Buy Galaxy Surfactants; target of Rs 3620: Motilal Oswal

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Motilal Oswal's research report on Galaxy Surfactants

Galaxy Surfactants (GALSURF) reported a mixed set of numbers - with higher-than-estimated revenue (+36% YoY / +5% QoQ), amid improved realization, in line with higher raw material costs. However, higher RM and international freight costs impacted EBITDA - which came in below estimates (+20% YoY / -8% QoQ), translating to gross margins of INR43.8/kg - with the EBITDA margin at INR18.1/kg. - In 1QFY22, volumes (Performance Surfactants +7% YoY / -7% QoQ; Specialty Products +36% YoY / -1% QoQ) were lower on the back of a key raw material supply crunch due to supply chain disruption internationally. The management believes the international logistics scenario is likely to remain challenging for the remaining months of FY22 as well.

Outlook

The company has posted a ~8% volume CAGR in the last five years. We expect the company to deliver a ~10% CAGR over FY21-24E, in line with industry growth for surfactants. Valuing the company at 33x Sep'23E EPS, we arrive at TP of INR3,620. Maintain Buy.

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