Moneycontrol PRO
Check Credit Score
Check Credit Score
HomeNewsBusinessMarkets

Multibagger bet! 4 reasons why Saurabh Mukherjea’s Marcellus prefers GMM Pfaudler

Marcellus Investment Managers have added GMM Pfaudler to their small-cap PMS Scheme ‘Little Champs’ recently which has risen more than 200 percent so far in the year 2020.

September 09, 2020 / 12:10 PM IST
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Marcellus Investment Managers have added GMM Pfaudler to their small-cap PMS Scheme ‘Little Champs’ recently which has risen more than 200 percent so far in the year 2020.

Saurabh Mukherjea is the Founder and Chief Investment Officer of Marcellus Investment Managers. Little Champs PMS scheme has given 18 percent return in August compared to a little over 10 percent return recorded in the S&P BSE Small-cap index.

The key objective of the ‘Little Champs’ scheme is to own a portfolio of about 15-20 sector-leading franchises with a stellar track record of capital allocation, clean accounts & corporate governance, and at the same time high growth potential.

GMM Pfaudler (GMM) is a JV between Pfaudler Inc (50.4% stake) and the Ashok Patel family (24.6%). The Patel family started the Company in 1962 as Gujarat Machinery Manufacturers (and hence the abbreviation GMM in the Company’s name).

Pfaudler Inc. became a shareholder in 1987 and stepped up its stake to 51% in 1999 becoming the majority shareholder. Pfaudler Inc is a 130-year old Company, founded by the inventor of the process of the glass-lining of steel.

Here are the key success factors:

Technology edge:

The quality of glass-lining is a key differentiator in this business for two reasons. The first is that the end-products made by customers need to have very specific chemical properties and there can be no compromise on the purity of these products during the production process.

Secondly, chemical reactions tend to corrode the reactor vessels, and poor quality of glass-lining would mean more frequent replacement/refurbishment of the reactors thus increasing the cost for the customers.

With over 20 percent global share in what is largely an oligopolistic market, Pfaudler is only likely to strengthen its position going ahead. This augurs well for GMM too, as it continues to have access to best-in-class technology, an attribute essential to the business.

Long-standing customer relationships:

GMM Pfaudler has been operating in India for close to five decades and has been a credible supplier to most of the large Indian companies in the pharmaceuticals, chemicals, and petrochemical sectors.

By leveraging its technology edge and supplying high-quality reactors, GMM has won repeat orders on a recurring basis and built long-standing relationships with all its key customers.

Scale benefits:

GMM is the largest glass-lined equipment maker in India by a wide margin. Using their technology edge and leveraging on their execution skills and local customer relationships, GMM has expanded capacity by 50 percent in the last 3 years.

The company now has more than twice the revenues of the second-largest player and has a 48 percent overall share of the industry’s revenues. The dominant market share leads to substantial scale benefits, which translates into better profitability. GMM’s EBITDA margins are nearly double of its nearest competitor and so is its RoCE.

Strategic capital allocation:

The management team of GMM has consistently displayed prudent capital allocation skills. Organic growth has been a key priority for the company, having utilised free cash from the business to increase capacity by over 50% in the last 3 years.

They have also made three key acquisitions, each to further its product offerings and get a higher share of the customer’s capex spend. Its first acquisition, in 2008, was of Mavag AG in Switzerland, a maker of equipment used in downstream processes in the chemicals and pharmaceutical industries.

The next acquisition, in 2019, was of the industrial mixing division of Sudarshan Chemicals, which bolstered its portfolio of Mavag products in India. Then in 2020 GMM acquired the assets of De Dietrich Process Systems (DDPS), the other global glass-lined equipment maker in India.

Note: Marcellus Investment Managers owns GMM Pfaudler, Mold Tek Packaging, Suprajit Engineering, and Fine Organics in several of its portfolios.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Moneycontrol News

Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

Advisory Alert: It has come to our attention that certain individuals are representing themselves as affiliates of Moneycontrol and soliciting funds on the false promise of assured returns on their investments. We wish to reiterate that Moneycontrol does not solicit funds from investors and neither does it promise any assured returns. In case you are approached by anyone making such claims, please write to us at grievanceofficer@nw18.com or call on 02268882347