Galaxy Surfactants Ltd. share price target

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....

No. 14, Frontline Granduer, Walton Road, Bangalore-560001; Website: www.way2wealth.com Email: research@way2wealth.com...

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:

We remain constructive on the company given its diversified portfolio, healthy volume growth (9-10% over FY20-22E) and quality of customers. Robustness of its business enables GSL to maintain stable margins (EBITDAM of ~12.5 expected over FY20-22E). Given the secular growth opportunity and its capability to generate 20%+ returns on reinvested profits, GSL's current PER of 19.8/17.3x FY21/22E is rather low. We value GSL at 22x Sep-21 EPS to arrive at a TP of Rs 1,834. Maintain BUY. Galaxy Surfactants (GSL) 2QFY20 performance was commendable with >10% YoY volume growth amidst slowdown in the global Home and Personal care (HPC) market. GSL maintained a cautious domestic demand outlook for 2HFY20 but a gradual shift in consumption pattern towards specialty care products will help maintain profitability in the long run. Other geographies, however, will continue to support volume growth in 2H.

Currently, the stock is flat (vs. the Nifty FMCG Index that has delivered +16% since then) despite the 29.1/24.3% jump in EBITDA/PAT. Given the secular growth opportunity and its capability to generate 20%+ returns on reinvested profits, GSL's current PER of 19.0/16.6x FY21/22E looks contextually low Galaxy Surfactants (GSL) 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. Long and intimate relations with its customers drive GSLs steady volume growth, steady margins. It has a diversified portfolio of 200+ products selling across 80 countries to 1,700+ customers. Backed by an experienced management, GSL went public in Feb-18 at Rs 1,480/sh.

The market for personal and home care products in India is expected to grow at 7.9% and 7.2% CAGR by 2024. Further, the aggregate market for personal and home care products in Africa and the Middle East is expected to grow at 4.4% CAGR by 2024. Galaxy with its presence in these mature and emerging markets is expected to benefit from increased demands. The company's product are the ingredients for the personal and home care products, whose demand are inelastic in nature i.e. end users demand is hardly impacted by the change in the product price. Thus the company's products will continue to be in demand and would have minimal...

Galaxy Surfactants Ltd (GSL) is one of India's leading manufacturer of surfactant and other specialty ingredients which are used in manufacturing of final products like personal and home care. Over the years, GSL has significantly expanded and diversified its product profile, client base and geographical footprints emerging as a global supplier to major FMCG companies like Cavinkare, Colgate-Palmolive (India), Himalaya, Dabur, Jyothy lab etc. Company has demonstrated strong financial performance in the recent years. During FY15-17,...

Incorporated in 1986, Galaxy Surfactants Limited is a manufacturer of surfactants and other specialty ingredients for the personal care and home care industries. The company manufactures are commonly used in consumer-centric personal care and home care products like skin care, oral care, hair care, cosmetics, toiletries and detergent products. Galaxy surfactants product portfolio includes over 200 product grades, which are marketed to over 1,700 customers in 70 countries. Galaxy surfactants products are classified in 2 categories, namely Performance Surfactants and Speciality Care Products. Its clients include Cavinkare Private Limited, Colgate-Palmolive (India) Limited, Dabur India Limited,...

IPO NOTE