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Galaxy Surfactants

Hi All

Starting this thread on Galaxy Surfactants as I could not find any thread on it. Moderators please feel to change if required. Thanks.


What are surfactants?

Surfactants are compounds that lower the surface tension (or interfacial tension) between two liquids, between a gas and a liquid, or between a liquid and a solid. Surfactants may act as detergents, wetting agents, emulsifiers, foaming agents, and dispersants. The word surfactant is a blend of surface-active agent.

Surfactants can be classified into 5 types:

  • Anionics (largely cleaning applications)
  • Non Ionics (cosmetics and personal care applications)
  • Cationics (conditioning, softening aids)
  • Amphoteric Surfactants (Mild Surfactants)
  • Surface active preparations (pre-formulated blends of surfactants)

Source Wikipedia

Global market for surfactants
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In terms of revenue, the Surfactants market is expected to touch USD 39.69 Billion by 2021 and USD 45.16 Billion by 2024 growing at 4.4 percent per annum. This growth will be primarily driven by the Amphoteric and Cationic Surfactants which are expected to grow at 6.9 percent and 6.6 percent till 2024. Among the four segments, anionic and non-ionic surfactants are the dominating ones, accounting for two thirds of the total surfactant market in value.

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Asia Pacific is expected to become the largest market by 2024 and will also be the fastest growing market growing at 5.8 percent CAGR (2015-24).
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Indian market for surfactants
The Indian Surfactants market is a USD 1.35 Billion market (2015) which is expected to grow at a CAGR of 6 percent to touch USD 2.28 Billion by 2024. In terms of volumes, it is a 778 KT market growing at a CAGR of 5.8 percent and the same is expected to touch 1221 KT by 2024. In terms of application, household cleaning and personal care together made up for 49 percent of the total surfactants market. Also in line with the application market, personal care surfactants market is expected to be the fastest growing market growing at a CAGR of 7.6 percent till 2024.
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Anionics have the largest volume, but in terms of growth, Cationics are expected to grow the fastest, at a CAGR of 8.2 percent (value terms) till 2024.

Global preservatives and preservatives blend market

Phenoxyethanol preservatives are largely used in the home and personal care industry as preservatives in finished products.

In terms of volume, the global demand for phenoxyethanol preservatives stood at 39.2 kilo tons in 2013 and is expected to reach 51.2 kilo tons by 2020, increasing at a CAGR of 3.9% between 2014 and 2020. In terms of revenue, the phenoxyethanol preservatives market was valued at USD 95.8 Million in 2013 and is anticipated to reach USD 143.2 Million by 2020, expanding at a CAGR of 5.9% between 2014 and 2020. The global phenoxyethanol preservatives market is driven by strong growth in cosmetic products coupled with shift towards phenoxyethanol-based blends in the cosmetic industry. The global phenoxyethanol preservatives market was moderately fragmented in 2013. Companies such as The Dow Chemical Company, Clariant, Galaxy Surfactants Limited, and BASF SE were some of the leading players in the phenoxyethanol market in 2013. In 2013, Galaxy Surfactants Limited had a 12.7% market share in the

global phenoxyethanol preservatives market, whereas The Dow Chemical Company had a 16.3% market share, BASF SE had a 12.7% market share, Clariant Corporation had a 10.7% market share and others had a 50.6% market share.

The global preservatives blends market size was USD 133.5 million in 2015, and is expected to grow to a size of USD 215.9 million by 2024, at a CAGR of 5.6%. Asia Pacific region held the major share of preservative blends market in 2015 as demand for beauty and personal care segment is rising at a speedy rate.

Business of Galaxy Surfactants

Established in 1986. First IPO withdrawn in 2011. Successful IPO in 2018. They are manufacturers of surfactants and other speciality ingredients for the personal care and home care industries (essentially oleochemicals). Their products find application in a host of consumer-centric personal care and home care products, including, inter alia, skin care, oral care, hair care, cosmetics, toiletries and detergent products.

The product lines are organized into 2 groups

  • Performance Surfactants: over 45 product grades includes anionic surfactants and non-ionic surfactants
  • Speciality Care Products: over 155 product grades includes amphoteric surfactants, cationic surfactants, UV filters, preservatives, preservative blends and surfactant blends, speciality ingredients such as mild surfactants, syndet and transparent bathing bars and proteins, fatty alkanolamides and fatty acid esters, and other care products.

Started as a local player but has become a global supplier.
PNG
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Patents

Since 2002 49 patents have been granted to them (as per Annual report FY18). 37 patents are in process.

Research & Development

INR 50 Crs of R&D in 2016-18. R&D team of 63 people in 2017. R&D expense in FY18 was 13.62 Crs.

Customers of Galaxy Surfactants

  • Cavinkare Private Limited
  • Colgate-Palmolive (India) Limited
  • Dabur India Limited
  • Henkel
  • Himalaya
  • L’ORÉAL
  • Procter & Gamble
  • Reckitt Benckiser
  • Unilever Etc.

Claim to enjoy over 5 years of relationships with their top 10 customers. But a risk is called out that in FY17 their top ten customers generated 58% revenues. Though this has been coming down year on year.

Plants

They have 3 locations for manufacturing with a total of 7 plants

  • 5 in India: 3 in Tarapur Maharashtra (32,880 MTPA) , 1 in Taloja Maharashtra (1,59,000 MTPA), 1 in Jhagadia Gujarat (79,500 MTPA)
  • 1 in USA (600 MTPA)
  • 1 is Egypt (91,500 MTPA)

Corporate Structure
PNG

Industry Trends

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Promoters

Promoters have been since inception in 1986. On an average with 35 years of experience with 30 years in Galaxy Surfactants. MD, CFO & COO salaries in FY18 was ~2.1 Crs. Managing Director Mr. Unnathan Shekhar is since 1986. He is an alumni of UDCT Bombay and IIM Calcutta.

Raw Materials

Fatty Alcohol is the key raw material for the performance surfactants. It constitutes over half of total material cost. Fatty Alcohol is a palm kernel oil derivative and is sourced from South East Asia. It is a highly volatile raw material.

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Brent Crude Derivatives - Brent crude derivatives is also a raw material. The major ones are Ethylene Oxide, Phenol and Linear Alkyl Benzene. These make up for close to 1/5th of total purchases.

Fx Hedge

65% customers are outside India and 60% raw materials are imported. So the management says they are naturally hedged.

Failed IPO 2011 & Successful IPO 2018

Book Running Lead Manager to the issue informed the Exchange that the Book Building had been withdraw (Motilal and Centrum). Book running lead managers for 2018 were ICICI securities, JM Financial and Edelweiss.

Shareholding

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No shares are pledged by the promoter.

Certain risks in DRHP 2017

  1. No long term supplier agreements
  2. Forecasting errors can occur
  3. Operations are hazardous
  4. Customer concentration though they have been reducing it
  5. Ethylene oxide (7% of raw materials) is via a single supplier
  6. Tightly regulated & has to ensure environmental & health specifications
  7. Strict quality requirements from customers
  8. Fx exposure
  9. Side effects or harmful effect of products could impact the company
  10. Political instability of Egypt

Debt to Equity
0.29 Currently. Company has been bringing down its level since 2015.

P&L Metrics

image

Return Ratios

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Efficiency

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Cash flow from Operations

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Competition

No major competition in India. Internationally BASF, Clariant, Kao, Kuala Lumpur Kepong, Saudi Kayan.

Brokerage Expectations

From Edelweiss June 24 2019

Rated Buy with a Target Price of 1405 (17% upside). Currently market cap of 4.3K Crs and trading at 1,238 per share.

Identifies low EBIDTA margin with moderate growth expectations. But medium ROCE high barriers to entry and high product complexity. Growth opportunity is identified as international (currently 1700+ clients).

Valuations

Valuations given are 20.4 PE FY20e and 17.4 PE FY21e. ROCE expected in FY21 is 25.6%. Sales & EBIDTA growth in FY19-21 is expected at 10.2%and PAT in same period at 13.1%.

Edelweiss DCF model indicates moderate growth of 14% in FY22-26E at target price of INR 1405. This company has achieved revenue growth of 10% CAGR in FY14-19. They have used 12% WACC and terminal growth of 6%.

Capex

90Crs in FY20 and 100Crs in FY21.

Growth Drivers

  • Strong growth in end-user industries & existing markets
  • Leveraging existing customer base to expand product basket
  • Expanding customer base with new client additions across geographies
  • Growing specialty care products along with performance care products
  • Strong operating leverage in place
  • Rising market share in developed markets
  • Future capacity expansion at minimal cost
  • Export opportunities encouraging
  • Inorganic growth opportunities

In case anyone wants a PDF then its here.

Galaxy Surfactants_June 2019.pdf (1.3 MB)

I hope we can dig around and find out more. Inputs and discussions welcome on the opportunity.

Sources of information are from annual report (I didnt incorporate the FY19 as the annual report is not out but the numbers were better at top line level), DRHP 17 & 11, Edelweiss Report, Wikipedia, Screener, Tijori Finance, General articles on the internet.

Regards
Deepak

Disc: I am not a SEBI registered analyst/adviser. I am studying the company and have only a tracking position in the company. Not interested yet.

30 Likes

A detailed analysis, @deevee. Well done!

Doing the mandatory “< Company Name > Fraud” google research, I happened upon this interesting article by MoneyLife:

Chitoorgarh also confirms the same:

(The comments on Chitoorgarh are especially useful in understanding what really went down back then)

Have you done any research on this?

9 Likes
  • OPM has been around 11 - 12 percent and it shall remain in the similar range in future as well. Company has been maintaining the mix between performance and speciality segments around 65:35 and intends to continue the same in near future as well. As per the management there is good market for performance surfactants from emerging economies Africa, Middle East and Turkey and speciality surfactants from matured markets from USA and Europe…

  • Cumulative capex of Rs 125 cr done in FY18/19 is going to come online from Q1FY20 onwards.

  • Also its takes lot of time for getting environment clearances, company does capex considering the demand for the next 3 - 4 years in case of performance surfactants and 6 - 7 years in case of speciality surfactants (as volumes are less here)

  • 55% of the revenues comes from MNC FMCG companies and company extends credit period of 60 days for MNC customers

  • The capex completed till now and planned in FY20 is funded from internal accruals. So there is enough cash flow to fund the capex

Need to watch for few more quarters. Used to track S H Kelkar, company with similar theme (quasi FMCG). Till IPO company seems to be growing at a reasonable rate and after IPO both topline and bottomline started falling and has not yet recovered…

Disc: No position …still studying…

2 Likes

Hi Deepak, did you try to contact the management about annual reports prior to 2015. Their investor relations does not have those online. My attempts to contact them yielded no results.

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Hi Abhinav

I have recently dropped them a mail to them. So would give them some time to comeback.

Rgds
Deepak

https://www.investing-notes.com/galaxy-surfactants-bse-540935-nse-galaxysurf/

An analyst’s note on Galaxy :slight_smile:

Q2 results : only face saving in Tax impact

Gal_surf_Q2.pdf (2.6 MB)

Gal_surf_Q2_inv_pres.pdf (3.5 MB)

I have created a semi-automated peer comparison sheet for most of the companies in the industry.

Chemical Industry Data.xlsx (2.7 MB)

You can find comparisons of more industries here:

2 Likes

Galaxy surfactant
takeaways from Edelweiss report

ď‚· Management highlighted the company is in wait and watch mode and is waiting
to see if China continues to supply international market. Management believes
the opportunity could arise if the situation in China persists for long opening up
markets like Latin America and Europe.

 GSL’s major raw materials are fatty alcohol and fatty acids. Raw material sourcing
is unlikely to be impacted as the company gets 70% of its raw material from
Indonesia and Malaysia. Further, it maintains three months of inventory and thus
is secured on raw material front.

ď‚· Q3FY20 clearly marks a pick up in India; AMET recovery is well on track with 34%
YoY growth in the Egypt market, which seems to be returning to normalcy.

ď‚· Management, however, maintained its volume growth guidance at 6% YoY given
that India volumes have picked up and AMET remains on track. Nevertheless,
growth in the RoW region is tapering as last year’s high base kicks in and expects
~10% growth in coming quarters.

ď‚· EBITDA growth is generally higher than volume growth as most of the overheads
are fixed in nature; operating leverage benefits help in higher EBITDA and PAT
growth.

ď‚· The Jagadia plant became operational in April 2019 for the performance
surfactants division. The plant’s current utilisation rate of 20-25% should start
improving as the company has started getting approvals from customers from
Q3FY20.

ď‚· Management has guided for INR1.25bn capex for FY20 (similar for FY21), which
will be largely spent on the specialty surfactants plant in Jagadia, R&D infra at
Tarapur and Tri-K Industries in the US. The company has outlined capex of
USD7mn for Tri-K, which is likely to be completed by end of Q4FY20.

1 Like

How much of these chemicals will be used for end product of sanitizers/hand washes/home cleaning applications (e.g. Domex) etc.?

They say that their primary raw material is ethylene oxide which is sourced from a single supplier, and that (as per their RHP) is a risk to their business.
Any info on who supplies ethylene oxide to them? (Didn’t find it in clients of India Glycol)

This company looks good to me but seeing the negativity around it here would research more. But that supplier of Galaxy looks like a better investment.

Reliance Industries is manufacturer of EO

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The company is manufacturing items needed to safeguard people from corona but they are forced to suspend operations

Not sure if government can help them, which ultimately helps fight against virus

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https://www.moneycontrol.com/news/business/moneycontrol-research/the-coronavirus-impact-indian-chemical-companies-count-likely-losses-stay-selective-4950131.html

2 Likes

Partial Resumption of operations
Galaxy.pdf (619.0 KB)

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Hi

Looks like bad news. 2 people passed away in a blast at their plant.

It was the hand sanitizer unit it seems. I do not have the details.

Rgds

2 Likes

Hi @deevee,
Thanks for starting this thread & great analysis.
Have you compared Galaxy with Fine organics? Both of them seem to manufacture there chemistry from vegetable oils. Also Fine organics has better margins & efficiency ratios. I guess its mostly because they operate in a low volume high margin business.
Disc- No inv both these companies

Hi @Rushabh_Doshi

I did some preliminary work on Fine Organics but not in a coherent manner. Therefore didn’t share it on the thread.

If you have some presentable material please go ahead and post.

Thanks & regards
Deepak

1 Like