Galaxy Surfactants IPO opens; should you subscribe?

The price band of the issue of 59.3 lakh shares has fixed at Rs 325-340 a share. The issue size will be Rs 192.72 crore at the lower band and Rs 201.62 crore at the upper band.

Brokerage houses are bullish on the issue but Investment Advisor SP Tulsian has recommended avoiding the issue.

"The company is undertaking significant capacity expansion over the next 18 months, but an IPO price of Rs. 300 per share would have been reasonable, considering the current lack-lustre state of primary markets and subsequent poor show on listing of several recent IPOs. Even in the secondary market, many identical players are available at a PE of 6 to 9 times. Upper band of Rs. 340 looks to be the expected secondary market price after 3 months, thus offering no incentives to apply in the IPO," Tulsian said.

KR Choksey believes GSL is poised for strong growth considering its rich product profile, marquee clientele and overall growth in the home & personal care segment coupled with capacity expansion plans already in place. "We recommend investors to subscribe the issue with a long term investment perspective," the firm said.

"Galaxy’s revenues from FY08-10 have grew at a CAGR of ~29% with the end user industry (personal care segment) growing at ~10% during the same period. Hence, with the personal care expected to grow at 15% CAGR from FY10-15E we believe the Galaxy’s revenues would witness robust growth. Also, with the ramping up of existing capacity and expanding through other Greenfield operations the company would maintain its market leadership by successfully meeting the rising demand. The company’s turnover and profits for FY11 (annualized) stand at Rs 859 crore and Rs 57.1 crore respectively with an EPS post issue at Rs 24.1. At the issue price of Rs 325-340/share the stock would be trading at a P/E of 13.5-14.1x its FY11E EPS of Rs 24.1; hence valuation seems justified," ICICIDirect.com said in its report.

Mehta Equities too recommended subscribing the issue. "India as well as in developed countries, there is a gradual shift in consumer preferences for natural ingredients-based FMCG products. This is a positive for GSL which mainly focuses on natural ingredients-based surfactants for personal and home care products. While globally GSL is a small player, it has a dominant position in the Indian market with more than 60% market share in its range of personal care performance chemicals."

"On overall valuations parse at the upper band of the price Rs.340,the stock trades at 14x on its FY11E earnings with EPS of Rs 24.1 which is high as compared to its peers domestically and globally. Strong growth in the domestic FMCG market and GSL ability to leverage its dominant position has enabled its domestic revenues to grow at a strong pace. With the above rationales we recommend to invest in this IPO," Mehta Equities said in a report.