Motilal Oswal's research report on Galaxy Surfactants
Against the guided EBITDA/kg of INR16-18, GALSURF reported an EBITDA/kg of INR26.8 (61% higher than our estimate, up 48% YoY). The current supply chain disruption has boosted demand, which is sold at a premium and aided the higher-than-usual margin in the past two quarters. Total volumes declined by 4% QoQ and 8% YoY to 55.3tmt (v/s 57.5tmt in 4QFY22). The management said global demand continues to witness a cut back, although demand from the Indian market remains stable (expected to gain momentum from 2QFY23 due to festive demand). Signs of a slowdown are also visible in Europe, which adversely affected volumes of Specialty Care Products. Supplyside constraints are improving and usher stability to earnings, with a sustainable EBITDA/kg of INR16-18.
Outlook
Continued focus on R&D (with an annual expenditure of INR400-500m) and increased wallet share from existing customers is likely to drive volume growth and expand EBITDA margin. Volume grew by ~6% CAGR over the last five years. We build a similar growth over FY22-24 as well. We maintain our Buy rating with a TP of INR4,000, implying a potential upside of 25%.
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