ICRA reaffirms 'AA-' rating of GMM Pfaudler with 'stable' outlook

The agency has also affirmed the company's short-term rating at '[ICRA] A1+'.

ICRA stated that the reaffirmation of the ratings factors in GMM Pfaudler' (GMMPL) leadership position globally in engineering equipment and systems, including glass lined equipment (GLE), with strong in-house technical capabilities and manufacturing infrastructure.

ICRA notes that GMMPL continues to capitalise on the acquisition of Pfaulder Inc through access to technical know-how, product mix and expansive geographical manufacturing presence and customer relations, evident from the healthy revenue scale-up and order inflows over FY2023-FY2024.

Moreover, the management's strategy of undertaking acquisitions over the past fiscals has supported GMMPL's overall business risk profile through improved geographic presence, wider product profile and addition of new end-user industries, bolstering its revenue, profits and earnings growth prospects.

Although, the same has led to increase in the company's total debt, which in the current scenario of moderation in profitability has translated into moderation in the debt coverage metrics to some extent.

The ratings factor in the company's healthy business position, supported by a robust global reach, strong technical capabilities and cross-selling opportunities across various product lines, and an established customer base.

The rating considers the strong presence of the company in the large vessel segment with an overall market share of over 40% globally in the GLE segment.

The ratings also consider the diversified product offerings by the company in the non-GLE segments, providing access to multiple end-user industries other than chemical and pharma.

The bolt-on acquisitions completed by the company over FY2023-FY2024 (Mixel, MixPro & Hydro Air Research Italia) will expand its product portfolio and provide access to additional market segments such as mixing, plant-based proteins, bioplastics and lithium purification.

The acquisitions will also aid the company to cater internationally to industries such as water treatment, mining and biogas, among others, in geographies where its current presence is limited to chemical and pharma and support the expansion of its existing mixing division.

The ratings are, however, constrained by the company's continued higher debt levels owing to the sizeable debt additions to fund various acquisitions over the past fiscals, thus moderating the debt coverage metrics at a consolidated level.

The debt coverage metrics is expected to improve, going forward with profit expansion as well as debt amortization.

The ratings consider the vulnerability of the company's profitability to the volatility in steel prices, given the production cycle of six to nine months for GLE, and upto 18 months for heavy engineering.

Further, GMMPL's operations remain exposed to new capital investment cycles in key end-user segments, with the company deriving a major share of its revenues from the pharma and chemical sectors.

However, the company's ability to generate healthy profitability and steady cash accruals through low-cost sourcing and benefiting from economies of scale on a sustained basis will be critical for its credit profile to improve.

ICRA also factors in the favorable demand prospects in the medium to long term on the back of healthy growth and the capex expected in pharma and specialty chemicals, both in India and overseas.

GMM Pfaudler enjoys a nearly 40% market share in the global glass lined equipment (GLE) business, while having over 50% market share in the domestic market. The company also derives revenue from the manufacture of proprietary products (mixing, filtration and drying equipment, and engineered systems), services and execution of heavy engineering projects in the domestic market. For its overseas operations, a significant revenue share is contributed by the services and system segments.

The scrip rose 0.30% to currently trade at Rs 1428.05 on the BSE.