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  • Ronit K

GMM Pfaudler vs Thermax - India's future of engineering?


Let me start off by saying that GMM Pfaudler and Thermax are not direct competitors, however technically both reside in the same industry of engineering services and equipment manufacturing. Thermax, is a pure engineering company that provides solutions to new age metropolitan problems, such as power generation, waste-water management and air-pollution control. The company is over 50 years old and is currently headed by Meher Pudumjee, the heir to the Thermax empire. Seeing that such few women get a chance to enter the family business in India, it is a positive note to see that this company is run by a Female CEO that is also involved in a large amount of philanthropic work around the country. On the other hand, GMM Pfaudler is a specialised equipment manufacturer for pharmaceutical and chemical firms. The company has an expertise in glass-lined equipment and runs a monopoly of this business in India. The company's parent firm, Pfaudler is also involved in the same business, and this subsidiary is an exporter of glass-lined equipment to Asian countries like Korea and China.


Profit and Loss Statement Comparison

THERMAX

Looking at Thermax's profit and loss statement is clear to see that the company has had steady growth in its revenue, rising almost 50% in the past 2 years. However, this growth is not reflected in the company's profit and loss statement. The firm has been on the same consistent profit levels for the past 7-8 years. This is quite a concerning factor because, an investor always looks for growth in his/her investments. The last spike in profit was seen in 2006-07.

GMM Pfaudler

In contrast to Thermax's income statement, GMM Pfaudler has shown a consistent rise in profit and revenues over the last 10 years. This may be the reason why the company is still trading at a relatively high PE ratio of 54, compared to Thermax's 29. This growth is a great thing to see in this small-cap company.

Balance Sheet Comparison

THERMAX

Thermax's balance sheet is quite healthy with a steady increase in assets and not a fast growth in liabilities. This shows that Thermax does not seem to have a large risk in suffering from bamkruptcy atleast over the future


GMM Pfaudler


GMM Pfaudler's balance sheet is quite strong. Essentially being a 0 debt company, the firm is at a very low risk of defaulting. However, the company has a low level of assets too, meaning that it has a price to book ratio of 14 compared to Thermax's 3.16.


Conclusion

By just looking at both of these company's income statements and balance sheets, I think that both of them are not at suitable prices at the moment. GMM Pfaudler (CMP 2708) is currently to over priced with a very high PE ratio for a small cap company. I believe that GMM Pfaudler will see a fall in price as the momentum of the market amid the tough coronavirus situation in the US will bring it down. I would only consider this stock once it falls below the Rs 2000 mark. On the other hand, Thermax is a fantastic company in terms of its projects and stability; however, the falling profit margins mean that an investor may have to wait a very long period of time to see substantial growth. Hence, I believe that an investment should only be made in this company if you are willing to sit on this stock for a very long-period (15-20 years) or if the company starts investing in greater profit growth


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