Anand Rathi On Galaxy Surfactants
Anand Rathi On Galaxy Surfactants
Anand Rathi On Galaxy Surfactants
13 February 2023
Galaxy Surfactants
Rating: Buy
Healthy domestic demand with export recovery; upgrading to a Buy Target Price: Rs.3,000
Share Price: Rs.2,427
With supplies easing, good domestic demand and gradual demand
recovery in developed markets, we expect Galaxy to attain its future 6-
Key data GALSURF IN / GALX.BO
8% volume growth guidance. We are positive on its long-term growth, 52-week high / low Rs.3,448 / 2,302
backed by the promising domestic demand outlook, high-value-added- Sensex / Nifty 60432 / 17771
product launches and the more revenue from specialty chemical 3-m average volume $0.6m
products with rising consumption in developed markets. For the last six Market cap Rs.86bn / $1,041.4m
quarters, has been faced demand issues, which are expected to soften Shares outstanding 35m
in FY24. On the steep drop in the stock price, we upgrade our rating to
a Buy though with the same TP of Rs3,000 valuing it at 26x FY25e Shareholding pattern (%) Dec'22 Sep'22 Jun'22
earnings. Promoters 70.9 70.9 70.9
- of which, Pledged - - -
Mixed performance across markets. Shrunken demand in Europe and China Free float 29.1 29.1 29.1
for specialty products though strong growth domestically and recovery in - Foreign institutions 2.8 2.8 1.1
- Domestic institutions 12.7 12.7 14.6
AMET, mainly Egypt, bolstered Galaxy’s Q3 performance. Revenue grew - Public 13.6 13.5 13.4
16.3% y/y to Rs10.8bn (though q/q down 12.3%), mainly supported by 15.6%
y/y realisation growth. The q/q revenue fall was mainly due to lower realisations.
Supported by a better product mix, higher realisations, reduced freight rates and Estimates revision (%) FY23e FY24e FY25e
RM prices, EBITDA/ton shot up 101% y/y, 19% q/q, to Rs26,396. Further, Sales (2.1) (2.8) (2.7)
there was Rs200m one-off on export benefits from Egypt. EBITDA 12.8 9.4 8.4
EPS 17.2 10.6 9.3
Guidance. Galaxy is doing well in the domestic market, volumes at a 8% CAGR
in the past five years. Management expects the growth momentum to persist. It Relative price performance
is sanguine regarding improvement in the RoW as consumption is seen making 3,600
3,400
a good comeback in Europe and developed markets. Volumes in developed 3,200
markets declined in Q2 due to high channel stocks, which are now normal in 3,000
2,800
major markets, except the US. Turkey brings ~10% to sales and more clarity on 2,600
the impact would be seen in coming days. Management maintained its 6-8% 2,400
volume growth guidance, with higher EBITDA growth than volumes. 2,200
2,000
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Valuation. We upgrade our rating to a Buy with the same TP of Rs3,000, 26x
FY25e EPS. Risks: Lower prices of performance products, challenges in GALSURF Sensex
Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in the Appendix.
(Rs)
4,000
3,500
Specialty Care
3,000
Products
37%
2,500
2,000
1,500
1,000 Performance
Surfactants
500 63%
0
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
May-20
May-21
May-22
Feb-18
May-18
Aug-18
Feb-19
May-19
Aug-19
Feb-20
Aug-20
Feb-21
Aug-21
Feb-22
Aug-22
Feb-23
Result highlights
Operating performance
Supply side improvement and greater domestic demand supported Galaxy’s
Q3 growth. However, Europe slowed down and headwinds in AMET
persisted. Demand in premium categories has risen that in the mass and
“masstige” categories was stable. Q3 revenue grew 16.3% y/y to Rs10.8bn,
though q/q down 12.3%. The y/y growth was mainly driven by realisations,
up 15.6% to Rs185,090 a ton, while volumes were flat at 58,364 tons.
Sequential revenue growth was chiefly hurt by 10.9% lower realisations, and
1.6% lower volumes.
The trend of softening RM prices continued in Q3. Fatty alcohol prices
declined 46% y/y, 7% q/q, to $1,393/ton ($2,602 the previous quarter,
$1,490 a year ago). The gross margin was 31.6%, up a huge 413bps y/y,
469bps q/q. The EBITDA margin ballooned 604bps y/y, 357bps q/q, to
14.3%, partially supported by better pricing and product mix, and exchange
gains. Absolute EBITDA was up 102% y/y, 17% q/q, to Rs1.5bn.
Blended EBITDA/ton was Rs26,396 (Rs13,165 a year ago, Rs22,214 the
quarter prior). The favorable base, higher other income and lower tax
expenses helped PAT rocket 133% y/y, 27% q/q, to Rs1.1bn despite higher
depreciation, finance costs and the tax rate.
Performances, by division
Performance Surfactants
Performance surfactant sales were 39,156 tonnes, up 5.9% y/y, flat q/q,
supported by growth in India. Revenue grew 20% y/y to Rs6.8bn (though
q/q down 12%), driven by 13.2% y/y realisation growth to Rs174,430/ton
(q/q down 12.7%). The division accounted for 63% of revenue (61.2 % a
year ago, 63% the quarter prior).
Specialty-care products
The company’s specialty care portfolio deteriorated due to the energy crisis
in Europe and the slowdown. Its specialty-chemicals volumes declined 8.7%
y/y, 5.8% q/q, to 19,208 tonnes. The division’s revenue grew 11% y/y to
Rs4bn (though q/q down 12%), supported by higher realisations. In Q3, this
division brought 37% to revenue (38.8% the quarter prior, 37% a year ago).
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
India Africa Middle East Turkey Rest of the World
Source: Company
Fig 13 – Revenue and growth trends Fig 14 – Share of revenue, by business category
(Rsm) (%) (%)
14,000 50 100.0
90.0
26.6
12,000 40
35.5
36.6
36.9
37.0
37.0
37.8
38.5
38.5
38.8
39.5
39.9
40.9
42.0
42.0
80.0
10,000 30 70.0
60.0
8,000 20
50.0
6,000 10 40.0
73.4
64.5
63.4
63.1
63.0
63.0
62.2
61.5
61.5
61.2
60.5
60.1
59.1
58.0
58.0
4,000 0 30.0
20.0
2,000 -10
10.0
0 -20 0.0
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
Revenue y/y Growth q/q growth Performance Surfactants Specialty Care Products
Source: Company Source: Company
21,295
21,600
190,000 24,000
21,087
20,381
19,208
19,277
20,791
21,044
21,620
50,000
21,148
22,101
175,000
19,829
19,295
20,996
15,496
22,000
160,000 42,000
20,000
145,000
18,000 34,000
130,000
41,712
41,426
16,000
39,156
38,902
38,853
38,778
38,023
36,983
26,000
36,618
36,397
35,919
115,000
35,443
35,410
34,978
33,771
100,000 14,000
18,000
85,000 12,000
70,000 10,000 10,000
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
Realization/ton EBITDA/ton Performance Surfactants Specialty Care Products
Source: Company Source: Company
Fig 17 – EBITDA and margin trends Fig 18 – PAT and growth trends
(Rsm) (%) (Rsm) (%)
1,800 18 1,200 150
1,600
16 1,000
1,400 100
1,200 14 800
50
1,000
12 600
800
0
600 10 400
400 -50
8 200
200
0 6 0 -100
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Q2FY23
Q3FY23
Valuations
We like the company and its management, and are sanguine regarding its
future performance. On the sharp fall in the stock price, we upgrade our
rating to a Buy with the same TP of Rs3,000 valuing it at 26x FY25e earnings.
Margin movement and demand turnaround are the key monitorables in a
volatile market.
Risks
Delay in implementing capex or plant synchronisation or de-
bottlenecking
Inability to capture opportunities in performance surfactants
Inability to pass on fluctuations in raw-material prices
Further slowdown in the FMCG sector.
Jul-19
Jul-20
Jul-22
Mar-18
Nov-18
Jan-19
Mar-19
Nov-19
Jan-20
Mar-20
Nov-20
Jan-21
Mar-21
Nov-21
Jan-22
Mar-22
Nov-22
Jan-23
May-18
Sep-18
May-19
Sep-19
May-20
Sep-20
May-21
Sep-21
May-22
Sep-22
13 11-Nov-22 Hold 3,000 2,840
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