Galaxy Surfactants

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About the Company

Galaxy Surfactants is engaged in the manufacturing of surfactants and other specialty ingredients for the personal care and home care industries. The Company produces a range of vital cosmetic ingredients, including active ingredients, ultraviolet (UV) protection and functional products. Its products cater to various brands in the fast-moving consumer goods (FMCG) sector and offer in various applications, including skincare, haircare, oral care, body wash, sun care, household cleaners, and fabric care segments. Galaxy Surfactants is a global leader supplying a wide range of innovative products to over 1000 customers in 103 countries.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. Consolidated revenues grew 34% YoY in Q4.
2. EBITDA for Q4 increased by 22% YoY while PAT Increased by 24% YoY.
3. EBITDA margin decreased by 130 Bps to 13.9%.
4. Fatty alcohol prices in this Quarter increased to an average price of $ 2,862/MT Vs average prices of $ 2,073/MT in Q4FY21. The same was $ 2,602/MT in Q3FY22.
5. Volume growth in different geographies in Q4 is as follows:

1. India: Up 3.3% YoY
2. AMET: Down 29.1% YoY
3. Rest of the World: up 11% YoY

1. 1. In Q4, volume declined in the performance surfactant division was 15% YoY while specialty care products increased 3.7% YoY. 

• EBITDA/Ton in Q4 was at Rs 25,400.

Investor Conference Call Highlights

1. The management states that a volatile supply-side combined with a cutback in demand due to down-trading will be a potential downside to its business model in the coming year.
2. The company saw margin expansion on QoQ basis due to changes in product mix, inventory gains & new contracts.
3. The management states that its US subsidiary TRI-K has been doing exceptionally well.
4. The company is seeing a steep decline in the AMET market due to high inflation, currency devaluation & supply side constraints.
5. The company will incur a capex of Rs.150-200 Cr in FY23.
6. The company is guiding for EBIDTA per tonne of Rs.16000-18000 in the coming year & the guidance is skewed towards the upper band.
7. The working capital days have increased primarily due to increased inventory days which have risen due to supply chain disruption & higher cost of raw materials.
8. The current debt to equity stands at 0.22.
9. The management saw increased volatility in Palm kernel oil due to supply cutback from Indonesia.

Analyst’s View:

Galaxy Surfactants is one of the most consistent speciality chemical makers in India. The company had a strong quarter where the company clocked the highest ever EBIDTA per tonne of Rs.25,400. It expects to see difficulties in both supplies as well as demand side due to high inflation & uncertain geopolitical climate. The company has seen good growth coming from India, but it remains cautious due to signs of a growth slowdown in the country. The company is expecting sustained demand for its products going forward due to the premiumization trend in developed countries, the growth potential in developing countries, and the rise of eCommerce players in the Indian market. The only credible concerns for the company are RM inflation and supply chain issues arising from the shipping container shortage. It remains to be seen how the RM inflation will pan out going forward and how the company will be able to cope in times of prolonged supply chain stress. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche speciality product makers, Galaxy Surfactants remains a good stock to watch out for in the speciality chemicals space.

Q2FY22 Updates

Financial Results & Highlights

Detailed Results:

1. Consolidated revenues grew 22% YoY in Q2.
2. EBITDA for Q2 declined by 42.9% YoY while PAT declined 50.4% YoY.
3. EBITDA margin was down 10.3% YoY to 8.2% in Q2.
4. Fatty alcohol prices were at $1828/MT in Q2 vs. average prices of $1,228/MT in Q2FY21 & prices of $2069/MT in Q1 of FY22.
5. Volume growth in different geographies in Q2 is as follows:
   1. India: Up 0.1% YoY
   2. AMET: Down 13.3% YoY
   3. Rest of the World: Down 7.1% YoY
6. In Q2, volume declined in the performance surfactant division was 8.2% YoY while specialty care products declined 3.7% YoY.
7. EBITDA/Ton in Q2 was at Rs 15,917 which was up 7.5% YoY.

Investor Conference Call Highlights

1. The prices of Lauryl alcohol which constitutes 50-55% of raw material increased from $1,800 in August to $3,000 in October.
2. Since Lauryl alcohol is imported from Southeast Asia, the freight costs increased by 10-15% in this quarter due to supply chain issues.
3. Prices of Ethylene oxide (a key raw material for the production of performance surfactants) increased by 40% in the last 1 year.
4. The company is being more affected by supply chain issues since exports make up for nearly 2/3 of its business and raw material imports make up for nearly 70% to 75% of the total requirement.
5. The management states that Increased freight costs are affecting its margins of long-term contracts.
6. The management highlighted that availability of containers for long-distance shipments impacted its specialty business as well as disrupted the intermediate feedstock supply chain at its Egypt branch.
7. The company’s volume in domestic increased by 1% QoQ despite feedstock’s availability issue.
8. The management stated that the supply-led factors adversely impacted its EBITDA by Rs 20 Cr.
9. The company’s capex done for specialty products at Jhagadia & Tarapur is being operationalized in phases and will be fully operational by January 2022.
10. The management retained EBITDA guidance of Rs 16,000 to Rs 18,000 per metric ton and volume guidance of 6-8%.
11. The export support benefits realized in Egypt and recognized on a receipt basis in the first half of last year are not expected to be received in H2 FY2022.
12. The management expects robust demand to continue in the coming quarters.
13. The company has a sales mix comprising of sales to both large MNC and grid contracts.
14. The management states that the company is generally able to pass costs increases to its consumers, however since the freight and other costs spurted suddenly, it couldn’t pass them in this quarter. But it is confident of recovering its EBIDTA per ton in the coming quarters.
15. The company procures Lauryl alcohol through a mix of long-term contracts as well as spot market to manage its risks.
16. The management states that there has been no loss of customers in this quarter.
17. The management believes that there is a structural trend in the domestic market since the company can maintain its revenue despite a higher base in the previous quarter due to pent-up demand and increased consciousness for hygiene due to Covid.
18. The new capacity in Jhagadia and Tarapur is for the production of mild surfactants & non-toxic preservatives.
19. The management states that margin pressure in the current quarter is more due to the unavailability of raw material and volume losses rather than just an increase in raw material prices.
20. The management states that all the customers have accepted the price increases.
21. The receivables have increased due to an increase in raw material prices & increased contribution of its strategic consumers in the total sales who have a higher credit period.
22. The top 5 products contribute approximately 60% to 65% of the company’s total turnover.
23. The management highlights that it is guiding for growth higher than the industry growth in domestic and foreign markets.
24. The capacity utilization in this quarter was 67% and ROE is close to 20%.
25. The company is investing in capacities in its specialty chemical portfolio as it believes it is growing due to customers pivoting more towards healthy, sustainable & wellness products as well as the trend of premiumization.
26. The management states that the company is well placed to capture the trend where major players of Personal care & home care products across the world would replace their tectum feedstocks with natural feedstocks.
27. The total number of patents that the company hold is about 80, and they have applied for another 50.
28. The prices on the supply side increased due to the low supply of vegetable oil and these supply challenges led to lower production, lower inventories, and that led to the price increase. However, the management expects the prices to stabilize as production starts improving in terms of the plantations working to their full capacity which will lead to supply improving.
29. The company has experienced situations of wild increase in raw materials prices in the past which gives it the confidence to manage the risk prudently according to the management.

Analyst’s View:

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company had a tough quarter due to supply chain issues leading to margins collapsing from 18.5% to 8.2%. It expects to see good demand for specialty products as more and more developed countries come back to normal. The company has seen good growth coming from India, but it remains cautious due to signs of growth slowdown from the country. The company is expecting sustained demand for its products going forward due to the premiumization trend in developed countries, the growth potential in developing countries, and the rise of eCommerce players in the Indian market. The only credible concerns for the company are RM inflation and supply chain issues arising from the shipping container shortage. It remains to be seen how the RM inflation will pan out going forward and how the company will be able to cope in times of prolonged supply chain stress. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q1FY22 Updates

Financial Results & Highlights

Detailed Results:

1. Consolidated revenues grew 37% YoY in Q1.
2. EBITDA for Q1 grew 24% YoY while PAT grew 38% YoY.
3. EBITDA margin was down 140 bps YoY to 13.6% in Q1.
4. Fatty alcohol prices were at $2069/MT from $2073 in Q4 and $1089 last year.
5. Volume growth in different geographies in Q1 is as follows:
   32. India: Up 32.1% YoY
   33. AMET: Down 5.8% YoY
   34. Rest of the World: Up 28.6% YoY
   35. Total: Up 15.4% YoY
6. In Q1, revenue growth in the performance surfactant division was 15.7% YoY while specialty care products grew 93.8% YoY. Volumes for the PS division grew 6.5% YoY while SCP division volumes grew 36.1% YoY.
7. The company currently has 79 approved patents and 14 are under application as of date.
8. The Board has declared a final dividend of Rs. 4 per share.
9. EBITDA/Ton in Q1 was at Rs 18,879 which was up 7.5% YoY.

Investor Conference Call Highlights

1. The management mentions that rising input costs and unavailability of key raw materials and rising logistics challenges had an adverse impact on the company’s performance in Q1.
2. The Rest of the World segment saw good response due to rising demand in the specialty products segment.
3. Although India volumes have risen a lot, the management remains cautious due to signs of tepid demand and missing pent-up demand in this market.
4. The drop in AMET region was mainly due to logistical challenges according to the management.
5. The company launched Galaxy Hearth Mix Pods which is a ready mix concentrate for the preparation of Laundry Pods or Capsules powered by plant-based surfactants.
6. All the company’s employees have gotten their first dose of the COVID vaccine, and the company expects to complete full immunization by the end of Sep.
7. The management expects performance to remain subdued for the company as they expect the supply chain issues to persist in the short term. The main issue here is that although the company’s RM suppliers have enough supplies, they are finding it difficult to send these supplies to Galaxy due to unavailability of containers.
8. The company is finding it difficult to pass on the sudden rises in logistics costs to its customers.
9. The margin decline was mainly due to the company having to resort to using costly intermediates due to the unavailability of its usual critical feedstocks. This was the case for specialty chemicals. Thus, despite the volume growth in the specialty chemicals segment margins were still lower.
10. The major focus for the company is retaining customers at present according to the management.
11. The major worry for Galaxy due to delayed shipments is that it may force its customers to go back to reformulation of existing product formulas to cope with the shortage of ingredients which will be very detrimental to the demand for galaxy’s products.
12. The company is also looking to localize its feedstocks as much as possible to reduce the dependence on imports and to prevent the current RM sourcing problems from happening in the future.
13. The company has also seen overall volumes in specialty chemicals not rising as much as expected due to the delay in the commissioning of the new specialty products plant which has prevented the addition of the planned capacity in this segment.
14. The management maintains the EBITDA/ton guidance at Rs 16000-18000.
15. Green solutions and products remain a strategic focus for the company according to the management. It states that the product life cycles in this industry are very long at 40-50 years and so the acceptance and prevalence of new ingredients is slow at first.
16. The main strategic focus areas for Galaxy are the premiumization trend in specialty products, the growth potential for performance surfactants in developing nations and maintaining growth momentum which is greater than that of the market.
17. The management has indicated that the company is indeed on the lookout for possible acquisition opportunities.
18. Rural demand in the personal care segment has not been impacted much by COVID-19 and has remained resilient.
19. The management has stated that the demand for performance surfactants remains constant throughout the year and is affected by actual supply chain issues while the specialty products demand may rise in festive times.
20. The delayed capex projects are expected to be commissioned by Sep.
21. The share of sales from products from these new sites is expected to be at 4-4.5% in FY22.
22. Ecommerce players have emerged as the new growth providers in the personal care industry and are expected to continue their momentum in the future.

Analyst’s View:

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to maintain its sales and volume growth despite logistic issues and falling margins due to supply sourcing issues. It expects to see good demand for specialty products as more and more developed countries come back to normal. The company has seen good growth coming from India, but it remains cautious due to signs of growth slowdown from the country. The company is expecting sustained demand for its products going forward due to the premiumization trend in developed countries, the growth potential in developing countries and the rise of ecommerce players in the Indian market. The only credible concerns for the company are RM inflation and supply chain issues arising from the shipping container shortage. It remains to be seen how the RM inflation will pan out going forward and how the company will be able to cope in times of prolonged supply chain stress. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q4FY21 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues grew 20% YoY in Q4.
2. EBITDA for Q3 grew 16.9% YoY while PAT grew 22% YoY.
3. EBITDA margin improved down 30 bps YoY to 15.3% in Q4.
4. Fatty alcohol prices went up to $2073/MT from $1588 in Q3 and $1270 last year.
5. Volume growth in different geographies in FY21 is as follows:
   11. India: Up 11.2% YoY
   12. AMET: Up 8.2% YoY
   13. Rest of the World: Down 6.8% YoY
   14. Total: Up 5.3% YoY
6. In Q4, revenue growth in the performance surfactant division was 30.2% YoY while specialty care products grew 5.1% YoY. Volumes for the PS division grew 7.4% YoY while SCP division volumes grew 10.5% YoY.
7. In FY21, revenue growth in the performance surfactant division was 12.1% YoY while specialty care products grew 0.2% YoY. Volumes for the PS division grew 8.8% YoY while SCP division volumes fell 0.9% YoY.
8. Closing cash for FY21 was at Rs 81.5 Cr.
9. The company currently has 78 approved patents and 13 are under application as of date.
10. The Board has declared a final dividend of Rs. 4 per share.
11. EBITDA/Ton in FY21 was at Rs 19,465 which was up 16.4% YoY.

Investor Conference Call Highlights

1. In FY21, Galaxy delivered a ROCE of 25.2% and an operating cash generation of Rs 365 Cr.
2. Performance surfactants segment saw similar sales in H2 as in H1 but specialty care products volume growth in H2 over H1.
3. The capex planned for specialty care products has been delayed by 6 months and is expected to be operational by Q4FY22.
4. The gross margin was at Rs 42,000 per ton for Galaxy in FY20. It may change depending on a variety of factors. The management assures that the EBITDA/ton figure shall remain resilient in the range of Rs 16,000-18,000 per ton.
5. The management admitted that the rest of the world’s numbers were indeed affected by the delay in shipping through the Suez Canal.
6. The capex should be at a normal level of Rs 150 Cr for FY22.
7. The management is more concerned with the demand situation than the rise in RM costs as it can always pass the RM price rises if the demand situation remains resilient.
8. The management admits that the margins can get tempered going forward due to rising RM prices.
9. The management doesn’t see any structural change coming in due to the rise in RM prices. It maintains that the main structural change the industry has seen has been regarding the health and hygiene habits of everyone which has led to increased demand for performance surfactants.
10. The utilization level in surfactants is at 65-68% currently.
11. The specialty portfolio is only at 15% of India sales currently.
12. The company is aiming for 6-8% volume growth each year.
13. The management has admitted that oleo surfactants can cannibalize synthetic surfactants in western economies, but it will not be able to replace them in emerging economies.
14. The US operations are largely towards specialty care products while the Egypt operations are largely towards performance surfactants.
15. The management has clarified that it has not been in direct competition with Indian Glycols for more than 20-25 years now.
16. The company decided to write down the Tarapur plant as it was very old being built almost 35 years ago and it was more feasible to tear it down and make a new plant than to refurbish the old one.
17. T1 customers were at 53% of sales, T2 at 13%, and T3 were at 34%.
18. The management maintains that the price increases are taken in a calibrated manner as the RM prices are rising. The same action will be taken in the opposite direction when RM prices come down.
19. The CWIP is higher this year as the projects started 2 years are nearing completion.
20. The management states that although the global industry growth is expected to be at 2-3% only, there is a large headroom for growth in emerging markets like India, Africa, and the Middle East and Galaxy is positioned well to capture the growth in these geographies.
21. The management maintains that growth will come from increasing wallet share in existing products and from expanding the product basket in accordance with emerging trends and innovations.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve good revenue & profit growth in Q4 and has managed to increase EBITDA/ton to above Rs 19,000 in FY21 highlighting a good year. It also saw a good rise in demand for specialty care products in H2 after a tepid H1. The company has seen good growth coming from India as demand comeback was strong for all tiers of customers. The company is expecting sustained demand for its products going forward due to the renewed focus on health & hygiene and the new products of nontoxic preservatives and mild surfactants but has been constrained due to global supply chain issues and rising RM prices. The only credible concerns for the company are RM inflation and supply chain issues arising from the shipping container shortage. It remains to be seen how the RM inflation will pan out going forward and whether the focus on health and hygiene is going to stay or not post COVID. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q3FY21 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues grew 8% YoY in Q3.
2. EBITDA for Q3 grew 43.3% YoY while PAT grew 77% YoY driven by increasing share of specialty, better product mix due to new products, and higher capacity utilization.
3. EBITDA margin improved 450 bps YoY to 18.1% in Q3.
4. Fatty alcohol prices went up to $1588/MT from $1228 in Q2 and $1188 last year.
5. Volume growth in different geographies in Q3FY21 is as follows:
   14. India: Up 14.4% YoY
   15. AMET: Up 2.9% YoY
   16. Rest of the World: Up 4.3% YoY
   17. Total: Up 7.3% YoY
6. In Q3, revenue growth in the performance surfactant division was 3.7% YoY while specialty care products grew 14.1% YoY. Volumes for the PS division grew 4.7% YoY while SCP division volumes grew 12% YoY.
7. The company currently has 78 approved patents and 13 are under application as of date.
8. The Board has declared an interim dividend of Rs. 14 per share.
9. EBITDA/Ton excluding export incentives in Q3 was at Rs 18,632.
10. 9M performance was similarly good with revenue rise of 3% and PAT rise of 33% YoY.
11. Volumes in 9M grew 4.2% YoY. EBITDA/ton was at Rs 19,620 vs Rs 16,387 last year.

Investor Conference Call Highlights

1. Demand remains resilient and with vaccination drive gaining traction, focus on health and hygiene remains strong in both masstige as well as premium specialty products.
2. Pricing vulnerability in raw material prices & supply chain disruptions pose the biggest risks in servicing this underlying demand.
3. Galaxy’s new products in the nontoxic preservation, sulfate-free, and proteins range accounted for 5% of revenues in Q3.
4. The company has also seen a strong improvement in business share with non-MNC customers.
5. T1 revenue share is now down to 50.4% from 63.8% in Q1.
6. The management has reiterated that growth for galaxy will be driven by proteins, mild surfactants, nontoxic preservatives & syndet, and transparent bathing bars which have gained a lot of visibility lately.
7. The growth taper in AMET was mainly due to supply chain disruptions which reduced sales in Q3.
8. The EBITDA/ton is expected to continue growing slowly as the pie of specialty products grows for Galaxy.
9. Depending on the capex requirements, the company will keep increasing or decreasing the dividend payout accordingly.
10. The company has restarted 3 capex projects which were put on hold due to COVID-19. They are:
    1. CapEx at Tarapur for new products
    2. Expansion of R&D center in Vashi
    3. Mild surfactants and nontoxic conservatives in Jhagadia
11. The company intended to spend around Rs 150 Cr in capex on the above projects but has only been able to do around Rs 70-75 Cr so far. The rest will be pushed on to FY22.
12. The company is aiming to maintain a yearly capex rate of Rs 100-150 Cr going forward.
13. The management maintains guidance on volume growth at 5-8% per year.
14. Fatty alcohol is close to about 60% to 65% of total RM consumption.
15. The management assured that all increases in RM costs are passed on to the customer.
16. The major issue for the industry is going to be the container shortage which is expected to last till June.
17. Fatty alcohol prices have risen above $2000 currently.
18. The management says that Galaxy is on the lookout all the time to unearth good opportunities for acquisition that is in line with its strategy.
19. The management has stated that the EBITDA/ton for new products is greater than the average number. Due to long product cycles, as these new products will rise in share and volumes, it will also cause EBITDA/ton to rise.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve good revenue & profit growth in Q3 and has managed to increase EBITDA/ton due to increased utilization and launch of new products. The company saw revenue growth despite modest volume growth mainly due to the continued rise in fatty alcohol prices and rising demand for specialty products. The company has seen good growth coming from India as demand comeback was strong for all tiers of customers. The company is expecting sustained demand for its products going forward due to the renewed focus on health & hygiene and the new products of nontoxic preservatives and mild surfactants. The only credible concerns for the company are RM inflation and supply chain issues arising from the ongoing container shortage. It remains to be seen how the whole container situation will pan out going forward and whether the focus on health and hygiene is going to stay or not post COVID. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q2FY21 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues grew 11% YoY in Q2.
2. EBITDA for Q2 grew 41.2% YoY while PAT grew 22% YoY. EBITDA margin improved 370 bps YoY to 17.4% in Q2.
3. Fatty alcohol prices went up to $1228/MT from $1089 in Q1 and $1065 last year.
4. Volume growth in different geographies in Q2FY21 is as follows:
   • India: Up 27% YoY
   • AMET: Up 6.1% YoY
   • Rest of the World: Down 4% YoY
5. In Q2, revenue growth in the performance surfactant division was 11.3% YoY while specialty care products grew 11.6% YoY. Volumes for the PS division grew 15.3% YoY while SCP division volumes grew 2.1% YoY.
6. The company had its first-ever quarter with PBT above Rs 100 Cr.
7. Closing cash and cash equivalents in Q2 was at Rs 61.7 Cr.
8. The company currently has 77 approved patents and 13 are under application.
9. EBITDA/Ton in Q2 was at Rs 20,006 vs Rs 15,624 last year.

Investor Conference Call Highlights

1. According to the management, demand for essentials remains fairly strong, and the masstige category now seems poised to make a comeback.
2. The margin appreciation was contributed to by the shift in product mix, increase in capacity utilization and reduction in other expenses.
3. The management continues to maintain EBITDA margin guidance of 15-17%.
4. In H1, the new age preservatives have been launched.
5. The company is setting up Capex and the site will go inline from Q1FY22.
6. The trajectory of EBITDA per tonne shall remain hinged on the mix between performance surfactants and specialty products.
7. Capacity utilization in Q2 was at 71.3% and it was 64.4% in H1.
8. The company has also been able to save on other expenses of travel and others in Q2 due to COVID-19.
9. Most of the growth in Q2 has been led by regular sales according to the management.
10. The management expects the momentum in Specialty care to continue in the coming quarters as discretionary spending comes back to normal.
11. The big change in SCP revenues despite modest volume growth in the segment was due to the newly launched new age preservatives and mild surfactants brands.
12. The company’s tier 3 customers are seeing good growth and now contribute to 36% of total sales vs 32% previously.
13. Around 3,000-4,000 tons of volume is expected to have come from pent up demand from Q1.
14. Egypt accounts for 1/3^rd of AMET volumes and has grown 2-3% QoQ. This was normal as it was not affected in Q1 at all.
15. The company expects to commission certain CapEx projects by the first quarter of next year, which will also progressively add to its margins and EBITDA per tonne.
16. Oleochemicals contribute to 70% of RM consumption of the company.
17. Tier 1 customers will give Galaxy a one-month firm plan and a directional plan for the next month. This will be kept rolling with different numbers. Any increase or decrease in demand is visible to the company with a notice of almost 2 months.
18. The current Capex plans are the same as before at Rs 130-150 Cr for its multipurpose plant at Tarapur and expansion of Specialty Ingredients plant at Jhagadia.
19. The delay in commissioning in these 2 projects has been mainly due to COVID-19.
20. 67% of revenues are from exports.
21. The management has stated that the company is mainly innovation-driven and is not focussing on import substitution.
22. R&D spend is about 2% of revenues.
23. The company has not seen business development slow down at all due to the travel restrictions and has seen improvement in customer engagement in general.
24. The company is indeed expecting good growth from the new product launches as these products were developed as the company felt the need for these products such as the demand for sulfate-free formulations and transparent sulfate-free formulations and nontoxic preservatives.
25. The absolute cost savings from COVID-19 was at Rs 4-5 Cr.
26. The expansion in the USA was very timely and has helped Galaxy make progress in the high-end specialties segment there.
27. Most of the company’s orders are contractual for 3-6 months and thus prices are fixed for the duration of the contract. For spot customers, price changes due to RM cost changes are instantaneous.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve good sales volume & profit growth and has managed to maintain EBITDA/ton due to increased utilization and launch of new products. The company saw revenue growth despite modest volume growth mainly due to a rise in fatty alcohol prices and demand for new products. The company has seen good growth coming from India as demand comeback was strong for all tiers of customers. The company is expecting good demand for its products going forward due to the renewed focus on health & hygiene and the new products of nontoxic preservatives and mild surfactants. The company has enough spare capacity to handle any upsurge in demand. It remains to be seen how the whole situation will pan out going forward and what final impact it will have on the global economy and whether the focus on health and hygiene is going to stay or not post COVID. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q1FY21 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues fell 8.7% YoY in Q1 mainly on the back of lower fatty alcohol prices which declined from $1161 to $1089 YoY & the fall in specialty chemical sales in Q1.
2. EBITDA for Q1 fell 6.4% YoY while PAT grew 5.7% YoY. EBITDA margin improved 40 bps YoY to 15% in Q1.
3. Volume growth in different geographies in Q1FY21 is as follows:
   • India: Down 2.3% YoY
   • AMET: Up 10.2% YoY
   • Rest of the World: Down 27.4% YoY
4. In Q1, revenue growth in performance surfactant division was 11.5 YoY while specialty care products fell 39.1% YoY. Volumes for PS division grew 7.8% YoY while SCP division volumes fell 26.2% YoY.
5. The company currently has 72 approved patents and 14 are under application.
6. EBITDA/Ton remains stable at above Rs 17,000.

Investor Conference Call Highlights

• The fall in specialty care products was mainly due to cutbacks in discretionary consumption and an overall slowdown in the developed markets. This expected to reverse as consumption cycle revives and normalcy comes back.
• A good monsoon followed by a pickup in rural consumption and growing awareness for hygiene and cleanliness has the potential to result in an improved performance going ahead in India.
• In response to the mishap which took place recently in one of the company’s plants which claimed 3 lives in a blast, the company is looking to improve emergency training and it has created a task force to go through the entire factory, equipment by equipment, process by process, plant by plant. The company has started back the plant only after the full inspection was completed and no other issues came to light.
• Despite the rise in the product mix of low margin performance surfactants, the EBITDA/ton remained above Rs 17,000 as most of the sales were to T1 customers and less to T3 customers who were disrupted the most from COVID-19. And performance surfactants by itself is not a low margin product always and is mainly dependent on RM prices.
• Geographical revenue breakup is as follows:
  • AMET: 42%
  • India: 37%
  • ROW: 21%
• The company and management expect the momentum and margins in AMET to continue going forward.
• The decline in ROW was mainly due to logistical disruptions from lockdown.
• The demand for the company’s products remains buoyant and robust. It is the supply that may be a cause for concern here as around 20-25% of the workforce was unavailable in the past 4-5 months. The management is aiming to reduce this workforce deficit to 0 as soon as possible.
• The management has stated that the driver for specialty chemicals and its demand is mainly consumer needs and wants. The top of the line priorities for customers generally is protection which is moving towards non-toxic preservation, mildness, sustainability, and sensory. Due to COVID-19, the demand has skewed more towards protection and away from the beauty and personal preferences. This shift in priorities is expected to be short term as demand for discretionary products will come back once normalcy comes back. But the increased priority to protection seems to be permanent.
• The company has reported a loss in demand for high-end beauty products and similar segments as well as a fall in consumption in travel packs for all segments.
• The capex implementation planned earlier was to start in October. This has been delayed by 6 months due to COVID-19 and will commence from April next year.
• Capacity utilization is at 60-65% of pre-COVID levels. It is at 57.6% in absolute terms.
• Consumer demand remains intact and the management is confident that it will be able to recoup lost demand going forward once supply-side constraints get solved.
• The shift of more sales to T1 compared to T3 customers is not conscious on part of the company and it was simply because T1 customers were able to resume operations faster than T3 customers. Going forward, this shift is expected to revert back to the previous level as T3 customers also come back to normal.
• The has been no pullback in committed volumes by any customer for the company due to COVID-19. There hasn’t been any structural change in the nature of demand. It is just that the priorities have shifted more towards protection at the detriment of beauty. But this fall in demand for beauty products is only short term and it should normalize going forward.
• In terms of volume mix, 60-65% is performance surfactants and 30-35% in specialty chemicals.
• The reduction in expenses is disruption related and is expected to reverse as volumes rise and normal business activities resume.
• In terms of volumes, only Egypt has shown volume growth in Q1.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve sales volume growth despite disruptions from the domestic lockdown and has even managed to maintain EBITDA/ton despite the product mix shifting towards performance surfactants. The company suffered a revenue decline despite volume growth mainly due to a fall in fatty alcohol prices which forms around 52% of its requirements. The company has seen good growth coming from the AMET region particularly Egypt and demand in all geographies is seen to be reviving. The company is expecting good demand for its products going forward due to the renewed focus on health & hygiene and revival in demand for specialty chemicals going forward. The company has enough spare capacity to handle any upsurge in demand. It remains to be seen how the whole situation will pan out going forward and what final impact it will have on the global economy and whether the focus on health and hygiene is going to stay or not post COVID. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q4FY20 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues fell 4.2% YoY in Q4 mainly on the back of lower fatty alcohol prices which declined from $1342 to $1171 YoY.
2. EBITDA for Q4 grew 3.9% YoY while PAT grew 10% YoY. EBITDA margin improved 112 bps YoY to 15.6% in Q4.
3. For FY20, total volumes grew 4.4% YoY with performance surfactants growing 6% YoY and specialty chemicals growing 1.7% YoY.
4. Volume growth in different geographies in FY20 is as follows:
   • India: Up 0.5% YoY
   • AMET: Up 9.4% YoY
   • Rest of the World: Up 2.8% YoY
5. In FY20, revenue decline in performance surfactant division was 8.8% YoY while specialty care products fell 1.1% YoY. Overall EBITDA & PAT grew 4.7% and 20.6% YoY respectively.
6. The cash position of the company was at Rs 47.7 Cr on 31^st March 2020.
7. The company has announced an interim dividend for FY20 at Rs 14 per share.

Investor Conference Call Highlights

• The company had an incident in its Tarapur plant where an explosion occurred in the M3 unit and caused 3 casualties. This incident is expected to impact Q1.
• The Capex plan for the company’s Specialty Products remains on track, though execution and operationalization will get delayed by 6 months.
• Egypt saw good momentum in Q4FY20 which is expected to continue into Q1FY21.
• The management has attributed margin expansion on the improved product mix and the improved pricing from performance surfactants.
• Capex for Fy21 is going to be Rs 100 Cr. The company will try to keep CAPEX at this level going forward.
• The impact of the Tarapur incident is somewhat mitigated as the company has it covered by insurance and even loss of profit is covered under this insurance.
• The management does expect specialty chemicals to stay muted for the short term as discretionary spending goes down. But it is also optimistic of growth in performance surfactants due to the renewed focus on health and hygiene from COVID-19.
• The company does not have a specific target for the growth of the specialty chemicals segment and will let all divisions for the company grow organically.
• The company saw good demand for the GLI 21 which was launched last year and is expecting the R&D infra enhancement at Tarapur to be completed by the end of this year.
• Capacity utilization in specialty chemicals is only at 61% currently and thus there is significant room for sales to grow before the company has to expand capacity.
• The only risk to the growth momentum in Egypt is the future impact of COVID-19 according to the management.
• The management is cautiously optimistic about whether the increased focus on cleanliness and hygiene is going to bring a structural change in the industry or whether it will stay as a short term phenomenon only.
• International business constituted around 65% of total sales. Within AMET revenues, 40% was from Egypt alone.
• The management has stated that the new products have grown around 5-7% in FY20. Around 95% of business is from existing customers.
• The management acknowledged that the company does supply to all handwash makers in India but they are not applying any ingredients for hand sanitizers.
• Input costs are expected to remain stable at current levels going forward.
• The management has stated that the company will spend Rs 60-70 Cr on innovation capability of the multipurpose plant in Tarapur and it will spend around Rs 400-450 Cr in both performance surfactants and specialty care divisions in the next 3-5 years. The company is expecting incremental revenues of Rs 1000 Cr from these investments given its historical asset turnover ratio.
• The management has clarified that the US facility is specifically for cosmetic proteins.
• The management expects long horizons of 30-50 years on its specialty care chemicals.
• In India, the company expects home hygiene to expand fast given the significant growth in this segment in the last 3 years.
• The volumes breakup in India is 65% for performance surfactants and 35% for specialty care.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve sales volume growth despite the domestic slowdown and has even achieved profit growth despite a dip in revenues. The company suffered a revenue decline despite volume growth mainly due to a fall in fatty alcohol prices which forms around 52% of its requirements. The company has seen good growth coming from the AMET region particularly Egypt and demand in India reviving. The company is expecting good demand for its products going forward due to the renewed focus on health & hygiene going forward. The company has enough spare capacity to handle any upsurge in demand. It remains to be seen how the whole situation will pan out going forward and what final impact it will have on the global economy and whether the focus on health and hygiene is going to stay or not post COVID. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q3FY20 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues fell 7.55% YoY mainly on the back of lower fatty alcohol prices which declined from $1361 to $1138 YoY.
2. EBITDA for Q3 grew 2.4% YoY while PAT grew 14.67% YoY mainly on the back of the fall in tax expenses.
3. For 9M, total volumes grew 5.6% YoY with EBITDA growth of 5% YoY.
4. Volume growth in different geographies in 9M is as follows:
   • India: Up 0.7% YoY
   • AMET: Up 9.5% YoY
   • Rest of the World: Up 6.8% YoY
5. In 9MFY20, revenue growth in performance surfactants division was -8.1% YoY while specialty care products fell 4% YoY.
6. Volume growth for performance surfactants in 9M was 7.1% YoY while specialty care products grew 3.1% YoY in the same period.

Investor Conference Call Highlights

• The management is satisfied with the resilient performance of the company in Q3 after 2 quarters of a consumption demand slowdown. The main reasons for this were the revival of Egypt’s market and volume growth in India.
• The EBITDA for Q3 was impacted by new plant start-up costs for the Jagadia plant and the continuation of trade restriction with a neighbouring country.
• Egypt grew 34% YoY in Q3.
• India volumes grew 4.8% in Q3 after 2 quarters for volume contraction.
• The volumes for the rest of the world were down which the management believes is a temporary blip and demand should revive going forward.
• EBITDA/ton stood at Rs 15754/ton is well within the prescribed range of 15000-17000.
• Capex lined up for new product development remains on track.
• The management has stated that the move to restrict palm oil by the Indian Government has almost no impact on the company as it uses palm oil derivatives which are not restricted at all.
• The management expects the domestic growth momentum seen in Q3 to continue.
• The management clarified that the volumes for Q3FY19 were higher than normal due to a couple of one-off factors and this has caused the volumes decline to appear more drastic YoY.
• The management assures that there isn’t any threat from synthetic ingredients for the company’s alcohol-based products as these chemicals are not fungible in most cases.
• The non-Egypt AMET growth was 4.5% in Q3 and 7% in 9M.
• Including depreciation, fixed costs for Jagadia plant are Rs 12 Cr per year.
• On an overall basis, the capacity utilization rate for Galaxy was at 62%.
• The management has reiterated the company’s resolve to outpace industry growth and has refrained from providing any guidance for FY21 as the planning for the next year is still going on.
• The total debt is Rs 286 Cr. The debt to equity has gone down from 0.34 to 0.27 in the year so far.
• The US facility has already been commissioned and ready to start production.
• The management expects the product mix to improve to previous levels. The company is not going to prioritize anyone of the performance surfactants and specialty chemicals at the expense of the other.
• All R&D expenses are directly expensed and not depreciated over time.
• The management has clarified that the company does not work with long term contracts and thus procurement from customers may vary and thus the management cannot give any definite volume sales guidance.
• The management has also clarified that the variation in growth rates across the years is mainly due to the end of the gestation period for products which may result in temporary upward blips after which growth rate stabilizes at normal levels.
• The CAPEX in FY21 is mostly for maintenance as the company is not looking to expand capacity right now.
• The management has assured that it is well-positioned to address any surge in demand caused by demand for hygiene products from the coronavirus situation.
• In Q3, total volumes grew 2.4%, performance surfactants grew 10% while specialty declined 9%.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve sales volume growth despite the domestic slowdown and has even achieved profit growth despite a dip in revenues. The company suffered a revenue decline despite volume growth mainly due to a fall in fatty alcohol prices which forms around 52% of its requirements. The company has seen good growth coming from the AMET region particularly Egypt and demand in India reviving. The company has not yet seen any material positive or negative impact from the coronavirus situation. But as the demand for personal hygiene products goes up in the current environment, the company is well placed to handle any upsurge in demand. It remains to be seen how the whole situation will pan out going forward and what final impact it will have on the global economy. Nonetheless, given the company’s robust product portfolio and the ever-increasing list of both FMCG majors and niche specialty product makers, Galaxy Surfactants remains a good stock to watch out for in the specialty chemicals space.

Q2 2020 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues fell 5% YoY mainly on the back of lower fatty alcohol prices which declined 19% YoY in Q2.
2. EBITDA for Q2 grew 0.6% YoY while PAT grew 45% YoY mainly on the back of the fall in tax expenses.
3. For H1, total volumes grew 7.1% YoY with EBITDA growth of 6.1% YoY.
4. The specialty care segment grew 11.5% YoY in volumes.
5. Volume growth in different geographies in H1 is as follows:
   • India: Down 1.2% YoY
   • AMET: Up 7.3% YoY
   • Rest of the World: Up 19.4% YoY
6. In H1FY20, revenue fell in performance surfactant division by 12.2% while specialty care products grew 5.2%.
7. Change in tax rate had a positive impact of Rs 5.85 Cr in Q1 which was captured in Q2.
8. Volume growth for performance surfactants in H1 was 5.7% YoY while specialty care products grew 10% YoY in the same period.

Investor Conference Call Highlights

• The FMCG space in India slowed down with the industry seeing almost half the growth rate that it had last year.
• A recent trade restriction on trade with a neighboring country has resulted in an adverse impact of Rs 1.85 Cr for the company.
• The company has logged an 11.2% volume growth in Q2 with performance surfactants growing 11.2% YoY and specialty care products growing 8.4% YoY.
• Egypt has grown phenomenally with 29.8% YoY growth in Q2. Excluding Egypt, AMET grew 9.7%.
• The company remains confident of maintaining the current momentum in AMET markets.
• The borrowings for the quarter have risen by Rs 30 Cr mainly due to 2 factors. One of which is an advance tax payment of Rs 8 Cr and the rest is for GST regulations.
• The management expects the industry sentiment to improve as the sequential growth has started already.
• The management maintains that it will maintain an EBITDA growth of higher than the market.
• Raw material costs have been stable since Q1 but it has been at its lowest levels since the past several years.
• The company passes through all the rises in raw material costs and thus they do not carry the changes to its books.
• The management has guided that the ideal EBITDA margin range is around 12.5-13.5%.
• The company expects progressive growth in EBITDA margins in the long term as the product mix shifts more and more towards specialty products.
• The management guides for volume growth of 6-8% for FY20.
• The majority of sales to AMET countries is to T1 customers which include MNCs like J&J and Unilever. The growth in these geographies is primarily due to increased sales and market share capture by these T1 customers.
• The management believes that the current level of volumes should continue in the coming quarters for AMET.
• The other expenses have risen on account of product development expenses, insurance and freight costs being added.
• The company has not seen any inventory losses despite the fall in raw material prices.
• The management maintains that India’s growth shall stay muted while the export markets shall be the main driving force behind the growth for the rest of the year.
• The reason for the fall in realization in specialty products is mainly due to the changing product mix in this segment.
• In women’s care, the company sees the market moving towards premiumization and the management believe that their specialty products will be picking up more and more of the consumption space.
• The full-year tax rate is expected to be 25%.
• The absolute volume breakup is almost equally distributed across all 3 geographic categories.
• As of now, all planned projects are expected to be brownfield.
• The company has filed 3 more patents since June 2019. The company will maintain R&D expenditure at 1.2-1.3% of revenues.
• The capacity utilization of the facilities was at 63% for Q2.
• The management has stated that any disruptions in the vegetable oil supply chain may bring raw materials prices up.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to achieve sales volume growth despite the domestic slowdown and has even achieved profit growth despite de-growth in revenues. This was mainly due to good product mix, favorable raw material prices and good performance in key overseas markets. The company is optimistic about its prospects in the near term despite the domestic demand slowdown in the FMCG sector. The management has acknowledged that growth in India will be muted for the rest of the year and the growth for H2 will be primarily driven by export markets. It remains to be seen whether the export market growth seen in the current quarter sustains and builds up in the coming quarters or it gets pressured due to external factors. Nonetheless, Galaxy Surfactants have proved themselves as a good specialty chemicals stock to watch out for, particularly given their recent performance and their geographically diverse set of MNC customers.

Notes from Annual Report FY18-19

Management Discussion Analysis

Industry Trends

Personal Care Segment

The Global Personal Care market size is $350 billion in FY19. Skin Care remains the largest and one of the fastest-growing categories driven by innovation, personalization, premiumization and habit persistence. Hair Care, the second biggest category in this segment is also witnessing a major shift. Shift towards natural ingredients based products, products with additional features such as scalp care, anti-pollution, nourishment, etc. and finally products made from milder surfactants and preservatives.

The current industry trends are discussed in detail below:

1. Clean Living: Clients are increasingly looking for cleaner formulations, sustainable sourcing, animal welfare, water-efficient solutions, and reusable packaging. Responsible consumption has now become a dominant theme for all consumers in the industry.

2. Premiumization: Consumers are increasingly moving from possession mentality to experience mentality. Premium Beauty and Personal Care entail much more than product efficacy, price tag, and status. Consumers are now expecting genuine and emotional connections with their products. The dynamic premium segment is driving inevitable premiumization among mass brands. The scope for the “masstige” segment widens as perceptions of luxury are transformed through a new lens of consumer values and priorities.

3. E-commerce & Digital Platforms: More and more detailed consumer data produced by digital platforms and e-commerce websites are enabling companies to easily forge one-on-one relationships with end-consumers, by offering tailored experiences and recommendations, in all consumer selling industries including the beauty industry.

4. Sustainable Manufacturing: Multinational companies are laying much more emphasis today on safe, environment-friendly, responsibly sourced, zero-waste and zero-discharge based manufacturing.

5. Personalization: Personalization has fast become a global phenomenon in today’s fast-paced and increasingly connected world. It has helped many small players rise and make their niche in already mature consumer markets. Nowhere is this phenomenon more pronounced than in personal care in all categories – Skin Care, Hair Care, Sun Care, Cosmetics as well as Oral Care. Many private labels have now carved their niche and are competing with MNCs to capture young market share using increasingly personalized products vs the standard products produced by MNCs.

6. Innovation & Feature-Based Products: Specific feature-based products have now started to gain traction. For example – Hair Care which only had benefits of cleaning and conditioning, today has variants of products that carry the claims of scalp care, nourishment, moisturization, anti-pollution, etc. Consumers today are willing to pay higher for natural and milder formulations.

Home Care

The Global Home Care market size is $150 billion in FY19. Home Care began to return to its more familiar “consistent performer” status in 2018 with just 10 of the leading 80 markets seeing sales contract, less than half the number of the year earlier. Growth in China, as well as a rebound in the US market,  helped drive growth. In terms of category growth, laundry care made up over 50% of value sales growth driven by a combination of premiumization and income growth.

Surface Care and dishwashing together accounted for 25% of the global value growth in 2018. Solutions that require lesser water, time and are safe as well as efficient are the latest trends shaping this industry today.

Some of the prominent industry trends are:

1. Trend Migration: Laundry Care as highlighted has products to cater to all income groups. As disposable incomes rise, the trend migration from manual washing using bar soaps, bleach to machine washing using powder detergents, liquid detergents to finally premium washing comprising of fine fabric detergents, tablets and scent boosters is clearly visible.

2. Sustainable Formulations: The threat of Day Zero in Cape Town (the day the taps would run dry) has led to companies developing a range of liquid free home care products catering to the laundry, toilet cleaning and surface cleaning segments. MNCs are now working on formulations that deliver the required performance under all circumstances (hot and cold) to bring down the energy consumption in the laundry.

3. Online Migration: The emergence of online platforms and e-commerce has not only helped improve the reach of the home care products but has also lead to greater consumer awareness – greater demand for all categories of products – mass/masstige/prestige.

4. Health & Hygiene: Hygiene remains a major driver for home care trends. Efforts to improve sanitation in emerging markets should drive growth for the toilet cleaning segment. In the developed markets, premiumization is expected to drive growth for this category via laundry sanitizers, detergent tablets, home care wipes, etc. Surface Care – which ensures hygiene around the home/work stations/ hospitals is projected to be one of the fastest-growing categories in this segment.

Performance Surfactants Industry Insights

The global demand for primary surfactants [Linear Alkyl Benzene Sulphonic Acid (LABSA), Alkyl Sulphate (AS), Alkyl Ether Sulphate (AES), Alkyl Ethoxylates (AE) & Alkyl Phenol Ethoxylates (APE)] grew 2.1% in volume terms from 2017 till 2018 from 10.0 Million MT to 10.2 Million MT. LABSA makes up for 46%, AES 25%, AE 19% and AS 6% of the total demand.

AES grew the fastest at 3.1% [Y-O-Y]. The demand was prime facie driven by increasing use in personal care products.

LABSA demand grew at 1.5%, lower than the average growth rate primarily due to declining economic conditions in the developing markets, lower prices and greater availability of oleo based surfactants.

AS, which finds application in toothpaste and powder detergents grew at 2.3%.

Home & Personal Care in India

India’s Home and Personal Care market registered double-digit growth in the first three quarters of 2018-19. The last quarter on the back of a slowing rural economy (due to the agrarian stress) has been relatively slower with companies registering growth in the range of 4-7%.

The industry is witnessing FMCG giants targeting rural markets with market penetration strategies to incorporate the home care products into their routines. The industry is also seeing the trend of natural products and herbal variants in all segments in the industry.

Premiumisation has emerged as a big theme in urban markets with customers shifting to more premium brands such as premium powder detergents, liquid detergents, and dishwashing products in the home care segment and premium skincare and hair care products in the personal care segment. Products with better sensory effects are perceived as more premium, therefore a larger focus on fragrances and mildness of the product towards the users’ skin is observed in the urban markets.

In Oral Care, the trend for natural and herbal toothpaste remains in full force and seems to be benefitting all companies who have proactively introduced natural variants.

Segments like skincare, haircare, and color cosmetics have seen double-digit growth with a clear indication of the increasing consumer consciousness with respect to appearance.

This consciousness is not gender-specific anymore as every major FMCG company today has a men’s grooming portfolio to cater to this newly found market with multiple investments being made in order to capitalize on this huge opportunity.

Emerging categories in India

Baby Care, Facial Care (face washes/masks), Sun Care, Colour Cosmetics, Men’s grooming and Premium beauty and personal care products are the emerging categories in India today. These categories are expected to register an average CAGR of 12-13% in the next 3 years and are expected to make up for 40% (approx.) of India’s beauty and personal care market by 2022.

Brand Innovations in FY19

Financial Performance in 2018-19

• FY19 standalone revenues grew 18% YoY and profit grew 50% YoY.
• On a consolidated basis, there was a similar performance for the quarter with FY19 revenues rising 12% YoY while PAT growing 21% YoY.
• The company also reduced its consolidated debt to Rs 164 Cr from Rs 220 Cr a year ago. This has brought down the debt to equity ratio to 0.3 from 0.5 a year ago.
• The revenue breakup between performance surfactants and specialty products was at 63:37 for FY19.
• The domestic to international revenue breakup was at 37:63 for FY19.
• Similarly, in FY19 revenues for performance surfactants grew 8% YoY while revenues from specialty products grew 24% YoY.
• The EBITDA margin improved drastically in Q4 rising to 14.4% from 11.1% a year ago. The same figure for FY19 came at 12.9% as compared to 12.2% a year ago.

Operational Performance in 2018-19

• In terms of FY19 volumes, the performance surfactants segment grew 4% YoY while the specialty products segment grew 19% YoY. Total volumes grew 9% YoY.

• In terms of geography, India sales grew by 12%, Africa Middle East & Turkey sales fell by 5% while the sales for the rest of the world grew 29%.
• Specialty care product volumes saw good growth of 18.8% YoY in FY19.
• The company also has 26 global patents in the pipeline which are under application at present.
• In FY19, a total of 12 patent have been granted to Galaxy of which 9 were granted in India, 2 in Europe and 1 in the USA.
• The current manufacturing capacity of the company is:

• The company won various awards in FY19 including the Gold Innovation Award at HPCI 2018 and Silver Innovation Award at HPCI 2019. It was also recognized as “Outstanding Contribution to PARTNER TO WIN” by Unilever during ACI-2019 Conference.

Analyst’s View

Galaxy Surfactants is a preferred global supplier of surfactants and other specialty chemicals to leading FMCG MNCs and caters exclusively to their ‘home and personal care’ (HPC) segment. It is a perfect proxy to play the secular FMCG sector. While it does not deserve the valuation that FMCG companies (FMCG companies are B2C businesses, while Galaxy is a B2B business), it enjoys the consistency in demand. Presence across the globe helps them to mitigate geographical risk. Volume growth in the last few years has been steady. They have been able to pass on the hike in raw material prices to the consumers to some extent. This is the reason, the gross margin has been steady and upwards of 30% for the last ten years. Given the steady growth opportunity for the company going forward, the current valuation does not look very expensive. Hence, Galaxy Surfactants presents an interesting investment opportunity in the FMCG chemical space.

Q1 2020 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues fell 7% YoY mainly on the back of lower fatty alcohol prices which declined 19% in Q1.
2. EBITDA for Q1 grew 12% YoY while PAT grew 15% YoY.
3. Total sales volumes grew 4.4% YoY.
4. The specialty care segment grew 11.5% YoY in volumes.
5. Volume growth in different geographies is as follows:
   • India: Down 3.7% YoY
   • AMET: Down 2% YoY
   • Rest of the World: Up 26.5% YoY
6. EBITDA per ton has improved to Rs 17,770 vs Rs 16586 last year mainly due to improved product mix.
7. New performance surfactant capacity of 50,000 MTPA has become operational in Q1.
8. Forex movement had a positive impact on EBITDA of Rs 1.38 Cr.

Investor Conference Call Highlights

• The slowdown in the home and personal care along with the unavailability of key raw material for their performance surfactants caused a decline of 5% in volumes.
• The management expects Q2 to stay in line or weaker than Q1.
• Recovery in Egypt is slow but steady. Growth is expected by next quarter in this area.
• The company is seeing the emergence of many new customer segments like baby care, men’s grooming, etc where a number of small startup players have come up in the recent past.
• The demand slowdown in rural markets and reduction in trade channel inventory has led to lower volumes sold in India. The demand is expected to revive from the festive season onwards from Q3 this year.
• The management has refrained from providing specific guidance for the near future.
• The Capex expected for FY20 is around Rs 125 Cr on top of the amount capitalized in the capacity expansion.
• The majority of the volume decline in India has been from MNC customers as they are the ones reducing channel inventory.
• The company has seen good growth in Africa, Middle Eastern, and Turkey in Q1.
• The new capacity expansion should start commercial production in a few months as soon as its product samples get approved by all the customers. Once operational, it should increase operational margins.
• The company anticipates that their MNC customers are slowly regaining market share that they had lost in the recent past.
• Around 70-75% of Rest of the World sales were in the USA and EU.
• The company was able to get margin improvement in both the performance surfactant and specialty product segments.
• The management is optimistic about reaching their volume growth guidance of 8-12% mainly on the back of good performance in overseas markets.
• In Tri-K, the company is incurring capex which should take care of all requirements for the next 4-5 years. The facility should be completed by the end of the financial year and is mainly involved in research and development of vegetable proteins. The capex here is around $7 million.
• Approximately around Rs 250 Cr will be added to revenue, once the new capacity expansion of 50000 MTPA is fully utilized. The current facilities have been running at 75% utilization in the last quarter. It has come down to 61% mainly to addition of capacity.
• The management refrains from providing any guidance on EBITDA margins but they expect current levels to continue.

Analyst’s View

Galaxy Surfactants is one of the most consistent specialty chemical makers in India. The company has done well to preserve sales volume growth despite the domestic slowdown and has even achieved 15% profit growth despite a fall of 7% in revenues. This was mainly due to their good product mix and good performance in key overseas markets. The company is optimistic about its prospects in the near term despite the domestic demand slowdown in the FMCG sector. It remains to be seen how long this demand slowdown shall last and how it will affect indirect players like Galaxy. Nonetheless, Galaxy Surfactants has proved itself as a good specialty chemicals stock to watch out for, particularly given its recent operational performance during this widespread slowdown in the Indian economy.

Q3 2019 Updates

Financial Results & Highlights

Detailed Results

1. Revenues and profits have had a healthy growth on YoY basis while there has been a fall in QoQ basis mainly due to seasonal factors.
2. Overall 9M performance has been outstanding with both PBT and PAT growing at more than 50% growth in YoY basis in standalone terms.
3. The fall in consolidated financials has been mainly due to a contraction of 8% in the overall AMET (Africa, Middle East & Turkey) markets.
4. They have seen the above contraction blow softened by high growth in their specialty products segment.
5. Total volumes stood at 157,261 MT for 9MFY19 as against 146,381 MT in 9MFY18, up by 7.4% YoY
   • Volume growth has been driven by all three customer segments MNCs, Regional and Local.
   • India and ROW markets grew at 13.3% and 29.5% respectively
   • AMET market de-grew by 8.3% due to continued slowdown seen in the Egypt market.
   • Performance Surfactants volume stood at 97,698 MT for 9MFY19 up by 1.1%
   • Specialty Care Products volume stood at 59,563 MT for 9MFY19 up by 19.7%
6. The segment wise revenue growth breakup for 9MFY19 is as follows:
   • Performance Surfactants: Up 11% YoY
   • Specialty Care Products: Up 24% YoY
   • Total: Up 16% YoY
7. In other news, the company has gained environmental clearances for expansion at their Jhagadia and Suez plants.
8. They have grown faster than overall sector in both India and abroad.
9. They are currently operating at healthy capacity utilization rates of 73% and 58% for their performance surfactants and specialty care products respectively.

Investor Conference Call Highlights

• Indian HPC industry has got back its growth after a slow-down for the last 3-5 years. Rural areas are showing a lot of growth.
• The company shall evaluate our numbers on a YTD or yearly basis. Quarterly numbers face aberrations due to stocking and de-stocking
• Volume growth has been very strong in domestic market at 13%. AMET has witnessed de-growth of 8%. ROW grew 29%.
• Egypt is still a big concern. The market situation is very fluid there.
• AMET situation is not going to improve anytime soon. But, robust growth in ROW market will help the company to make up for that.
• 26 new customers and 10-12 new countries have been added in YTD 2018-19.

• Apart from AMET, the company continues to do well. Outlook looks positive. It remains a very good proxy for FMCG and consumption story.

Analyst’s View

Galaxy Surfactants is a good innovation driven company that has established as a prime source for specialty chemicals for personal care manufacturers around the world. Despite the personal care segment growing at a slow pace of less than 10% per year, the company has seen its growth outpace it consistently in the past. Looking at the slack in capacity utilization right now, it seems that Galaxy is well equipped to address any rise in demand for their products. Due to the addition of 26 new clients in 12 new countries, the company expects to provide good performance for years to come. Thus Galaxy Surfactants presents itself as a good growth investment option for investors who want to invest in the theme of rising personal consumption.

Disclaimer

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