GMM Pfaudler: Betting on 'Green' Glass

TARAK PATEL, MD, GMM Pfaudler, believes the decision to buy out a majority stake in parent Pfaudler Group in 2020 has been a masterstroke for the company. GMM Pfaudler manufactures corrosion resistant process equipment and technologies for pharmaceutical and chemical industries.

"In 2020, we were a $175-million business with 7-8% EBITDA margin. Today we are at $230 million with 12% EBITDA margin," says Patel.

Around two-thirds of the company's revenues come from its international business, which is a good way to de-risk, says Patel, a deep-sea diving and wildlife enthusiast. "We are a global organisation. Even if India goes through a rough period, we will still have growth coming from other geographies."

The rationale behind acquiring a majority stake in Pfaudler was three-pronged. The first was to make components manufactured in Europe or the U.S., locally in India. "By manufacturing in India, we reduced costs; by reducing costs, we could penetrate into new markets such as South-East Asia, Eastern Europe, some parts of South America and Africa, which were not being catered to by Pfaudler," explains Patel.

The acquisition has enabled cross-selling as well. "We have a large product portfolio. Though glass lining is the main part, over the years we have added small complementary products that can be packaged together and moved across geographies."

"We look at what we have learnt in India in terms of improving our manufacturing output and then implement some of these improvements in other geographies as well. These are the three levers which have driven a lot of our growth," says Patel.

With 16 manufacturing units across the globe, the acquisition has not just given GMM Pfaudler scale, but has also helped achieve operational efficiencies at the global level. "Our plant in Switzerland had 24 months of order backlog so we decided to move some of the production to our German facility. The acquisition has made us agile and we are able to make faster decisions," adds Patel.

Next, the company plans to transition from manufacturing to technology solutions, from single to multi-products. For this, it is on an acquisition spree, the most recent one being France-headquartered Mixel France SAS, which specialises in industrial mixing. It has also acquired Italy-based Hydro Air Research Italia, the manufacturer of separation systems used for industrial process applications.

Known for its 100-year-old glass lining technology in pharmaceutical and chemical products, GMM Pfaudler is currently working on green, or ESG-friendly, glass. "Some of the heavy metals which were part of our old formula have now been replaced with better material. We also have technology that goes into bio-plastic, bio proteins and mock meats. These are small industries right now but would increase in size, so we want to be prepared for that. We also do work in the EV space, as well as acid recycling. Wherever people are disposing off used assets we can come in and reuse the asset to make the entire process cleaner."

Like most manufacturing companies, making eco-friendly products and technologies is a priority for Pfaudler, too. Close to 15% of its portfolio (it was 3-4% in 2020) comprises environment-friendly products, and Patel expects it to be as high as 50% in the next three-five years. "Some of the technologies we are getting into will really help end users. Our company in Italy, for instance, helps companies save water and make their processes greener. We are looking at recycling plastics. Bio-plastics are becoming increasingly popular, and we are into that, too. Our green glass can be disposed off much more easily than the regular glass," he explains.

Patel also sees huge benefits of the China+1 strategy, especially manufacturing. "A lot of our international customers have been looking at India to mitigate some of the Chinese risks. We are seeing a lot of agrochemicals and specialty chemicals production moving to India. Domestic companies are putting up world-class facilities. India will become bigger and bigger," says Patel. "We have a lot of sites around the world, but our India site is benefitting from the investment coming into chemical and pharmaceutical spaces. The production-linked incentive scheme is also helping us immensely."

But scaling up a global business in chemicals and pharmaceuticals requires skilled talent, and Patel admits there is a shortage not just in India but across the world. "Youngsters don't find it cool to specialise in chemical engineering. We currently do have talent within the group, but as we get into new industries, we will need resources and talent specific to those industries. We will need people with skills in instrumentation, automation and chemical technology."

The company is currently partnering with universities and national chemical laboratories to develop new processes and systems as well as talent. "Over time, we will have to create an in-house skilling capability. Since many of our technologies are secretive and IP protected, we don't want to give it outside. We have to invest in skills as we move away from manufacturing to a tech-based company." GMM Pfaudler is also planning to build a back office for R&D, engineering and documentation.

Patel's goal is to be a ₹3,700 crore company by 2025 with ₹630 crore in EBITDA margin and 25% return on capital employed (ROCE). "We have reduced the stake of private equity in the past two years. The family has also increased its stake to 22% and would shortly be crossing 25%. As a family we are committed to the business," he says. GMM bought 34.4% stake in 2020 from German PE firm Deutsche Beteiligungs AG, while its Swiss subsidiary, Mavag AG, bought another 19.6%. In the last three years, the family (Ashok Patel and Tarak Patel) have further increased their stake in the business.

The aim, as Tarak Patel says, is to build a successful Indian business with a global presence.