Expect demand uptick, but supply chain issues persist – Galaxy SurfactantsTanmay Gadre
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/-.
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