Buy Galaxy Surfactants; target of Rs 2265: HDFC Securities

HDFC Securities' research report on Galaxy Surfactants

Our BUY recommendation on GALSURF with a price target of INR 2,265 is premised on (1) stickiness of business as 55% of the revenue mix comes from MNCs, (2) stable EBITDA margin at >12% since fluctuations in raw material costs (RMC) are easily passed on to customers, and (3) strong return ratios (RoE/RoIC of 24/20% in FY22E). 2Q EBITDA/APAT was 9/21% higher than estimates due to a 7% rise in sales and higher-than-anticipated other income.

Outlook

Price target of INR 2,265 is based on Sept-22E cash flows (WACC 10%, Terminal growth 3.0%). The stock is trading at 19.8x FY22E EPS.