GMPP is a market leader in manufacturing glass-lined equipment (GLE) and systems for critical applications in the pharmaceutical and chemical industries
GMMP successfully completed the acquisition process in February last year after receiving all the necessary regulatory approvals. Post transaction, GMMP(along with its Swiss subsidiary Mavag AG) holds a 54 per cent stake(for a consideration of $27 million) in Pfaudler International, representing the Pfaudler Group’s international businesses, while the Patel family holds a 26 per cent equity stake. Listed PE firm DBAG, the ultimate owner of the Pfaudler Group, continues to retain the balance 20 per cent stake in this international business.
Meanwhile, DBAG(the Pfaudler Group) has monetised a portion of its investment in GMMP. It sold around 18 per cent shares of GMM Pfaudler in the market for around$120 million.Around 15 per cent of these shares have been picked up by foreign portfolio investors like Neuberger Berman, BlackRock Institutional Trust, Wasatch Global Investors and Champlain Investment Partners.Indus India Fund (Mauritius) Limited, Malabar Select Fund, L&T MF and Edelweiss Asset Management are the other significant portfolio investors in the company.
However, the German PE player continues to remain GMMP's largest shareholder with a stake of around 33 per cent. The Patel family, which currently holds 22.27 per cent, has also sold over 2 per cent stake in the company to part-finance its 26 per cent stake purchase in Pfaudler International.
Known for its patented corrosion resistant technologies& innovations systems and related services catering to the specific needs of customers in the chemical and pharmaceutical industries, US-based Pfaudler formed a joint venture with GMM in 1987. Subsequently, Pfaudler acquired 40 per cent stake in GMM, which it increased to 51 per cent in 1999. Pfaudler was acquired by National Oilwell Varco (NOV) of France in 2012, and sold to DBAG two years later.
The acquisition has given GMMP access to Pfaudler’s wide range of innovations and technologies in the corrosion resistant technology space as well as systems and services. This has helped the company significantly broaden its portfolio. Apart from the GLE equipment business, the company is also pursuing its business through two more verticals – proprietary products as also heavy engineering.
Founded way back in 1884, Pfaudler is present in the market with several branded product lines covering a broad portfolio that includes fluoropolymers, filtration & drying, engineered column systems, lab & process glass, sealing technology and glass-lined & alloy systems. Its systems and services capabilities allow it to support its customers – from the lab to the full-scale production plant, including optimising and improving the whole life cycle of any process equipment normally used in the chemical, pharmaceutical and food industries.
“Pfaudler’s product basket widens GMMP’s existing portfolio, allowing it to expand its sectoral bandwidth, explore cross-selling opportunities and enhance wallet share with existing customers. Pfaudler has been at the forefront of innovation, which enabled it to sustain healthy business relations with marquee global brands and strengthen its dominance in its business space. The merger paves the way for a co-ordinated approach to combine Pfaudler’s strong innovation tradition with GMMP’s successful expansion into adjacent categories,” says an Ashika Institutional Equity Research report.
The report further states that the deal will solidify GMMP’s leadership position in the GL reactor market (eg. smart glass) and create an opportunity to enter adjacent markets (e.g. cathode sheets, water probes). GMMP and Pfaudler are a strong fit in terms of products, customers and markets, the cross pollinationof which would result in significant gains for the entire group.
The company has leadership position in the GL reactor market
“Over the last five years, we have shown an unparalleled track record of growth at GMMP and it is now time to take our company to the next level through this transformational acquisition. Being an integral part of Pfaudler for more than three decades, not only do we understand the business very well but have also managed to build a collaborative relationship with the different Pfaudler units around the world. This transaction is unique from the standpoint that it combines the strengths of three very different partners – promoter family, professional management and private equity, which we believe will help extract synergies and create value for all stakeholders. On a personal level and as the third generation of a family business that began in 1963, it is a moment of great pride to see GMMP enter the global stage,” says Patel, adding that the Patel family is also looking to increase its stake to around 30 per cent in the next few years as they want to be the dominant promoters in the business.
Meanwhile, DBAG, which has stayed invested in Pfaudler for more than eight years, is also evaluating exit options.Over the years, the PE player and the Patel family have developed a good relationship and this has also played a role in the recent reverse merging of Pfaudler’s international business with GMMP. All the more so since DBAGbelieved that by merging with the robust Indian business, it can derive more value from its investment. Over the last years, GMMP has grown at a brisk pace (CAGR) of over 20 per cent in India, while Pfaudler has moved at a slow rate of 5-6 per cent.
Thomas Kehl, CEO, International Business, GMMP (previously, CEO, Pfaudler Group) says:“Over the last few years, Pfaudler has spent significant capex in modernising its manufacturing facilities across the globe. This transaction will bring synergies across multiple levels; the combined business will now be in a position to leverage GMM's highly successful lean production model and low cost to improve both revenue and profitability.”
"The rationale behind our investment in Pfaudler in 2014 was to back a high-quality supplier of corrosion-resistant equipment in a global niche market. The Group's progress over the past five years along with the phenomenal performance from GMMP validates our investment decision," says Tom Alzin, managing director, DBAG.
“GMMP is striving to become a dominant player in the global anti-corrosion landscape. Though it will face some integration challenges, the initial signs have been very promising with the management being agile in mitigating some key risks. As Pfaudler’s international business successfully turns around, and the overall business integrates and scales up effectively, we may see a new era of Indian companies disrupting the global landscape,” says a report by Ambit Asset Management.
Earlier to the acquisition of Pfaudler’s international business, in July 2020 GMMP acquired one of its primary competitors, De Dietrich Process Systems India Pvt Ltd’s glass-lined equipment manufacturing facility in Hyderabad, for a total consideration of €6 million. The plant, spread over six acres of land, is equipped with world-class equipment to manufacture glass-lined equipment and pressure vessels. French major De Dietrich Process Systems, a world leader in glass-lined equipment space and a primary competitor to GMMP, is a leading global provider of process equipment, engineered systems and process solutions for the fine chemical, chemical and pharmaceutical industries.
The company’s Karamsad facility manufactures around 250 GL equipment per month
“This facility will give us access to the readymade GLE manufacturing capacity, which will further strengthen our presence in the region. We are now well poised to better serve our customers in the South and take advantage of the expected investment in the upcoming Pharma City in Hyderabad,” says Patel.
In March 2021, GMMP emerged a successful bidder to acquire HDO Technologies Ltd’s manufacturing facility (including other assets)for a total consideration of Rs58.5 crore in a liquidation process by NCLT. HDO Technologies is a 100 per cent subsidiary of Hindustan Dorr Oliver which is controlled by Hyderabad-based IVRCL whichhas already gone under liquidation.
This state-of-the-art facility, spread over 11.9 acres with seven manufacturing bays (built-up area of 23,617 sq m) is located in Vatva, Ahmedabad and is equipped to manufacture a wide range of heavy engineering equipment. The facility will significantly enhance GMMP’s capacity in heavy engineering, while freeing up capacity at its main manufacturing site in Karamsadto expand its glass-lined equipment business. The company commenced operations of this facility in May last year.
“The HDO deal perfectly fits into our long-term goals of expanding all our business lines. This was a very timely opportunity as we were running out of heavy engineering capacity at our Karamsad site. Putting up a new factory would have taken anywhere between 24-28 months,” says a company spokesperson.
“Going forward, we will continue to look out for more such inorganic opportunities across the globe as we start our Journey 2.0. In the next few quarters, two more deals are likely to be struck. In the global market, there are a good number of lucrative deals available and we are selectively evaluating them. No doubt, being a global business comes with its own set of challenges. However, we are all geared up and have put up measures and plans to rise to the occasion and create more value for all our stakeholders,” states Patel who took over the company’s rein as the managing director in June, 2015 succeeding his father Ashok Patel whose father Jethabhai V Patel started the business way back in 1963.
Prior to that Patel was the executive director of the company since 2007. He has also served as vice president –sales, and manager – corporate development, in the company. Before joining the company,in 2001, he worked with Universal Consulting, a leading strategy management consulting &growth strategy consulting firm in Mumbai, He is passionate about protecting the oceans and marine life, is an avid scuba diver and enjoys spending time outdoors with his family.
Patel has been instrumental in recent acquisitions and also scaling up the business to the next level. Under his leadership, in the last five years or so, the company has grown at a brisk CAGR of over 20 per cent as against an average industry growth of 10-12 per cent.
Post the acquisition of Pfaudler’s international business, the GMMP managementinitiated Project Apollo in order to carry out the integration process seamlessly. Pfaudler’s international business is quite diverse and has been operated through 15-odd entities/subsidiaries across four continents, and bringing these entities and also diverse people and cultures under new management needs a concerted effort.
We are now well poised to better serve our customers in the South and take advantage of the expected investment in the upcoming Pharma City in Hyderabad
Project Apollo, launched formally in March 2021, has already entered into execution phase. A global team of around 15-odd people has been put in place to oversee the company-wide integration with the help of a steering committee and a project management office. Apart from undertaking smooth integration, project Apollo has also identified workstreams for capturing synergies across its three initiatives: value sourcing to improve market share and profitability; operations excellence across plants, as also cross selling. The company is looking to realise post-merger synergies of around $5 million by FY24.
The team is implementing GMMP’s proven operational excellence model globally.Its Karamsad manufacturing facility is known for its operational excellence and has got a distinct edge over Pfaudler’s other facilities. Now efforts are being made to make all these manufacturing facilities equally efficient.
The project also implements GMMP’s lean model across all manufacturing sites to increase throughput. While the company’s Indian facility at Karamsad manufactures around 250 GL equipment per month, most of Pfaudler’s European facilities have been making only around 30 odd units each. The aim now is to bring in some kind of parity across all these businesses. Moreover, centres of excellence have been set up to standardise the manufacturing process globally and implement best practices across plants.
Undervalue sourcing, sourcing of components for global consumption from cost-effective manufacturing centres like India, is being encouraged. Steel vessels from India are now being suppliedto other geographies, leveraging India’s low cost of production while maintaining the highest quality standards through European glass lining excellence. The company has already received orders for its Indian built vessels to be sold in East Europe.
These specific markets in East Europe are very price sensitive and were traditionally not catered to by Pfaudler International due to pricing challenges. By leveraging the lower cost of production in India, GMMPis now able to meet the requirement of this price sensitive segment. With this strategy, GMMP is looking to get into newer markets like East Europe, South East Asia and the Middle East in a big way.
While earlier GMMP focussed only on the Indian market and Pfaudler catered to the international market, after the merger,under Project Apollo, all such restrictions have been eliminated to promote cross selling across larger markets. The company has already realised the first breakthrough in the cross-selling space. Having spent more than 30 months in the acid recovery space, the company received its first order in the first quarter of FY22.
While the technology is from Pfaudler International, the design and fabrication will be done in India. This achievement positions GMMP as the only player in this space in India with capabilities to design, develop and deliver large capacity equipment. It allows the company to capitalise on opportunities coming from both the government sector and private players.
Besides, in order to serve customer needs more comprehensively, the company is expanding its product offering. Efforts are also being made to localise products and technologies and towards this end the company recently launched a variety of seals under its Interseal brand in the Indian market. These seals leverage proven German technology to deliver better sealing performance in pressure vessels. These have been localised and are being manufactured in India for the Indian market.
GMMP's highly successful lean production model improves both revenue and profitability
“GMMP is taking the right steps through Project Apollo to capture and realise synergies. This strategy has already started yielding the desired results, as the margin of its international business reached 10.3 per cent in 9MFY22 from 7 per cent in FY20 (before the acquisition of the international business), primarily on the back of the turnaround of operations in Chinese and German facilities,” says the Ashika Institutional Equity Research report.
“The company is witnessing robust demand traction from the key overseas markets of Europe and US, which along with strategies (such as value sourcing from India and outsourcing non-core fabrication work to cost effective locations ie India/Brazil) are immensely enhancing the value proposition for GMMP’s products and solutions,” adds the report.
While integration process is still on, GMMP has announced an Employee Stock Option Plan ESOP programme for its key employees across all geographies with a view to ensure employee alignment and retention. The ESOP programme which was approved by the shareholders of the company on 2 December, 2021, envisages granting of 51,161 stock options representing around 0.35 per cent of the total paid-up share capital of the company.
“We at GMMP have always believed that our employees are our most important asset. Without their hard work and determination, we would not be where we are today. As we move towards becoming a truly global organisation, a robust ESOP programme will help us retain and attract talent,” says the managing director.
Amidst all these developments, in November last year,the companyappointed Aseem Joshi as its chief executive officer for the India business. The appointment will strengthen GMMP’s India operations and provide strong leadership and a fresh new perspective. As its CEO he will oversee the overall corporate growth and expansion initiatives in the country.Thomas Kehl, who was previously (before the merger) CEO of the Pfaudler Group, is now CEO of GMMP’s international business.
Joshi has more than 20 years experience in technology, consulting, strategy, sales, and manufacturing. He started his career with IBM in the United States, setting up a cutting-edge semiconductor fabrication plant and working on bringing innovative new chips to the market. As a McKinsey consultant in the US, he worked across industries driving M&A, sales strategies, and operation improvements. In 2010, Joshi moved to India as a sales and marketing leader with Eaton Fluid Power to focus on their growth plans in the country. At Honeywell, he led various businesses in India across sensing, scanning, and building automation industries.
With all these developments in place, the company looks more determined and prepared to start its next growth phase. Efforts under Project Apollo have started bearing fruit with the international business, which has been underperforming as compared to its Indian counterpart, turning around. Revenue of the international business was up 25 per cent YoY in 9MFY22.
During the period, a good growth of 46 per cent was observed in international orders, while the order backlog was 53 per cent higher at Rs1,590 crore. During this period, the India business continued its momentum, growing at 30 per cent to Rs586 crore, while order intake jumped 39 per cent to Rs746 crore.
The company is witnessing healthy investments in pharmaceuticals and chemicals
Overall, GMMP is witnessing strong business momentum both in India and internationally with healthy demand trends accruing out of the China+1 strategy. The company is witnessing healthy investments in pharmaceuticals and chemicals which are resulting in strong order intake in India across all verticals of GLE, proprietary products, and the heavy engineering business. Its global business is also witnessing a healthy traction with investments across developed markets of Europe and US. GMMP is also seeing opportunities on the cross-selling front.
Analysts are of the view that India is set to be a big beneficiary of the high-margin and lucrative CRAMS business with facilities moving to India to reduce dependency on China. Implementation of stringent environmental regulations in China has accelerated the manufacturing shift of many chemicals to India.
The Pfaudler deal is indeed a defining event for the company which now has readymade access to the US major’s world-class technology and innovations but also to their much-enlarged portfolio of a diverse range of products. Pfaudler has 10 manufacturing facilities globally and this, along with GMMP’s four facilities (one in Switzerland belonging to its Swiss subsidiary) has expanded its product capability manifold, edging out its competition in a big way. The transaction will also help the company in its efforts to diversify its portfolio and position itself as a one-stop solution provider. Besides, the company will now have access to a much larger global market to expand its business in a big way in the medium to long run.
No doubt, GMMP has put forth all the required measures and effort to commence its Journey 2.0. However, it remains to be seen how it manages its diversified portfolio where, apart from glass-line equipment, it is also into heavy engineering, filtration and drying systems. While in the GLE space, the company is a distinct market leader, it will face some execution risks and strong competition in case of the other two verticals. Besides, managing a large organisation with a global footprint will have its own set of challenges.