But that seems to have become a forgotten past now. The undisputed market leader that supplies glass-lined equipment to the domestic pharma and chemical industries is again witnessing massive buying by retail and institutional investors alike.
During the September quarter, 53,277 new retail investors entered the stock and their aggregate holding went up from 15.12 per cent in the previous quarter to 18.52 per cent by September-end. FPI holding zoomed to 6.61 per cent from 0.87 per cent and mutual fund holding, from 1.95 per cent to 6.02 per cent.
The company is GMM Pfaudler.
Analysts say the stock has become even more lucrative since.
On a standalone basis, the company improved margins significantly during the September quarter, thanks to a better mix of products and lower raw material prices. The numbers beat Street estimates.
“The company management highlighted that these margins are likely to sustain on improved backlog mix and operating leverage coming from a healthy order book build-up in both domestic business and Mavag AG. We expect the growth rate to accelerate during FY20-23,” said Sandeep Tulsiyan of JM Financial.
He upgraded the stock to ‘buy’ from ‘hold’ earlier with a price target of Rs 4,550, which means a potential upside of nearly 22 per cent from current market price.
On Monday, the stock traded at Rs 3,651, down 2.54 per cent.
Tulsiyan arrived at the target price at 35 times price to earnings (implying 40 times for India business and 20 times for global business). The stock currently trades at 77.71 times its earnings.
The company said standalone Ebitda grew 51 per cent QoQ and 38 per cent YoY to Rs 36.7 crore. Ebitda margin rose by 400 bps to 24 per cent. Net profit stood at Rs 25.1 crore, up 53 per cent QoQ and 39 per cent YoY.
“The improvement in profitability is expected to continue on the back of incremental revenue growth, operating leverage and some of our strategic initiatives paying off. Our Hyderabad manufacturing facility is now up and running and we expect to close the Pfaudler Inc acquisition by the end of the year,” said Tarak Patel, Managing Director, GMM Pfaudler. “We remain confident on the company’s long-term prospects.”
Dalal Street was already projecting 7 per cent growth in pharma and 6 per cent expansion in chemicals, driven by the Covid-19 impact. The upbeat management commentary enthused analysts further.
“The management aims to bring revenues to Rs 2,000 crore at a group level in FY21 and Ebitda at 13 per cent of top line. These estimates will likely see revision due to better-than-estimated Q2FY21 performance. With no strong competitor and customer shift towards quality equipment, GMM Pfaudler remains a prime supplier in the glass-lined equipment market with major scope to increase market share,” said Dolat Capital.
The company’s superior financial performance is coming in the backdrop of a stake sale by promoters to fund the acquisition of its parent company. Despite the furore over pricing of the offer for sale at half of its August market price, retail and institutional investors accumulated the stock with both hands.
Tulsiyan of JM Financial says three factors will fuel the company’s future growth: Synergy from the acquisition of a majority stake in Pfaudler International, which can allow lifetime access to the parent firm’s technology; market share gains in domestic market through acquisition of the Hyderabad facility; and margin expansion through installation of cost-efficient gas furnaces and operating leverage.
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7 Comments on this Story
Binu Pillai32 days ago
CNBC gave target 3200 downward only... Stay away.
Rajeeva BC32 days ago
Better to call this company GMM Fraudster
Raj Shekhar32 days ago
Praveen, this is not happening now, this is an eternal story happening since the time stock markets came in to existence.