10 Jan GMM Pfaudler shares may rally 89%, believes Ambit, initiates coverage with Rs 2,400 target
“GMM trades at 30x FY26E P/E (12x EV/EBITDA), a 25-35% discount to its peers given earlier growth/margin issues due to deceleration in end-user capex. Valuations should re-rate with end-user capex uptick driving earnings rebound. We bake in 9%/12%/14% rev/EBITDA/FCF CAGR and expect GMM to scale 5x over FY24-41E (7x, FY19-24),” said Ambit in its report.
GMM has a global dominance in the niche glass-lined equipment industry, mainly used in corrosive chemical processes across the pharma and chemical industry. The GLE industry (>$2 billion USD) is oligopolistic, with GMM Pfaudler (acquired Pfaudler), HLE Glascoat (acquired Thaletec), DDPS, and 3V Tech being key players.
The company also sees a growing dominance in non-GLE using acquisitions for diversification. This acquisition-led diversification has reduced dependence on the chemical/pharma sectors to 60% (compared to >90% pre-Covid).
“GMM has a track record of scaling and improving the margins of acquired entities (Pfaudler: 13% revenue CAGR; +6 percentage points EBITDAM over FY20-24), driving operational efficiencies, insourcing, and cross-selling,” Ambit noted.
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GMM (India business) clocked a 25% revenue CAGR over FY16-23, led by a capex uptrend across the chemical/pharma sectors. However, growth slowed in FY24/25E given muted end-user capex.
Meanwhile, the non-GLE business increased to >50% of FY24 standalone revenue (30% in FY19) amid accelerating end-user capex.
“Capex pick-up across pharma/chemical companies will drive growth in the GLE business,” the domestic brokerage firm added.
The shares of GMM Pfaudler were trading 1.4% higher at Rs 1,232.90 on the BSE around 3 pm today.
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