We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• Glass Line Equipment (GLE) business to drive growth: GMM Pfaudler is the market leader in manufacturing of GLE (>50% market share). The company plans to increase GLE capacity by 25% by setting up another manufacturing facility. Investments in Agrochemical and Specialty chemicals sectors (60% of revenues) have been the main drivers for growth with the companies in this space putting up capacities. With the Pharma City project in Telangana getting environmental clearance, pharma sector (35% of revenues) is also expected to pick up in coming quarters, giving a boost to order book.

• Positive outlook for Non GLE business: The Non-GLE segment is a huge untapped market and GMM differentiates itself from local fabricators in terms of brand name and engineering capabilities, thus creating a niche for itself in the segment. As GMM targets special jobs and exotic materials, we expect its margin profile to improve going forward. We expect the Non-GLE segment to grow at 18% CAGR over FY18-FY20E owing to opportunities in the application industries.

• Turnaround by subsidiary Mavag: GMM’s subsidiary Mavag operates in the proprietary products segment. Mavag uses GMM as a sourcing hub which has helped them improve their market share and grow their business in Europe and US. After declining revenues in FY15 and FY16, it reversed the trend in FY17 and has posted stellar revenue and profit growth in FY18 as well. Mavag posted revenues of Rs 93.3 Cr in FY18, a growth of 7.6% YoY. On a consolidated basis, it constituted 23% of the company’s total revenues. It posted EBIT of Rs 16 Cr, witnessing a growth of 167% YoY. The company has a healthy order backlog in this segment and we expect it to grow at 11% CAGR over FY18-FY20E.

• Focus on exports in both GLE and Non GLE: Exports contribute ~10% of GMM’s revenues. This is attributed to increased interaction between Pfaudler and GMM. With Pfaudler rationalizing its manufacturing footprint in Europe and US, we expect sourcing to increase in the next 2-3 years. We expect export bearing fruits for the company going forward as the parent Pfaudler has been using its relationship in Europe and US to bring orders to GMM.

• We maintain a BUY with a target of Rs 1,082.