the Government announced a relief package for the poor who have been hit the hardest by the COVID-19 lockdown. In the current scenario, there is an increasing need for policies to stimulate demand and revive growth in the manufacturing and construction sector and shield the domestic economy from the pandemic.


GMM Pfaudler caters to the following industries

- Pharmaceuticals, Specialty Chemicals and Agrochemicals. Most of the players in these industries have been witnessing favourable demand for their products and continue to be in capacity addition mode.

1. Pharmaceuticals:

The Indian pharmaceutical industry is valued over $ 40 billion and is the worlds third-largest producer of drugs by volume. The industry has made innovations in processes and formulations and established itself as a reliable, high quality and cost-effective global drug supplier. The industry has played a key role in driving better health outcomes across the world through its affordable and high-quality generic drugs.

The Indian pharmaceutical industry has attracted more than $2 billion in FDI inflows over the last three years. Demand outlook for the industry looks positive on the back of increasing spending on healthcare, improving accessibility, and growing exports. Indian governments thrust on universal healthcare through Ayushman Bharat and an increasing number of middle-class seeking quality and affordable healthcare, along with the ability of private players to attract global patients bodes well for the industry. Besides, rising per capita incomes and export opportunity, patent expiry or loss of brand exclusivity has made India a hub of affordable generic medicines globally. India is the only country in the world that has the highest number of USFDA-approved plants for generic drug manufacturing outside the US. In response to this growing regulatory environment, pharmaceutical companies in India continue to strengthen their processes, while improving automation, operating procedures and quality management systems.

Indian pharmaceutical sector is expected to grow at a double-digit CAGR on the back of regulatory support from the government like an increase in budgetary allocations for healthcare and strengthening of the innovation ecosystem. The focus on growing regulatory requirements, improved healthcare infrastructure, and a surge in research and development spend bodes well for the pharma industry. Indian companies will continue to expand globally, enriching their manufacturing capabilities to meet the growing demand in the world.

2. Specialty Chemicals:

The domestic specialty chemical sector is well poised to benefit from strong demand growth in consumer industries, availability of raw material at competitive prices, outsourcing opportunity and export opportunities due to the clampdown on chemicals manufacturing in China. Indian companies have significantly strengthened their positions in the global supply chain and have become a viable alternative for global players looking to diversify the supply risk, thereby improving export opportunities for Indian players. Increased urbanization, rising income levels and high replacement demand would boost consumption of higher-value chemicals as consumers upgrade and demand more environmentally friendly products.

Moreover, since the current penetration of specialty chemicals is low compared to countries like the US and China, the growth outlook looks promising. The government has taken various reforms and initiatives like Make in India, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Smart City Mission and Swachh Bharat Abhiyan in order to improve both physical and social infrastructure of the country. All these are likely to boost demand for performance-enhancing chemicals. Moreover, the government is planning to boost domestic production of chemicals and petrochemicals to cut down imports and make India a manufacturing hub for the sector. In the current scenario, global players are looking to diversify supply risk, thereby improving export opportunities for Indian players. In order to capitalize on the vast export opportunity, the domestic players continue to invest substantially in R&D and manufacturing capability to improve their product mix. As a result, the share of Indian specialty chemicals in global supply chain has been rising gradually. The major players are likely to set their capital expenditure plans in motion once the economic scenario improves.

3. Agrochemical:

India is the fourth-largest producer of agrochemicals globally after the US, China and Japan. Indias agrochemical industry has been witnessing structural changes, driven by rising domestic demand, favourable regulatory changes, tighter supply from China and a substantial opportunity to explore products going off-patent. Rapid urbanization and industrialization have led to shrinking farmlands while demand led by improving purchasing power continues to rise. As the country is facing twin challenges of shrinking arable land and water scarcity, increasing yield through the use of agrochemicals is the prudent solution going forward. its Low manufacturing costs and technical competence in chemistry have been the prime reasons in making

India one of the largest agrochemical exporters globally. Moreover, supply disruption in the Chinese agrochemical market has provided an opportunity for Indian agrochemical players to capitalize on the situation and gain a greater share in the global market. Indian players with backward integrated facilities are set to gain from the changing dynamics. Additionally, the recent announcement on corporate tax cuts makes India an ideal destination for global innovators to set up new manufacturing facilities in the country.

The focus on doubling farmer income by 2022 will result in higher MSPssignificantpublic for crops, spending for improving rural infrastructure (particularly irrigation projects), greater crop insurance coverage, and increase in agricultural credit. Efforts to boost crop yields and farmers awareness regarding crop protection benefits will drive domestic demand. Under the Make in India program, the major thrust has been given to R&D and production of high-quality agrochemicals by changing some important rules related to registrations of molecules. These changes have been introduced to reduce Indias dependence on imports.

4. Other Industry Segments:

Although pharmaceutical and chemical remain our largest industry segments, we are seeing significant traction in Oil & Gas, Petrochemical and Metals & Minerals. We 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 with an uptick in the economy and we remain well prepared to capitalize on the upcoming opportunities.


The COVID-19 pandemic has led to disruption in economic activity thereby impacting our end-user industries to some extent. However, manufacturing activity is expected to gradually pick up as the impact of the pandemic recedes. As such, we remain positive on the medium-term growth prospects.


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 48,700 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 of experience in manufacturing Glass-lined Equipment. Over the years, GMM Pfaudler portfolio to include Mixing hasdiversified 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. Due to COVID-19 pandemic, our factories were shut during last 10 days of March in accordance with the Government directives and accordingly, our

Revenue in the fourth quarter of the financial year was marginaly impacted.

GMM Pfaudler remains committed to meeting expectations and enhancing shareholders value, which is reflected in the increase in its market capitalization of over 11 times in the last 5 years and improvement in its ranking in both BSE and NSE at 305th and 300th position respectively.

In the financial year 2019-20, GMM Pfaudler recorded standalone revenues of Rs 5,163.55 million, up by 23% from the previous years 4,187.02 million, and consolidated revenues of Rs 5,910.72 million, up by 18% from the previous years Rs 5,026.43 million. Standalone Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) increased by 45% to Rs 1055.38 million as compared to Rs 728.05 million in FY 2019 and consolidated EBITDA increased by 37% to Rs 1168.96 million as compared to Rs 854.16 million.

Profit Before Tax (PBT) increased by 34% to Rs 820.36 million as compared to Rs 612.73 million in FY 2019 on a standalone basis and increased by 26% to Rs 922.88 million as compared to Rs 732.70 million in FY 2019 on a consolidated basis. COVID–19 began impacting our business operations from March 14, 2020 by affecting our supply chain and our ability to ship ready equipment to our customers. Our production eventually shut down completely on March 23, 2020. All in all, additional revenue that could have been recognized in the fourth quarter in a normal business environment is estimated to be Rs 300 million.

As a result, our profit for the fourth quarter of FY2020 is lower, notwithstanding this, the company ended the quarter with standalone EBITDA of 18% after absorbing the idle overheads. Further, the company has discharged its disbursement obligations in full on payroll including contractual & casual workmen and paid to its creditors through collections from customers was a bit slow during the period.

We started the year FY 21 with a strong order book which is significantly higher as compared to the previous year. Our production facilities have resumed operation and supply chain is gradually returning to normal. Even though we lost 20 days of production in April 2020, which in turn will affect our Q1 FY2021 revenues and profitability, we are confident that we can recoup the shortfall in coming quarters.


Details of change of 25% or more in the key financial ratios in comparison to the previous financial year along with explanation thereof are as under:

Sr. Particular FY 19-20 FY 18-19 % Change
1 Debtors Turnover (Days) 43.70 42.75 2.23%
2 Inventory Turnover (Days) 74.50 76.64 -2.80%
3 Interest Coverage Ratio 33.49 72.88 -54.04%
4 Current Ratio 2.37 2.38 -0.56%
5 Debt Equity Ratio 0.03 -
6 Operating Profit Margin% 16.20% 14.81% 9.41%
7 Net Profit Margin % 12.03% 10.06% 19.59%
8 Return on average net worth % 23.25% 20.37% 14.16%
9 EPS (Rs) 48.66 34.60 40.64%


a. Interest Coverage Ratio in FY20 is lower by 54.04% largely due to accounting for notional interest on lease liability to the tune of Rs 20.74 million in FY20 due to applicability of IND-AS 116 with effect April 01, 2019

b. Earning per share increased by 40.64% in FY20 due to increase in profit after tax c. Definition of Ratios:

1. Debtors Turnover : average trade receivable by revenue from operations for the year

2. Inventory Turnover : average inventory by revenue from operations for the year

3. Interest Coverage Ratio : total EBIDTA by finance cost for the year

4. Current Ratio : current assets by current liabilities including working capital borrowings

5. Debt Equity Ratio : total debt including working capital borrowings by total equity at the end of the year

6. Operating Profit Margin : EBIT by operating revenue for the year

7. Net Profit Margin : profit before tax for the year by revenue from operation for the year

8. Return on Average Net Worth : profit after tax for the year by average net worth for the year

9. EPS : profit for the year by number of equity shares


TheCompanyhasfive business verticals:

1. Glass Lined Equipment (GLE):

GMM Pfaudler is the largest manufacturer of Glass Lined Equipment (GLE) in India, which is primarily used in Pharmaceutical, Speciality Chemicals and Agrochemical Industries. In FY20, 69% of the Companys total revenue came from the GLE 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 1,970 EUs versus 1,860 EUs in the previous year. The GLE division hit a new high with 220 EUs manufactured in a single month.

GLE Revenue grew by 24% from Rs 2,850.05 million to Rs 3,547.41 million in the FY20. This business segment will continue to remain the Companys largest and most important business vertical in the coming years.

2. Heavy Engineering (HE):

The HE business in FY20 accounted for 10% of the Companys revenue. The HE business line has been a focus area for the Company in FY20 and will continue to be so even in the future. have been taken to improve the Significant Companys capacity, capabilities and its position in the market. The Company has been able to create a competitive advantage for itself by leveraging its international brand, the Pfaudler international network, strong engineering capabilities, multiple code accreditations and proven track record of manufacturing complex equipment. During the year, the Company handled equipment with a total weight of about 1100 MT different materials of construction (Carbon in Steel, Stainless Steel and Clad Steel.

In another first, the HE business line manufactured and shipped specialized equipment to Lyondell Basell, USA under ASME code. The Company also 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 even more capacity and capabilities. This involved adding key equipment in the new bay to handle heavier thickness steel in-house. It also qualified its workmen, staff and quality personnel in exotic materials of construction like Titanium. HE team is working to get the necessary qualifications and approvals from large Engineering & Construction companies in Oil and Gas sector to increase its presence in this segment.

3. Mixing Systems (MS):

The MS business, branded as Mixion, accounted for 10% of the Companys FY20 revenue. As a first for the Company, a new brand, Mixion, was launched in FY20 and has been well received by our customers. At the same time, MS also launched its own product developed in-house the High Impeller HEGI. The patent application has been accepted for HEGI design by the Indian Patent office.

The Companys energy-efficient, maintenance-friendly, cost effective agitators have helped Agrochemical, Speciality Chemicals,

Pharmaceutical, Inks, Paint, Metal & Minerals companies to improve their efficiencies and use of computational fluid dynamics to enhance productivity are key bench strength for this business. Our technical association with BHR – FMP, UK and Institute of Chemical Technology, Mumbai enhance our subject expertise.

With the acquisition of the Industrial Mixing Solutions Division (IMSD) of Sudarshan Chemical Industries Ltd., Pune in April 2019, the Company now has access to new products, technologies, customers and industry segments. With this acquisition, GMM Pfaudler has entered new markets including minerals & metals, water and wastewater, food & beverage, sugar, paper & pulp, petrochemical & refineries, edible oils and has a deeper penetration in paint manufacturing.Significantcost synergies are expected due to economies of scale, value engineering and leveraging the strength of both the organizations in their markets. The combined industrial mixing solutions entity, under the brand name of Mixion, is set to be Indias premier industrial mixing solutions provider.

4. Engineered Systems (ES):

The ES business in FY20 accounted for 3% of the Companys total revenue. The Company has extensive experience in designing and manufacturing of complete Modular Skids, Wiped Film Evaporators (WFE), Temperature Control Units (TCU) 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.

The Chemical industry produces thousands of tons of dilute inorganic waste acids containing inorganic and organic impurities. Stricter environmental regulations globally and rising operating cost mandate recovery of acid rather than waste treatment. GMM Pfaudler offersAcid Concentration plants based on the latest state of process technology and a complete range of Engineering services provided by Pfaudler Normag Systems, Germany. The offered plants are optimized with respect to investment costs and operability of the plant.

5. Filtration & Drying (F&D):

The F&D business in FY20 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 growth over the last line hasseen significant 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, our Swiss subsidiary. Mavasphere, a specialty product designed by Mavag AG has successful trials for drying of difficult products. This has resulted in from major pharma companies. significant


As the Government of India recognized R&D centre, the Company has worked continuously on new product development, improvement in the existing equipment being manufactured either in ease of manufacturing or usage by the customer. One such product was the High-Efficiency Impeller, which was developed by the Company and is being sold in the market. With the planned addition of a Test Centre to carry out pilot trials in the near future, the Company will be poised to make a further impact on the market with more products and system offerings.


Mavag AG currently contributes about 15% and 11% 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, it has been able to significantly increase its market share. Mavag is also working with Pfaudler, USA to develop the US market and has already had some success. It will continue to leverage the Pfaudler sales network to further increase its penetration and increase its market share around the world.


As chemical companies set up new facilities and Pharmaceutical companies begin to upgrade their plants and equipment, their need for good quality equipment and the 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 Gas 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 a key input for the Company.

Mitigation: The Company provides Swiss Vocational Education & Training (Swiss VET), a course approved by National Skill Development Corporation

(NSDC), that includes course content, training aids and assessment as well as Train the Trainer methodologies. Fresh ITI apprentices are trained under the 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 the 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 is monitored and controlled with reference to pre-approved budgets and forecasts.

The Companys Financial Statements are prepared Accounting basedontheSignificant 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, an appropriate level of approval mechanisms and maintenance of supporting records. The Information Management Policy reinforces the control environment.

Significantinternal 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.


By keeping a growth mindset at the heart of all decisions, the Human Resource (HR) function is stepping into the future of work strategically, by investing in resources to be future-ready.

Continuous learning is an important area and therefore launch of ‘Neev calendar provided a kick start in the learning journey of our employees. Besides investing in training programs to upskill our employees, we also focused on leadership development through coaching sessions for critical resources. Creating more leaders and having a wider pool of them as we move ahead on our growth journey is an important agenda for us. In addition to having a direct correlation with employee engagement, rewards and recognition also affect various parameters in an organization. From retention to increasing productivity, attracting new talent to business performance, the right strategy and form of appreciation improve employee experience and in turn, positively impacts the business success. We have designed a Reward & Recognition framework called ‘iAppreciate which will be unveiled in the coming years in a phased manner.

Our key focus on aligning talent and performance outcomes to match the evolving business goals has come a long way. For this, HR is deeply involved to understand the business intricacies and collaborate closely with business leaders to align the individual and departmental goals in line with the Companys goals. From an employees perspective, feedback on his/her performance plays a vital role in influencing their performance. To enable this, Situation-Behaviour-Impact (SBI) workshops were conducted for the managers to equip them with a structure to provide constructive feedback and ensure that employee behaviours are in sync with the performance outcomes.

Over the years, the PMS is moving progressively ahead towards the strategic vision.

In FY21, we will continue our work into curating meaningful work experiences for our employees and build a great place to work.


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: Pune Place: Lonavala
Date: May 23, 2020