Galaxy Surfactants Ltd. share price target

Galaxy Surfactants (GALSURF) reported EBITDA/kg of INR16.7 in 4QFY24, down
28% YoY (our estimate of INR22.5). The company achieved a total volume
growth of ~5% YoY to 60.8tmt (our est. of 60.4tmt), with healthy volume growth
in India and RoW regions.

Galaxy Surfactants’ (GSL) Q4FY24 EBITDA/kg stood at INR 16.9, down 27.2% YoY, was hurt from higher freight cost and lower volumes due to the Red Sea issue

In the last three years, Galaxy Surfactants (Galaxy) has grappled with a variety of challenges, yet delivered consistent earnings thanks to its robust business model and diversified portfolio. After a strong FY24E (+9.2%), we envisage Galaxy’s volumes slowing as India growth moderates while AMET improves.

Galaxy Surfactants’ (GSL) Q1FY24 EBITDA/kg stood at INR 20.8, down 16.8% YoY. Volume growth was steady at 7.4%. India volume continues to be strong; AMET has stabilised at low levels, and RoW has been impacted by the de-stocking in North America.

Galaxy Surfactants’ (GSL) Q4FY23 EBITDA/kg at Rs23.2 benefited from lower other expenses while gross profit/kg has dipped 9.6% YoY to Rs54.6. Volume growth was just 0.6% YoY to 58kte, and was impacted by a decline in Egypt, and destocking / down trading in US and Europe.

Galaxy Surfactants’ (GSL) Q3FY23 EBITDA/kg at Rs26.4 benefited from exports incentive in Egypt of Rs200mn; better product mix and sourcing efficiencies. GSL has done Rs25 EBITDA/kg in 9MFY23 vs historical Rs17-19, despite which it has maintained traditional framework of growing volumes at 6-8% pa and EBITDA higher than volumes.

Galaxy Surfactants’ (GSL) Q2FY23 EBITDA/kg at Rs22.2 was higher than the normal
range on better product mix (lower AMET volumes), and this is unlikely to change in FY23.

Galaxy Surfactants’ (GSL) Q1FY23 EBITDA/kg at Rs26.8 (vs guidance of Rs16-18, which remains unchanged) shows resilience in GSL’s business model in challenging times.

process. Currently, Oleo chemicals form 70% of the total raw materials of the company while petro products form 30%. Southeast Asia (Indonesia and Thailand) produces around 80% of the world's natural Fatty Acids and Fatty Alcohols, with growth of both sectors being mostly driven by developing economies such as India. Detergents, cleaners and soap companies are the largest users of both the products and account for about 48% of Fatty acid demand and 55% of Fatty Alcohol demand. Though recovering industrial activities have pushed up the demand for Fatty...

Valuation and rating: We assign a PE multiple of 32x (premium to other chemical companies as discussed above) on Sept'23 earnings of Rs110 post which we arrive at a target of Rs.3,520, an upside of 15% from the current levels. The company sees demand remaining steady, while logistic issues could pose a challenge in the short term. We see new product launches will drive growth in the future. Commissioning of CAPEX in Sep'21...

Valuation & Risks. We assign a PE multiple of 30x (premium to other chemical companies as discussed above) on FY23E earnings of Rs 97.9 post which we arrive at a target of Rs.2,936, an upside of 26% from current levels. We believe Galaxy deserves a higher valuation multiple compared to other chemical companies due to its high return ratios and eye-popping cash flows. The company is also less exposed to the general risks faced by chemical companies, such as commodity price fluctuations and cyclicity. The stock can very well move towards FMCG valuations, if not reach them....

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leading manufacturers of Performance Surfactants (61%) and Specialty Care Products (39%) with over 200 product grades. These products are used in consumer-centric Home and Personal Care (HPC) products like hair care, oral care, skin care, cosmetics, soap, shampoo, lotion, detergent, cleaning products etc. Galaxy supplies to leading MNC's and...

We reiterate our BUY rating on the stock with a TP of Rs 1,872 (22x Dec-21E) given, (1) Diversified portfolio that continues to attract and retain customers, (2) Presence in widespread geographies that diversifies business risk, (3) Stability of margins (standard deviation of EBITDA margins over FY10-19 at 2.0), and (4) Ability to generate ~20% RoCE. We visited the Taloja facility of Galaxy Surfactants (GSL) which was followed by an interaction with Mr. K. Natarajan, the Executive Director and COO as well Mr. Ganesh Kamath, the companys CFO. Following are the key takeaways from the event: