Galaxy Surfactants

Expect demand uptick, but supply chain issues persist – Galaxy Surfactants

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 16,637 (+0.01%) as it closed near the opening level of 16,628. Among the sectoral indices, OIL & GAS (+0.8%), CONSUMER DURABLES (+0.6%), and FMCG (+0.6%) ended higher, whereas METAL (-1.3%), MEDIA (-1.2%), and PSU BANK (-0.8%) ended lower. Among the stocks, BRITANNIA (+2.7%), TATACONSUM (+2.2%), and BPCL (+1.8%) led the gainers while BHARTIARTL (-4.4%), JSWSTEEL (-1.8%), and MARUTI (-1.5%) led the losers.

Excerpts of an interview with Mr. U Shekhar, Founder Promoter and MD of Galaxy Surfactants (GALAXYSURF) with CNBC TV18 on 26th August 2021:

  • The demand for the company’s products has been low in the first quarter of FY22 due to the 2nd Covid wave. The company sees demand getting better in the August and September months. However, the challenge of the supply chain is hampering the company’s ability to supply and cater to the increased demand.
  • The supply chain constraints faced are due to the shortage of containers, and closing of various ports in China. The logistics have been severely impacted due to the Covid and freight costs continue to be at high levels.
  • The workers in the company are unable to work due to the Covid wave in Indonesia and Malaysia, because of which the production is getting hampered.
  • The company sees significant opportunity in terms of its innovation products on speciality ingredients. The company is also commissioning its major project in Jagadia, Gujarat in the next 30 days and some more projects will commission in the next three-four months.
  • The expansion projects in the company’s Egypt factory will be operational in 3 to 4 months which will help the company to broaden the category of products in Egypt and also help serve the countries in Europe and US, much faster.
  • The company has planned a capex of ₹ 1500 mn each in the next 2 years and is well placed for financing this capex.

 

Asset Multiplier Comments

  • In the next few months, better availability of containers, easing restrictions, workers coming back to work, these will help reduce the supply side constraints for the company.
  • The company will be able to better cater to the strong demand as people around the world get vaccinated and things normalise.

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXYSURF was ₹ 3,094/- as on 26-Aug-2021. It traded at 35x/ 30x/ 27x the consensus EPS estimate of ₹ 89/105/114 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,417/- implies a PE multiple of 30x on FY24E EPS of ₹ 114/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect robust demand but need to watch for supply issues– Galaxy Surfactants

Update on the Indian Equity Market:

On Thursday, Nifty snapped its two-day losing streak to end at 15,738 (+0.7%). Among the sectoral indices, MEDIA (+4.6%), REALTY (+3.3%), and PSU BANK (+2.4%) led the gainers while AUTO (-0.1%) was the only sectoral loser. Among the stocks, BAJFINANCE (+7.7%), BAJAJFINSV (+3.8%), and SBIN (+2.6%) led the gainers while BAJAJ-AUTO (-1.0%), EICHERMOT (-0.7%), and UPL (-0.7%) led the losers.

Excerpts of an interview with Mr. U Shekhar, Founder, and MD, Galaxy Surfactants (GALAXYSURF) with CNBC TV-18 on 9th June 2021:

  • Operating margins have gone down in 4QFY21 due to a sharp increase in raw material prices. As a result, revenue increase has been in direct correlation with the increase in material prices.
  • Overall, for the year sales volume growth was ~5.2% with specialty care products growing 15.7% in 2HFY21 over 1HFY21. Performance surfactants volume grew ~8.8% in FY21.
  • FY21 and FY22E are going to be focused on mitigating supply chain disruptions. Demand will be strong with a focus on GALAXYSURF’s response to customers’ supply chain requirements.
  • New products have been launched and expect EBITDA per ton to increase sequentially.
  • The delay in the arrival of raw material along with sustained higher freight costs remains a concern for the regular availability of raw material.
  • There could be certain costs to maintain an inventory that might have a marginal impact on margins.
  • FY21 was a ten months performance, especially for India. The US and Egypt business was not impacted as much, in terms of operations. The growth in terms of specialty care was in 2HFY21 when customers’ demand improved. With the introduction of new products in FY22, they are confident of additional revenues from new customers. A 6-8% volume growth is expected.
  • International sales have remained stable at ~65%. Mr. Shekhar expects a ratio of 65-35/67-33 for international and domestic sales.

 

Asset Multiplier Comments

  • The Company has given a Capex guidance of Rs 1.5bn for FY22, with a large part to be spent on the specialty care portfolio. The ongoing capex projects are expected to be completed in 1HFY22, resulting in the introduction of new products, which will aid volume growth post 2HFY22.
  • With clients’ focus on reducing carbon footprint, the launch of new green products will strengthen the Company’s market position in specialty care products.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXYSURF was ₹ 3,061/- as of 10-June-2021. It traded at 34x/ 30x the consensus earnings estimate of ₹ 89/102 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,742/- implies a PE multiple of 27x on FY23E EPS of ₹ 102/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Double-digit volume growth to continue – Galaxy Surfactants

Update on the Indian Equity Market:

On Tuesday, the Indian equities snapped the six-day winning streak and Nifty 50 ended at 15,109 (-0.5%). Among the sectoral indices, FINANCIAL SERVICES 25/50 (+0.3%), FINANCIAL SERVICES (+0.3%), and BANK (+0.2%) ended the day with gains. MEDIA (-1.9%), AUTO (-1.4%), and PHARMA (-1.2%) led the losers. Among the stocks, SBILIFE (+4.0%), ASIANPAINT (+3.8%), and HDFCLIFE (+3.6%) led the gainers while M&M (-3.0%), TATAMOTORS (-3.0%), and JSWSTEEL (-2.2%) dragged the index lower.

Excerpts of an interview with Mr. U Shekhar, Founder Promoter and Managing Director, Galaxy Surfactants (GALAXY) with CNBC TV18 on 9th February 2021:

  • GALAXY saw good 3QFY21 earnings. The reported double-digit volume growth on a YoY basis is expected to continue, especially in the specialty chemicals segment.
  • Money received from Egypt which was accounted in 3Q was export benefits accumulated over the last 2-3 years. GALAXY accounts for the export benefits availed only when received.
  • Consumer focus on personal hygiene has increased significantly this year. This is expected to sustain going forward and the new products which have been introduced are seeing slow evolution which is certainly giving Galaxy better numbers.
  • The company has implemented expansion projects at Jhagadia, which was expected to be completed by April-21. This project has been delayed a little due to difficulties faced due to the outbreak of Covid-19.
  • The disruption due to shipping and containers is continuing which is certainly putting pressure on the supply chain.
  • The price hikes have been passed on to customers or absorbed the freight hikes in case of long-term contracts.
  • As far as the margin is concerned, there will be a gradual progression when new products keep on getting better.

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXY was ₹ 2,222/- as of 09-February-2021. It traded at 31x/ 27x/ 23x the consensus earnings estimate of ₹ 71.6/ 83.8/ 95.7 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,160 implies a PE multiple of 23x on FY23E EPS of ₹ 95.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Demand buoyant but supply chain challenges remain – Galaxy Surfactants

Update on the Indian Equity Market:
On Thursday, Nifty 50 ended in the negative at 14138 (-0.1%). Among the stocks, TATASTEEL (+5.3%), HINDALCO (+4.8%), and BHARTIARTL (+3.6%) ended with gains while NESTLEIND (-2.0%), HDFCLIFE (-1.9%), and HINDUNILVR (-1.8%) were the top laggards. METAL (+3.8%), REALTY (+1.4%), and PRIVATE BANK (+0.7%) were the top sectoral gainers, while FMCG (-0.9%), IT (-0.7%), and PHARMA (-0.4%) were the sectoral laggards.

Excerpts of an interview of Mr. U Shekhar, Founder Promoter and Managing Director, Galaxy Surfactants (GALAXY) with CNBC TV18 on 6th January 2021:
• The raw material prices have surged significantly in the last month. The freight rates have gone up by more than 4-6 times across the world. GALAXY has been able to pass on the price hikes to customers.
• Despite the raw material price increase, he expects the margins to be stable.
• With the supply chain being disrupted across the world, getting the supply remains the number one priority for customers. At current levels, price increases seem to have been absorbed by the customers.
• 2QFY21 saw record volumes for the company. FMCG products, particularly the ones required for cleaning and sanitization have maintained the tempo but the trend of pantry stocking has subsided. The demand has been strong and buoyant.
• For GALAXY’s products, the pipeline got built in September and that should translate into sales for their customers in December quarter.
• Even on exports, the demand has been pretty strong but supply chain challenges remain. Getting the containers is a challenge and even if they get the containers, the freight rates have gone through the roof. Demand remains strong but supply chain challenges remain.
• The expansion plans are on track and he remains hopeful of commissioning the existing products by 1QFY22.
• They have acquired new land and the process of applying for clearance will take some time.
• GALAXY is not opting for the PLI scheme now but they would be happy expanding in the existing premises.
• For the last 2-3 years, they incurred a capex of Rs 1300-1400 mn every year financed through internal accruals. The capex for the next year or two will also be financed through internal accruals.
• Their R&D expenditure has been about 1.5% of their sales consistently. The entire R&D has been in-house for them.
• He expects 6-8% volume growth in FY22 and the growth will be gradual over time.

Consensus Estimate: (Source: market screener website)
• The closing price of Galaxy Surfactants was ₹ 2280 /- as of 07-January-2021. It traded at 32x/ 27x/ 24x the consensus earnings estimate of ₹ 71.5/ 83.1 / 95.7 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 2118 implies a PE multiple of 22x on FY23E EPS of ₹ 95.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”