Up 4,700% in 10 years! Does this smallcap have room to move up?


Mumbai: Dominating market share, robust entry boundaries, and the latest shift in manufacturing desire to India from China have ensured that this multibagger continues its stellar present even after rising as a lot as 200 per cent this 12 months.

The smallcap has constantly made buyers rich. It has surged greater than 4,700 per cent during the last 10 years, 966 per cent during the last three years and a little bit over 300 per cent within the final one 12 months.

Whereas the valuations look stretched in the mean time, analysts advocate stocking up the scrip at dips.

The corporate is GMM Pfaudler.

The thinly-tracked smallcap at the moment has one ‘purchase’, two ‘maintain’, and one ‘promote’ scores, knowledge from Reuters confirmed.

Additionally, the inventory is just not closely owned by home mutual funds or international institutional buyers (FIIs). The inventory is a part of solely six schemes by home mutual funds, who collectively have a 1.95 per cent stake within the firm, whereas 27 FIIs personal a complete of solely 0.87 per cent stake.

GMM Pfaudler (GMM) is a market chief, with a dominant share of round 50 per cent, within the area of interest section of glass lined (GL) gear which is utilized in prescription drugs and chemical compounds industries.

In 1987, US-headquartered Pfaudler Inc subscribed to 40 per cent fairness in Gujarat Equipment Producers (GMM) to kind the three way partnership, and subsequently hiked its stake to 51 per cent in 1999 and adjusted the identify to GMM Pfaudler.

Later in 2015, German non-public fairness large Deutsche Beteiligungs AG acquired Pfaudler Inc.

Within the latest years, the inventory has reaped advantages of the manufacturing shift from China to India in chemical compounds and pharma industries, know-how management as a result of its mum or dad firm Pfaudler’s help, market share positive aspects led by high quality merchandise in addition to robust buyer credentials and the business’s oligopolistic nature.

“The corporate is fantastically positioned and enjoys nearly a monopoly in its section. It’s at the moment pushed by the momentum within the pharma and chemical business, and can also be helped by the desire for Indian firms in comparison with China,” mentioned Deven Choksey, Group Managing Director, KR Choksey Funding Managers.

“I might advocate shopping for this inventory on dips,” mentioned Choksey.

On the earnings entrance, web revenue of GMM Pfaudler rose 8.48 per cent to Rs 19.19 crore within the quarter ended June, whereas gross sales rose 2.77 per cent to Rs 154.43 crore.

Submit earnings, on July 29, JM Monetary maintained its ‘maintain’ ranking on the inventory, even because it tweaked its estimates to account for increased revenues and margins within the heavy engineering division, resulting in a 5 per cent and three per cent enhance in revenues and 6 per cent and a couple of per cent enhance in income for the fiscal 12 months 2022 and monetary 12 months 2023, respectively.

In June, the brokerage had pointed that during the last 5 years, through the up-cycle, GMM has reported a mean RoE of 18 per cent, led by excessive asset turns of two.5 occasions and robust web margins hovering round 9 per cent.

It expects RoEs to stay at 22 per cent over the following three years led by sustaining common fastened asset turns of three.1 occasions and web margins of round 12.5 per cent.

The inventory has been on marquee investor and PMS fund supervisor Saurabh Mukerjea’s favorite listing for some time now, and he holds it in Marcellus’ Little Champs Portfolio.

“On the earth outdoors the traditional protection universe of Indian fund homes there are a number of good franchises, that are very dominant of their segments, and GMM Pfaudler is one amongst them,” he mentioned.

Mukherjea, the founding father of Marcellus Funding Managers mentioned GMM Pfaudler’s capital allocation in recent times has been nearly exemplary.

“Due to robust boundaries to entry (round repute and world class know-how), the corporate has been the popular provider of glass lined vessels to the premier Indian pharma and chemical firms. In consequence, its pre-tax ROCEs are typically round 30 per cent, nicely above its price of capital,” he added.

Mukherjea mentioned this implied that free money stream technology has not been an issue for this firm, and it had web money of Rs 110 crore initially of the present monetary 12 months.

“Regardless of the sustained entreaties of funding bankers, GMM Pfaudler had fastidiously cultivated this money pile over a number of years. Then, when the Covid disaster created the proper alternative to deploy this money, the administration rose to the event,” he mentioned.

In July, GMM Pfaudler acquired the French large De Dietrich Course of Methods, Indian facility into the manufacturing of glass-lined gear positioned at Hyderabad for round Rs 53 crore. De Dietrich was the quantity two participant available in the market.

Whereas there was full religion within the long-term development trajectory of the corporate, some discovered the valuations too stretched.

On July 31, BP Equities maintained its ‘promote’ ranking on the inventory, with a goal worth of Rs 2,657.

“We propose buyers keep away from coming into GMM on the present worth as valuation appears stretched at this degree. The thesis stays absolutely intact, with a uncommon mixture of premium income development and engaging margins,” BP analysts mentioned.


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