by Suhani Adilabadkar
India’s largest manufacturer of oleochemical based surfactants and specialty care products for home care and personal care industries, Galaxy Surfactants Ltd (GSL) made its stock market debut in February 2018. Transforming itself from being a local to global supplier for the FMCG industry over the past 35 years, GSL stock is approximately 40% higher since march 2019.
Quick Takes:
· A global supplier to the FMCG industry, GSL has diversified portfolio of over 200 products offerings selling across 80 countries.
· Operating profit jumped 8% while PAT grew 15% YoY at Rs. 53 cr against Rs. 46 cr same period previous year.
· Operating Margin stood at 14.45% rising 206 bps YoY in Q1 FY20.
· The company has enhanced its performance surfactants capacity by 50,000 metric tonnes operational from June FY20.
The company seems certain of future growth, investing heavily in capacity creation - which takes around four years for performance surfactants and long eight years for specialty care products.
Company Profile
Navi Mumbai headquartered Galaxy Surfactants started out with the manufacture of ethoxylates, phenoxyethanol, and sunscreens at Tarapur plant in 1984. GSL caters to leading FMCG MNCs and their home & personal care business segments. The company has a diversified portfolio of over 200 products offerings selling across 80 countries across Africa Middle East Turkey (AMET), Asia Pacific (APAC), Americas (North and South) and Europe where India contributes 37%, AMET 31% and Rest of the World (ROW) 32%.
Galaxy Surfactants has 56% of its revenue basket contributed by MNCs followed by local and niche players putting in 34% and regional players accounting for the remaining 10%. The company has a strong list of clients including Colgate-Palmolive (India), Dabur, Himalaya, Henkel, P&G, Emami, Reckitt Benckiser, Unilever, Cavinkare and L’ORÉAL. GSL’s manufacturing prowess is based on seven facilities, five of which are in India and one each in Egypt and the US. GSL has two revenue streams, performance surfactants (anionic and non-ionic surfactants) which contributed 46% to total revenues while high margin speciality care products constituted 37% in FY19.
June Quarter FY20
Despite the subdued environment in India and globally, it was a steady and stable ride for GSL in June quarter FY20. Volume growth has been decelerating for GSL over the past three quarters and in this respect, Mr Unnathan Shekhar, MD Galaxy Surfactants said, “Volume growth which stood at 10% in Q2 FY2018-2019 now stands at 6.2% for the current quarter, primarily due to declining rural spend and slowdown seen in the rural markets lately”. But the overall performance is well maintained as operating profit and PAT came out with strong numbers even with Revenue knocking off 7% growth YoY as reduced raw material (fatty alcohol) cost was passed on to customers in June quarter. Revenues were reported at Rs. 665 cr in Q1 FY20 against Rs. 716 cr same period previous year.
With operating expenditure reined in and interest expenses curtailed because of average borrowing cost plummeting down during the quarter, operating profit jumped 8% YoY from Rs. 89 cr in Q1 FY19 to Rs. 96 cr in June quarter FY20 with margin of 14.4% rising 206 bps YoY. PAT moved strongly at 15% growth rate YoY reported at Rs. 53 cr against Rs. 46 cr same period previous year. Despite demand cutbacks in the domestic market, unavailability of key raw materials for performance surfactants and loss in production due to major power outage in Taloja (India) factory, GSL’s June numbers look resilient. The stock is up by 21% from 14th August 2019, after June quarter result announcement as investor community shows confidence for long term growth prospects of GSL.
Strong Diversified Resilient Growth
Without getting into the finer details of a complicated chemical world, surfactants are referred to as ‘surface active agents’, essential ingredients used in the manufacture of household cleaning and personal care products. The twin engines of Galaxy Surfactants, performance surfactants and specialty care products have applications in a host of consumer-centric personal care and home care products like oral care, skin care, hair care, toiletries and detergent products. Performance Surfactants are used in detergents, dishwashing products, shampoo, toothpaste etc. while specialty segment applications are in skin cleansers, cosmetic products, hair conditioners, sun care, anti-ageing creams. The stock is near its 52-week high with institutional holding, rising almost 400 bps over the past one year amidst general slowdown and volatile stock market tantrums.
Apart from its robust product profile, diversification benefits both product wise and geographically have earned significant gains for GSL over the past three decades. The company caters to mass, mass-tige and prestige segments through its wide variety of 45 performance surfactants and 155 specialty care products which is further being enhanced by entering into new emerging categories such as baby care, facial care, men’s grooming and transparent bathing bars. GSL acquired New Jersey based Tri-K Industries in 2009 to cater to its high margin specialty care products clientele in US and Europe which currently account for about 70-75% of ROW revenue pie. Apart from expanding in the US and Europe, footprint in Africa, Middle East and the Asia Pacific region has fortified GSL against any country specific economic downturn.
In June quarter FY20, AMET region reported 2% de-growth YoY and growth has been a concern over the past few quarters pulled down by Egypt market which has stabilized currently reporting 8% sequential growth while other markets of Turkey, UAE, Morocco and Tunisia have also recorded strong growth. ROW region reported strong double-digit volume growth, 27% YoY in Q1 FY20 comprising US, Europe and Asia Pacific driven by speciality care product portfolio and in this respect, Mr Unnathan Shekhar said, “Quite a remarkable achievement given the slowing environment and trade barriers imposed i.e. removal of India from the US list of GSP beneficiary countries”. Currently international markets account for about 64% of GSL’s total volumes.
Commenting on 3.7% volume decline witnessed by Indian market, he further added, “Egypt and AMET has been turning around pretty well. Rest of the World, we are going pretty well. So, I think we will have to wait for one more quarter, but we are optimistic in terms of getting to those numbers moving forward. Yes, it all depends on how well India recovers and we have reasons to believe that India will recover quickly”.
The management considers the current domestic slowdown as a short-term phenomenon and has created capacities in anticipation of future growth. The company has recently added performance surfactants capacity by 50,000 metric tonnes at its Jhagadia facility operational from June FY20 which would give approximately Rs. 200-250 cr incremental revenue over the next four years at full capacity.
Speciality care product capacity is also being enhanced through capex plan of Rs. 125 cr for the current year which also covers $7 Mn capex at Tri-K focussing on innovation in the field of vegetable protein which is expected to be completed by the end of this year. The company seems certain of future growth, investing heavily in capacity creation - which takes around four years for performance surfactants and long eight years for specialty care products.