GMM PFAUDLER LIMITED
ANNUAL REPORT 2011-2012
The Directors have pleasure in presenting their Forty-Ninth Annual Report
and the Audited Statement of Accounts of the Company for the year ended
March 31, 2012.
(Rs. in Million)
Year ended Year ended
Revenue from Operations 2018.13 1440.21
Profit before tax 130.16 162.29
Profit after tax 91.41 110.18
Surplus brought forward 641.74 590.48
Amount available for appropriation 733.15 700.66
Interim Dividends 30.70 40.93
Final dividend 10.23
Tax on distributed profit 6.96 6.96
Transfer to General Reserve 9.14 11.03
Surplus Carried Forward to
Profit & Loss Account 676.12 641.74
Per share data (Rs.)
Face value of Equity Share 2.00 2.00
Dividend per share 2.80 2.80
Market Price of Shares
High 122.35 129.90
Low 72.05 86.00
Close on March 31 92.95 99.25
Earnings Per share 6.25 7.54
The business environment during the year remained challenging due to
recessionary conditions in the economy leading to slowdown in demand in the
second half of the year. High inflation resulted in increase in input cost
and other expenses which adversely impacted the overall profitability.
Directors are pleased to inform that in spite of adverse business
environment, your Company has been able to maintain its overall performance
due to healthy backlog of orders of Rs. 1,035 million at the beginning of
Revenue from Operations for the year at Rs. 2,018.13 million reflected an
increase of 40% over the previous year. Sales of both glassline products
and non glassline products increased by 17% and 87% as compared to previous
year. Amount of unexecuted orders at the end of the year ended March 31,
2012 was a also healthy at Rs. 906 millions including Rs. 607 millions of
glasslined products and Rs. 299 millions of non-glasslined products.
Increase in the cost of raw materials and other expenses due to high
inflation resulted in lower Profit before tax Rs. 130.16 million,20% lower
than Rs. 162.29 million in the previous year. Profit after tax decreased by
17% to Rs. 91.41 million from Rs. 110.18 million in the previous year.
Earnings per share reduced by 17% to Rs. 6.25 per share as compared to
Rs.7.54 of the previous year.
Sales of the Company`s Swiss subsidiary, Mavag AG for the year was at
Rs.579.91 million, with an increase of 10% from Rs. 526.71 million in the
previous year. However, the profitability remained low on account continued
economic slow down in the European market with pressure on price and
volatility in the foreign exchange rates. Profit after tax for the year
decreased by 57% to Rs. 3.42 million, as compared to Rs. 7.91 million in
the previous year.
During the year under review, the Board of Directors approved payment of
three interim dividends of Rs. 0.70 per share each aggregating to Rs. 2.10
per share. The total amount distributed as interim dividends for the year
amounted to Rs. 30.70 million.
Based on the performance of the Company for the year and in view of the
track record of the Company, the Board of Directors is pleased to recommend
the payment of a final dividend of Rs. 0.70 per equity shares amounting to
Rs. 10.23 million, subject to approval of the Annual General Meeting.
The aggregate amount of interim dividends paid during the year and the
final dividend recommended for the year shall be Rs. 2.80 per share
amounting to Rs. 40.96 million.
The Company has not accepted any Fixed Deposits during the year under
review. There were no overdue or unclaimed deposits outstanding as on March
The Company and its investment subsidiaries held 528,296 shares of Nile
Limited at the beginning of the year. The time limit of 3 years for sale of
the entire shareholding of Nile Limited by the Company and its Subsidiary,
Karamsad Investments Limited has been extended by one year by mutual
consent i.e. upto April 1, 2013 between the Company and Nile Ltd. During
the year the Company and its subsidiaries sold 121,943 shares at a net gain
of Rs. 11.6 million.
At the end of the year the Company had an investment in marketable
securities of Rs. 51.45 million. There was a diminution of Rs. 0.99 million
in the market value of these investments due to adverse market conditions
which has been provided for in the accounts during the year.
Your Company made substantial investments in upgrading its manufacturing
facility including the Enameling Plant. The up-gradation of its computer
ERP system has also been taken on hand. These upgrades are expected to
result in reduced manufacturing cycle time, improved business processes and
prompt response to the customers.
CONSERVATION OF ENERGY:
Information pursuant to Section 217(1)(e) of the Companies Act, 1956 read
with the Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988 is attached as Annexure "A" and forms a part of this
Information on foreign exchange earnings and expenses are provided in Note
37 to 40 of `Notes to Financial Statement for the year ended March 31,
Karamsad Holdings Limited, Karamsad Investments Limited, GMM Mavag AG and
Mavag AG are wholly owned subsidiaries of the Company.
The Ministry of Company Affairs has granted General Exemption to Companies
from attaching the final accounts of the subsidiary companies to the Annual
Report pursuant to Section 212 of the Companies Act, 1956. However a
Statement showing the relevant details of the Subsidiaries is enclosed and
is a part of the Annual Report. The Members who wish to have a copy of
annual accounts of these subsidiaries may write to the Company Secretary at
the registered office of the Company.
PARTICULARS OF EMPLOYEES:
Pursuant to the provisions of Section 217(2A) of the Companies Act, 1956
(`the Act`) read with The Companies (Particulars of Employees) Rules, 1975,
the name and other particulars of the employees are required to be set out
in the Annexure to the Directors` Report. However, as per provisions of
Section 219(1)(b)(iv) of the Act, the information relating to employees is
not included in the Reports and Accounts sent to the shareholders of the
Company. Any shareholder interested in obtaining such particulars may write
to the Company Secretary at the Registered Office address.
During the year under review, Mr. Kevin J. Brown resigned from the Board on
April 28, 2011. Mr. Christopher M. Hix, who was earlier an Alternate
Director to Mr. Kevin J. Brown, was appointed as Director on April 28, 2011
to fill in the casual vacancy caused by resignation of Mr. Kevin J. Brown.
Mr. Christopher M. Hix also resigned from the Board on February 1, 2012.
The Board places on record their sincere appreciation the advice and
guidance extended by Mr. Hix during his tenure as a Director of the
Company. Mr. Kevin J. Brown, who was earlier a Director on the Company`s
Board, was appointed as a Director on February 1, 2012 to fill in the
casual vacancy caused by resignation of Mr. Christopher M. Hix.
Dr. S. Sivaram and Mr. P. Krishnamurthy will be retiring at the ensuing
Annual General Meeting and being eligible offer themselves for re-
Mr. Tarak A. Patel has been re-appointed as Executive Director of the
Company for a period of 5 years with effect from January 30, 2012.
Details of the Directors seeking re-appointment are provided in the
Corporate Governance Report forming part of this report, as required under
Clause 49 of the Listing Agreement with the Bombay Stock Exchange.
DIRECTORS RESPONSIBILITY STATEMENT:
To the best of their knowledge and belief, and according to the information
and explanations provided to them, the Directors make the following
statement pursuant to Section 217(2AA) of the Companies Act, 1956:
1. That in the preparation of the annual accounts for the year ended March
31, 2012, the applicable accounting standards have been followed along with
proper explanations in case of material departures;
2. That such accounting policies as mentioned in Note 2 of Notes to
Financial Statements have been applied consistently and judgments and
estimates that are made are reasonable and prudent so as to give a true and
fair view of the state of affairs of the Company at the end of the said
financial year ended March 31, 2012 and of the Profit & Loss Account of the
Company for that period;
3. That proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities.
4. That annual accounts for the year ended March 31, 2012 has been prepared
on a `going concern` basis.
MANAGEMENT DISCUSSION & ANALYSIS REPORT:
In accordance with the Clause 49 of the Listing Agreement with the Bombay
Stock Exchange Limited, Management`s Discussion & Analysis Report is
attached hereto and forms part of this Director`s Report.
The Report on Corporate Governance as stipulated under Clause 49 of the
Listing Agreement with the Bombay Stock Exchange Limited, together with a
Certificate from the Company`s Auditors is attached hereto and forms a part
of this Report.
M/s. Kalyaniwalla & Mistry, Chartered Accountants, retire at the conclusion
of ensuing Annual General Meeting, offer themselves for reappointment. The
requisite certificate has been received from them to the effect that their
reappointment as Statutory Auditors, if made, would be within the limits
prescribed under Section 224(1 B) of the Companies Act, 1956.
The Board of Directors of the Company would like to acknowledge to all its
stakeholders and is grateful for the support received from shareholders,
bankers, customers, suppliers and business partners. The Directors
recognize and appreciate the sincere and dedicated efforts and contribution
of all the employees that ensured steady performance in a challenging
For and on behalf of the Board of Directors
P. Krishnamurthy Ashok J. Patel
Chairman Managing Director
Date : May 7, 2012
`ANNEXURE A` TO DIRECTOR`S REPORT
1. Conservation of Energy:
a) The Company consistently pursues various avenues to conserve energy used
in the factory in various forms like electricity, natural gas and other
gases. The Company has also alternate source of electricity generation
through its 9 wind mills installed, which generated about 2 Million KWH of
electrical energy during the year.
b) Energy Audits are carried out at interval of three years with the help
of Electrical Research & Development Association of Gujarat (ERDA) to
ascertain area of energy conservations.
c) Electricity and Natural Gas are being the two major forms of energy
consumed by the Company; constant focus is kept on its consumption in
furnaces in Enameling Plant. Performance of these furnaces is monitored on
daily basis in order to economize consumption of electricity and Natural
d) As part of its continued efforts to reduce cost of energy, the Company
has commissioned a second Natural Gas Radiant Tube Furnace for its
Enameling Plant, which is in operation since June, 2011. It has reduced the
Electricity consumption by 25%.
e) Installation of Inverter based welding machines in place of Coil
rectifiers and Variable Frequency Drive (VFD) replacing contractor type
drive on over-head cranes have also resulted in energy savings.
2. Research & Development:
The Company has a Research & Development (R&D) centre which is approved by
the Department of Science & Technology of the Government of India. The
Company carries out continuously R&D in several areas in the process of
manufacturing glass lined vessels and improving the quality of its product
employing new and advanced technology. The ability to leverage the R&D
expertise and knowledge of Pfaudler Group, has helped the Company to
innovate and renovate, manufacture high quality safe products and achieve
more efficient operations.
The Company continues to be a member of the consortium on Micro Reactor
Technology under the auspices of National Chemical Laboratory, Pune.
Areas where specific R&D was successfully carried out during the year are
a) The Company has developed and manufactured Glass-lined Agitator with HE-
3 blade to increase mixing efficiency.
b) In order to provide customer trial on new products the company developed
a Rotary Vaccum Paddle Dryer and a Bio Fermenter Skid.
c) Adoption of the design of its Swiss subsidiary Mavag for the Agitated
Nutsche Filters/Dryers has improved the overall quality of the product and
provides a competitive edge in the market place.
d) The Company has successfully implemented new Special weld procedures for
Duplex Stainless Steel, Nickel Alloys, Aluminum Bronze, Low Alloy Steel
(P4), Monel Tube to Tube sheet, several FCAW/GMAW apart from standard CS &
SS weld procedures.
e) The Company also has also implemented new NDT processes through New
Digital UT machine, new high intensify illuminator and New Digital Density
f) The Company has achieved Improvement in existing production processes
for Multi Nozzle Heating Torch and developed Light weight firing supports
in the enameling furnaces.
g) The Company has also installed a new state-of-art shot blasting machine,
Imported from UK to improve processes efficiency and reduced pollution.
Expenditure in R&D: (Rs. in Million)
a) Capital 15.63
b) Recurring 3.56
c) Total R&D expenditure as %
of total turn over. 0.95%
For and on behalf of the Board of Directors
P. Krishnamurthy Ashok J. Patel
Chairman Managing Director
Date : May 7, 2012
MANAGEMENT DISCUSSION AND ANALYSIS
The Company which was established in the year 1962, has a state of the art
manufacturing facility spread over a 20 acre plot of land located at
Karamsad in Gujarat State, about 45 km from Vadodara. The Company enjoys
the leadership position in design, manufacture and marketing of glass-lined
reactor vessels, storage tanks, valves and pipe & fittings. The Company
also undertakes design and fabrication of specialized chemical process
equipment in Alloy steel. It has created for itself a niche position in the
chemical process equipment market for proprietary products manufactured by
it such as Agitated Nutsche Filters & Filter Dryers, Wiped Film
Evaporators, EconoMix Mixing Systems, Thermal Control Units and PTFE lined
pipes & fittings. Its access to the Mavag`s high end technology for top
driven Spherical Dryers, Agitated Nutsche Filters & Filter Dryers for
sterile applications and Magnetic Drive Agitators has complemented the
Company`s position as a complete process solution provider for
pharmaceuticals, bio pharmaceuticals, chemicals and allied segments.
INDUSTRY STRUCTURE AND DEVELOPMENT:
The Indian economy has experienced considerable turbulence in recent times.
Real GDP growth rates have been revised downward to 6.9% from 8.0%,
industrial output is volatile, escalated interest rates and high inflation
levels are an ongoing concern. The fall out has extended to the Indian
Pharmaceutical market and Chemical Industry, the industry growth being
lower than the previous year. However, with increased government measures
and industry`s proactive actions, outlook for the sectors remains positive.
GDP Forecast for the year 2012-13 is 7.3%.
While the chemical industry in India grew as a whole at 10% in 2011 and it
is expected to grow at a CAGR of 11%, the Pharmaceutical industry grew by
about 15% during the year and it is expected to grow at a CAGR of 17% till
Heightened competition and a greater presence of branded generics are
putting greater pricing pressures on the industry. The low priced segment
of the market has almost doubled its share over the last four years. The
continued focus on India as a base for bulk drugs, both of a generic
nature, and increasingly for specialty patent protected drugs and
chemicals, the industry is expected to continue its growth momentum in the
With investments by established companies, both Indian and multi nationals,
as well as from new companies, the Company expects to see broadening of its
customer base as well as increasing revenues from its existing customers.
OPPORTUNITIES & THREATS:
New markets due to migration of chemical business into India from the
western world continue to be an opportunity for the Company`s products.
In addition to the inclusion of Mavag products the Company has potential
for greater share of the customer spend. In addition to the growth in the
chemical industry, the capital spend in fertilizer, petrochemical, power,
bio technology is expected to offer opportunities for growth.
With multiple code accreditations that allows our products to be sold
overseas in markets in USA, Europe and China, the Company is poised to
exploit the export markets as well.
Commodities price fluctuations, especially in steel, and high rate of
inflation and interest rates and could hamper the industry growth.
Growth in Sales and Operating Income for the year has been driven by the
higher backlog or orders at the beginning of the year. However,
profitability took beating due to high inflation leading to increase in
input and other cost. The Company put greater focus on the management of
working capital which resulted in significant increase in the cash flow for
the year. Investment in up gradation of the manufacturing facility and
computer systems has been funded from the internal accruals without
resorting to any debts.
Low order intake during the year has resulted in year and order backlog of
Rs. 906 million, being 12% lower than the previous year.
SEGMENT WISE OPERATIONAL PERFORMANCE:
a) Chemical Process Equipment
This Division of the Company designs manufactures and markets GMM Pfaudler
Reactor Systems product line which primarily includes glass-lined corrosion
resistant reactors, storage vessels and alloy steel equipment. This
Division reported sales of Rs. 1,666.38 million, 37% higher than that of
previous year. This division contributes about 83% of the total sales of
the Company. This Division of the Company continues to enjoy the number one
manufacturer of glass-lined equipment in India. The profit from this
segment was Rs. 147.59 million, a decrease of about 17% over the previous
year due to the inflation trend in the economy. The capital employed for
this division was Rs. 572.38 million decreased by over 7% from the previous
b) Mixing System
This Division designs, manufactures and markets EconoMix Agitators which
provide solutions to customer`s mixing requirements. In addition to serving
the CPI this Division also caters to the bio-technology, mining and waste
water treatment industry. Sales of this Division of the Company increased
by over 80% to Rs. 199.63 million from Rs. 110.54 million in the previous
financial year. The profit from this segment was Rs. 14.43 million, an
increase 33% over the previous year. Capital employed for this Division was
Rs. 20.57 million decreased by about 32% from the previous year.
c) Filtration & Separation
This Division`s primary business is design, manufacture and marketing of
Agitated Nutsche Filter & Filter Dryers for separation of solids & liquid
and Wiped Film Evaporators for separation of liquids & liquids. Mavag`s
high end technology and products have greatly benefited this Division. The
Company reported a sales of Rs. 152.12 million, an increase of 39% over
previous year in this Division. Profits however were lower by 19% at
Rs.5.07 million. Capital employed for this Division was Rs. 45.53 million
increased by 28% from the previous year.
In line with the overall slowdown in the economy, the demand for some of
the Company`s products have shown a decline from the second half of the
However, the Company is taking steps to focus on promoting additional value
added features in Glassline product as well as high technology Mavag
RISKS AND CONCERNS:
Some of the global economies are yet to recover from the slowdown and
uncertainty still persists due to inflation, withdrawal of the stimulus
packages and rising interest rates. This may also have an impact on
Company`s future exports business.
We have market risk exposure to foreign exchange rates mainly on account of
exports and investments in foreign subsidiary Companies. Due to
unprecedented volatility in almost all major foreign currencies the export
realizations are subjected to the exchange fluctuation risk.
The Company`s surplus funds are invested in fixed deposits with banks and
in different mutual funds. Income from these investments has market risk
exposure to the extent of interest rates fluctuations, short term debt and
the equity market.
The Company is impacted during summer period by Gujarat State`s difficult
power supply situation leading to cuts and load shedding. Further, the
power tariffs in Gujarat State are one of the highest in India. Continuous
rise in the oil price in India and abroad has the effect of increasing the
cost of electricity. All these factors affect output and profitability.
Company`s investment in the natural gas furnace will help overcome the
bottleneck caused by the power supply situation but the continuous rise
cost of natural gas as has caused concerned.
Finally, the Company`s primary raw material is steel, which has shown some
signs of rise, especially stainless and other alloy steels. Certain orders
with long manufacturing cycle time may be exposed to the risk of material
The Company has a Risk Management Policy framework in place for continuous
identification, assessment and measurement of all significant risks. These
are reviewed at periodical intervals and the management takes specific
action towards minimization and control of areas of risk considering
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company works with an established framework of internal controls.
Policies have been laid down for operation, approval and control of
expenditure. Investment decisions involving capital expenditure are subject
to formal detailed appraisal and review by approved levels of authority.
Capital and Revenue expenditure are monitored and controlled with reference
to pre-approved budgets and forecasts.
A firm of Chartered Accountants that has established reputation in the
country ensures adequacy of the internal control systems, adherence to
Company`s policies and procedures, ensure statutory and other compliances
through periodical checks and internal audit. The Audit Committee and the
Board of Directors of the Company periodically review the reports submitted
by the Internal Auditors and corrective steps taken by the Company.
The Company had carried out a review of its internal control procedures and
developed a frame work with the help of an outside Consultant. This is
being regularly reviewed to strengthen the control in various business
As the Company manufactures certain equipment which are classified as `Dual
Use` equipment, the Company has put in place `Know Your Customer` procedure
and a system of controls to ensure that the entire process from handling of
enquiries to dispatch and service is carefully monitored and controlled to
prevent unauthorized use or diversion of our product.
HUMAN RESOURCES & INDUSTRIAL RELATIONS:
The Company firmly believes that its employees are the key to driving
performance and developing competitive advantage. The emphasis has been on
proper recruitment of talent and empowerment while devoting resources for
their continuous development. The Company nurtures the strong performance
driven culture and maintains its focus on development of human resources
with insight into areas of performance Management System, Talent Planning
and Reward & Recognition with an objective of maintaining harmonious
relations with employees. Training workshops and seminars are regularly
conducted for workers, staff and managers of the Company with a view to
attract and retain talent. The Company has maintained an amicable
relationship with the Union.
On March 31, 2012 the Company`s total permanent employee strength was 348
against 362 as on March 31, 2011.
Certain statements in the "Management discussion and Analysis" section may
be `forward-looking`. Such `forward-looking` statements are subject to
risks and uncertainties and therefore actual results could be different
from what the Directors envisage in terms of the future performance and