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Published: January 15, 2024
Updated: January 15, 2024

King of chemical equipment on growth trajectory

Gujarat-based HLE Glascoat has come a long way since its formation after the merger of HLE Engineers with Swiss Glascoat Equipment in 2019. Smallcap it may be, but it has nevertheless caused ripples both in its industry segment and the stock market, as the largest filtration and drying equipment player and the second-largest domestic player in glass-lined equipment and with a humongous share price high of Rs 7,549 within two years – i.e. in 2021.

However, while its manufacturing prowess is undimmed, its share price has of late plummeted to Rs 560-565 range on the back of reduced profit CAGR. Swung into action, visionary founder Himanshu Patel has evolved with a four-point strategy with a major focus on synergistic acquisitions and diversifying the product range.

To start with, he acquired Thaletec GmbH, the leading German maker of glass-lined equipment, followed by an agreement to acquire a 70 per cent ownership and profit share in Kinam Engineering Industries, a reputed manufacturer of heat exchangers with a global clientele.

New winds have started blowing over HLE Glascoat, a smallcap but emerging Indian multinational tucked away in an obscure corner of Vithal Udyognagar in Anand district, Gujarat popularly known as the Charotar region of Gujarat state. The Company was rebranded as “HLE Glascoat” to reflect the two stong brands “HLE” and “Glascoat” in 2019 after the merger of HLE Engineers, engaged in the manufacture of filtration and drying equipment, with Swiss Glascoat Equipment, a leading manufacturer of glass-lined equipment.

Himanshu Patel family, highly ambitious industrialists with remarkable business acumen acquired majority stake in Swiss Glascoat Equipment at a price of Rs 130 per share (Rs 10 face value). Right from its inception, HLE Glascoat has created ripples in the stock market with its share price (Rs 10 face value) skyrocketing to — hold your breath — Rs 7,549 in October 2021. Subsequently, however, the share could not maintain its Himalayan heights and started back-tracking, nosediving to Rs 466 before settling for now in the Rs 560- 565 range (Rs 2 face value).

The sharp fallback in the share price is attributed, among other things, to a marked slowdown in the pace of profit growth. While operating profit, which was growing at a CAGR of 34 per cent between fiscal years 2019 and 2022 came down to 25 per cent in fiscal 2023. What is worse, the declining trend in profitability has continued in the current fiscal, with the actual half-time (April-September 2023) operating profit declining from Rs 46.68 crore in the first half of 2022 to Rs 33.60 crore in fiscal 2024 and the profit at net level slumping from Rs 34.74 crore to Rs 20.11 crore.

Concerned over the declining pace of profit growth, visionary businessman that he is, Himanshu Patel has swung into action after brainstorming with histhinktank and has initiated a transformative process so that the company, which is an undisputed market leader in filtration and drying equipment segment and the second largest player in India in the glass lined reactor and equipment segment,

grows in stature and graduates upwards from the small cap segment, to begin with. After all, the Company has emerged as one of the largest process equipment manufacturers across the globe, even though its consolidated sales turnover is still around Rs 1,000 crore. Determined to see that the company grows in size and stature with a sustained pace of growth in earnings, Mr. Patel evolved a fourpoint strategy:

GROWTH TICKET

(A) Resorting to the acquisition route to grow in size and stature in the minimum possible time. Mr. Patel took a high jump and acquired Thaletec GmbH, the leading German company engaged in the manufacture of glass-lined equipment followed by an Indian company Kinam Engineering Industries, a renowned manufacturer of multiple types of heat exchangers.

(B) Mr. Patel decided to enter into the newly opened up defence sector by utilizing their knowledge and capability to handle pressure applications and to take up manufacture of specialised product, crucial for deep-sea diving vessels.

(C) The Company decided to diversify its product range in order to create the biggest basket of chemical engineering products.

(D) Expanding manufacturing and marketing facilities to satisfy the newly created demand for its products.

Thaletec GmbH, is a leading, respected and experienced customized glass-lined equipment manufacturer in Germany. It offers sophisticated, customized and innovative technical solutions with glass-lining equipment and services in the chemical, agro-chemical, pharmaceutical and environmental process industries, and is one of the most reputed companies in the process manufacturing equipment segment in Europe.

Explaining the rationale behind taking over Thaletec, Mr. Patel says that since both HLE Glascoat and Thaletec are engaged in similar and synergetic lines of business and operations, incremental improvements in the operation of the two companies are expected. The acquisition will enhance efficiencies and combine the similar business interests for both the entities, streamlining and optimization of the business.

Thaletec operates a 40,000 sq. m., manufacturing facility at Thale, Germany, with more than 160 employees. The facility is ISO 90001 and EN 150001 certified, has capabilities to manufacture equipment with dimensions of up to 100,000 liters volume. The facility is equipped to work with carbon steel, stainless steel, and nickelbased alloys (Hastelloy, Inconel) and other materials. Thaletec GmbH also had wholly owned subsidiary in the USA which was not into active business when the Company completed the acquisition.

Thaletec Germany has a big basket of products which include among other things, Enamelled Stirring Vessels and Reactors, Enamelled Pressure Filters, Enamelled Storage Tanks and Templates, Enamelled Heat Exchangers for Chemistry / Pharmaceuticals, Power Baffle: Enamelled heat exchangers as baffles, Enamelled U-tube bundle heat exchanger WTU, Silicon Carbide (SIC)-WT: Enamelled heat exchangers with SIC Tubes, Heat Exchanger Energy Technology, Boiler Evaporator, Enamelled Columns, LiquiPulse Jet Mixer, Accessories.

Thaletec also provides following services 3D Printing and Additive Manufacturing, Mixing Technology Center, Spare Parts, Maintenance and Repairs, Montages, Re-enameling, Retrofit, ReSale products and Workshops, seminars and trainings.

Thaletec India

Post acquisition in 2021, the business and operations of both India and Germany are being successfully integrated to ensure that optimum synergies and adjacencies can be achieved. Thaletec GmbH has also received approval for the German Government for transfer of Technology. According to Mr. Harsh Patel, Whole-Time Director, “a significant recent milestone includes the introduction of Thaletec range of innovative products in India, through Thaletec India (a firm where HLE Glascoat owns 99% ownership share). This initiative involves the integration of advanced innovative technologies

from Thaletec Germany into HLE Glascoat with the goal of expanding our product portfolio, reinforcing Company’s local market presence, and providing the company’s customers with superior and first of its kind offerings under the global Thaletec brand. Thaletec India has already commenced booking orders for the innovative product range in India, with deliveries scheduled in the coming quarters. This expansion is set to bring enhanced value to the

company’s customers and strengthen our position in the Glass Lined Equipment market.” In August 2023, Mr Patel went for one more noteworthy acquisition. HLE Glascoat entered into a definitive agreement to acquire a 70 per cent ownership and profit share in partnership firm Kinam Engineering Industries, which is one of the reputed designers, innovators and manufacturers of shell and tube heat exchangers, corrugated tube heat exchangers, spiral heat exchangers, plate type heat exchangers, pressure vessels and process equipment. Its clients include leading players in the chemical, petrochemicals, fertilisers, refinery, power plant, pharmaceuticals, biotech, cosmetics and textile industries. Kinam also exports its products to several countries, including Germany, the Netherlands, Israel, Malaysia, Egypt, South America, Kazakhstan and Turkey.

HLE Glascoat acquired a 35.56 per cent profit share and ownership interest in Kinam for a consideration of Rs. 79.97 crore in an all-cash transaction directly from its partners Mr. Kirit Mehta and Mr. Mehul Mehta. HLE Glascoat has been admitted as a partner and will acquire the balance 34.44 per cent stake by a scheme of arrangement.

HLE Glascoat acquired a 35.56 per cent profit share and ownership interest in Kinam for a consideration of Rs. 79.97 crore in an all-cash transaction directly from its partners Mr. Kirit Mehta and Mr. Mehul Mehta. HLE Glascoat has been admitted as a partner and will acquire the balance 34.44 per cent stake by a scheme of arrangement.

crucial for deep-sea diving vessels. Recognizing the strategic importance of self-reliance in defence, the Indian navy sought an indigenous solution to address this situation. What is more, under a trial project, the Company successfully manufactured and delivered the equipment within a remarkably short time-frame. As the Company’s performance exceeded expectations, it received the sub-segment order.

NEW PRODUCTS

With a view to diversifying its product range, the company has started adding new products on the strength of its capabilities. These products include customized R&D equipment and large-sized stainless steel and other reactors, among others.

HLE Glascoat which was having manufacturing facilities at Anand (near Vadodara in Gujarat) which houses the glass-lined equipment facility and at Maroli (near Surat in Gujarat) which is dedicated for filtration and drying equipment apart from facility in Germany belonging to Thaletec and Kinam’s manufacturing facility at Ambernath near Mumbai. Now the company has commissioned a greenfield state-of-the-art manufacturing spread across 5 acres of land at Silvassa which is equipped to manufacture customized as well as standardized filtration and drying equipment, reactors and other engineering equipment. Additionally, this year the company has acquired an opportune land parcel near

Anand admeasuring 1,30,000 sq. mts. Considering the company’s expansion requirement for over next decade, the company will put up its manufacturing facility in a phased manner in the coming years.

Thaletec has a subsidiary in the USA which was not doing anything material. Mr. Aalap Patel, Executive Director, activated the subsidiary and entrusted it to start marketing the Thaletec prdoucts in US and elsewhere. The outcome of Mr. Patel’s efforts is highly positive as the company has been able to make good inroads into certain large pharma companies based out of the USA.

Besides expanding its business in India where it is the undisputed leader for its sophisticated process manufacturing equipment, HLE has now started focusing on penetration in export markets. The company has a promising pipeline of enquiries and orders.

The Company has been on the growth path after Mr. Himanshu Patel and family acquired it in 2019. During the last five years, its sales turnover has almost trebled from Rs. 359 crore in the fiscal 2019 to Rs. 932 crore in the fiscal 2023 with operating profit also almost trebling from Rs. 47 crore to Rs. 139 crore and the profit at net level spurting almost four times from Rs. 19 crore to Rs. 70 crore. During the last three years, there has been a tremendous increasing trend in net profit over the previous 3 years suggesting that the company has achieved incredible return on equity, EBITDA is continuously on the increase and the return on capital employed is at handsome level. While net profit margin has declined from 7.49 per cent in fiscal 2023 to 5.82 per cent during the trailing twelve months, the operating profit market has dropped from

12.27 per cent to 10.32 per cent and EBITDA margin from 15.57 per cent to 13.56 per cent. The Company’s financial position is steadily improving. Its reserves as on March 31, 2023 stands at Rs. 312 crore – nearly 23 times of its equity capital of Rs. 13.65 crore. There has been a steady increase in total assets. The company’s financial liquidity has also improved. The company’s operating cash flows are being reinvested in working capital and this trend is likely to reverse, which will result in generation of enough free cash to support the future business growth.

Observers feel that the transformation growth journey evolved by Mr. Himanshu Patel will help HLE Glascoat to emerge as one of the largest process equipment manufacturers across the globe. Strongly believing in the customer first approach, Mr. Patel maintains that “gaining trust of customers is directly proportional to how we service our customers. At HLE Glascoat, we believe in being a valuedriven player and our approach to our overall operations is predominantly in line with our vision and is guided by our core values, which stand on passion, excellence and integrity.”

With the implementation of the new transformative growth strategy, the company is expected to scale new high levels of growth and in due course, it will graduate to the mid-cap segment first, getting ready to go further up. Though Mr. Patel does not like to speculate as to where the company will go after five years, observers feel that the company will grow in size and stature with the revenues exceeding Rs. 5,000 crore with a corresponding improvement in profits.