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Published: Dec 29, 2021
Updated: Dec 29, 2021

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In the wake of its amazing growth in revenues and profits and the stellar share price performance over the last few years HLE has become the cynosure of all eyes in the rarefied global club of glasslined equipment and filtrationand-drying equipment manufacturers.

The future is even rosier for the company, (formed from the combination of HLE Engineers and Swiss Glascoat), as western importers seek alternatives to China for supplies of high-tech equipment, and as Indian pharma and specialty chemicals companies lay out huge capex plans to meet the rise in global demand.

Shares of HLE Glascoat, which HLE Engineers Private Limited acquired at approx. Rs. 130 per share in 2016-17 shot up over 50x to as high as Rs 7,549 last month (October, 2021) before settling in the Rs. 6,000-6,500 range after profit booking and the recent correction in broader markets. The Company is now amongst the top 500 companies of India by market capitalization. Thus a littleknown company till very recently has become the talk of the town in market, trade and industry circles.

PREFERRED SUPPLIER

Today, HLE Glascoat operates in two main segments, Filtration and Drying Process Equipment and Glass-Lined EquipmentIt is a market leader in filtration and drying equipment and is also a leading manufacturer of glass-lined equipment. It manufactures a wide range of chemical processing equipment in an equally wide range of materials for some of the most demanding applications.

Says Mr. Himanshu Patel with justifiable pride, “Over the last three decades, our consistently high quality and our commitment to solving our customers’ unique process requirements have helped us build a reputation as a preferred supplier of process equipment.”

The primary end-user industries for both segments are the API industry (active pharmaceutical ingredients), AgroChemicals, Specialty and Fine Chemicals. Referring to the glass-lined equipment business, Mr. Himanshu Patel elaborates that “the aim of acquiring Swiss Glascoat Equipment was to diversify HLE’s product portfolio and enhance operating and marketing synergies.” Adds Mr. Aalap Patel, Executive Director, “Swiss Glascoat had an established position in the glass-lined equipment industry.

As glass-lined chemical processing equipment requires a high level of precision, and glass-lining aids in corrosion resistance, consumers for this equipment include reputed players in pharmaceuticals (APIs and intermediaries), specialty chemicals, agrochemicals, dyes, pigments and food processing. These companies know well that glass-lined equipment is highly beneficial to them as it is very corrosion-resistant. Again, such equipment is inert and there is a low risk of contamination. It is also easy to clean and highly durable, with a lifespan of around 10 years.”

HLE Glascoat closing in on market leader

HLE Engineers has always been the predominant market leader in the Filtration and Drying Process Equipment segment, commanding nearly 65% market share. Erstwhile, Swiss Glascoat was the second largest player in the GlassLined Equipment segment, next to GMM Pfaudler. Post the combination of HLE and Swiss Glascoat, HLE Glascoat has become one of the preferred vendors amongst its end-user industries (APIs, Agrohemicals, Specialty and Fine Chemicals etc.) With an annual turnover of Rs 1025 crore and net profit of Rs 63.4 crore in FY 2021, GMM Pfaudler - an established player in the glass-lined equipment segment — is much ahead of HLE Glascoat’s sales of Rs 484 crore and net profit of Rs. 53.37 crore in the same period. However, HLE Glascoat is fast catching up with its peer on the strength of its philosophy to provide the best quality at a competitive price, continuously innovating its existing processes and introducing new technologies (automation and process improvement). This progressive philosophy is bound to give lot of thrust and impetus to HLE’s operations and order book.

Recently, the company accomplished a masterstroke in acquiring the global business of reputed German company Thaletec GmbH, a leading manufacturer of glass-lined equipment. Since both HLE Glascoat and Thaletec are engaged in similar and synergistic lines of business and operations, incremental improvements in the operations of the two companies are likely to materialise. The acquisition is expected to enhance efficiencies and combine similar business interests for mutual benefit. HLE Glascoat intends to use the marketing and post sales network of Thaletec to also promote and market various additional equipment including the Filtration and Drying Equipment manufactured in India to increase the product offering of Thaletec to its customers in the sophisticated export markets. The lower cost base of HLE Glascoat can be beneficial to Thaletec operations in the long run. Both businesses are likely benefit from the exchange of skills, technologies and experience.

Little wonder, when the deal with Thaletec was struck, the share price of HLE skyrocketed to an unbelievably high level of over Rs 7,500, a much higher market cap than that of GMM Pfaudler. Even after profit-taking sales and the colling off in broader markets, the share price has remained steady above Rs. 6,000, with the company’s market capitalization now well above Rs. 8,000 crores.

Viewed in the context of HLE’s growth in all its business segments, viz. filters and dryers as well as glass-lined equipment, rising demand for its products (on account of the ambitious growth and capex plans of pharmaceutical and speciality chemicals companies), the acquisition of the German company and the commitment of the company to continuously improve its products, the company’s prospects are highly promising. HLE shareholders are bound to reap a rich crop going ahead. Accumulate at every decline with a long-term perspective.

CAPEX DRIVER

The company has developed technical expertise in the Filtration/ Drying and GLE segments through consistent investment in R&D. The main growth driver of this business is the huge capex plans of Indian pharma and specialty chemical companies on account of growing demand in these sectors. Government initiatives such as the productionlinked incentive scheme have provided a further impetus to the enduser industries. The company has already undertaken several expansion projects at all the manufacturing locations and is in the middle of implementation of an all-new manufacturing facility at Silvassa. This will enable to take advantage of the increased demand from end-user industries, following the supply chain disruptions in China and the Chinaplus one policy adopted in many developed countries.

The overall operations of the company are looked after by Chairman and Managing Director, Mr. Himanshu Patel, who has rich experience of over four decades in the field of process engineering. The company has set up installations worldwide, and has developed the technology to meet the most stringent process requirements. It also specializes in and is the leader in manufacture of exotic metal chemical engineering equipment.

The key customers of these Filtration-Drying products are pharmaceutical, chemical and agrochemical companies, where these filters and dryers separate solids and liquids via filtration and ensure odourless, contamination-free and non-polluting working conditions, thus maintaining product purity and hygiene.

Maintains Aalap Patel, “This business is akin to a typical engineering and capital goods business as the order execution cycle normally ranges from 4 to 8 months. Further, each order is backed by 10-30 per cent advance payment and 85-90 per cent before delivery, with the remaining payment made after the delivery and installation of the machines.”

BOOMING PROFIT, EXPANSION PLANS

The company’s growing business is well-reflected in its consolidated financial performance. Revenues have risen from Rs. 294 crore in FY18 to Rs. 484 crore in FY21. EBITDA has increased from Rs. 30 crore in FY18 to Rs. 95 crore in FY21. EBITDA margins have shot up from 10.21% in FY18 to 19.73% in FY21.

Prospects for HLE Glascoat going ahead are all the more promising. All its major business segments – filters, dryers and glass-lined equipment – are doing very well. By now it has emerged as the largest manufacturer of ANFDs in the world with over 500 equipment per annum. In chemical filtration-drying, it enjoys a hefty 60-65 per cent market share in the country and in the case of glass-line equipment it is the second largest after GMM Pfaudler with a 30 per cent marketshare. Today, it can boast of chemical engineering expertise with first-hand knowledge of chemical processes and plants. It is also known for its expertise in a wide range of materials ranging from carbon steel and exotic alloys to corrosion-resistant lining.

The company has a robust order book which gives them visibility and confidence to continue to deliver strong financial performance. There are factors, however, such as the rise in commodity prices and the power shortages in some parts of the country, which may result in shortterm fluctuations in operational results. However, the longterm outlook for the sector and the Company remains encouraging.

ACQUISITION OF THALETEC

In September 2021, HLE Glascoat announced the signing of an agreement to acquire 100 per cent of the global business of Thaletec GmbH, a reputed German manufacturer of glass-lined equipment. HLE Glascoat acquired Thaletec, as well as its subsidiary Thaletec USA as a part of its strategy to strengthen its position further in the global markets with innovative technology.

Thaletec has its headquarters and manufacturing plant in Thale, Sachsen-Anhalt, Germany. Thaletec GmbH had a turnover of Euro 26.27 million, EBITDA of Euro 2.56 million and Profit after tax of Euro 1.33 million in calendar year 2020. Thaletec has established itself in the European, Asian and North American markets as a reputed and experienced customized glass-lined equipment manufacturer and has already built a solid foundation for the next phase of growth. Pursuant to the acquisition, Thaletec will become a wholly owned subsidiary of HLE Glascoat with the entire business of Thaletec being consolidated with HLE.

Since both HLE and Thaletec are engaged in similar and synergetic lines of business and operations, incremental improvements in the operations of the two businesses are expected. The Company intends to use the marketing and post sales network of Thaletec to promote and market various additional equipment manufactured in India, such as the Agitated-Nutsche Filter Dryers, to increase the product offering of Thaletec to its customers in the same user industries in Europe and USA.

The Company may also use certain manufacturing technologies of Thaletec to bring about commonality of the product specifications globally. The acquisition will prove to be a game-changer for HLE Glascoat as it will enhance efficiencies and combine similar business interests, resulting in operational streamlining and optimization of the businesses.

WINNING STRATEGY

Speaking about the acquisition, Mr. Himanshu Patel said “ We are thrilled by this very significant development. While this transaction creates excellent value for our shareholders and allow us to accelerate our expansion plans, Thaletec also shares our existing vision, values and strategic thinking.

It is a historic moment for us looking at both brands to serve our customers with innovative and world-class products as per their fast-evolving needs and requirements.” Harsh Patel, Non-Executive Director, added that “the long-term vision is to make available international quality products at affordable prices. We are also excited by the prospect of offering Thaletec innovations in India and HLE products in the global markets.”

The attractive valuation of the 100% acquisition ensures that the transaction will be accretive for the shareholders from day one. Subject to satisfaction of certain closing conditions and regulatory approvals, the Euro 12 million acquisition is expected to close by the end of December 2021.

The favourable demand outlook, access to new markets on account of the acquisition of Thaletec, the ongoing capacity expansion projects, supported by the Company’s strong financial position and experienced management team makes HLE Glascoat a strong investment story for long-term investors.

Observers strongly believe that the entry barriers in the filtration draying and glass-lined equipment business combined with the acquisition of Thaletec will enable HLE Glascoat to quicken its pace of growth going ahead and it will soon graduate from a small cap company to a mid-cap entity catering to a fast-growing end user industry.

History-making share price

‘FOCUS ON GROWTH’

The HLE Glascoat management is, however, nonchalant about the spurt in the Company’s share price. “I don’t pay much attention to what happens in the stock market. When the share price started rising, I felt satisfied that investors’ confidence in HLE Glascoat is on the rise. I am committed to our work and I prefer to concentrate on the growth of the Company in order to strengthen the long term returns to all our stakeholders,” says Mr Himanshu Patel.

“In fact, I don’t understand how the market behaves,” he quips and adds, “At HLE Glascoat, we are striving hard to take the Company to a new phase of growth, and the acquisition of Thaletec is a significant step taken in this direction.” „