Demand buoyant but supply chain challenges remain – Galaxy Surfactants

Update on the Indian Equity Market:
On Thursday, Nifty 50 ended in the negative at 14138 (-0.1%). Among the stocks, TATASTEEL (+5.3%), HINDALCO (+4.8%), and BHARTIARTL (+3.6%) ended with gains while NESTLEIND (-2.0%), HDFCLIFE (-1.9%), and HINDUNILVR (-1.8%) were the top laggards. METAL (+3.8%), REALTY (+1.4%), and PRIVATE BANK (+0.7%) were the top sectoral gainers, while FMCG (-0.9%), IT (-0.7%), and PHARMA (-0.4%) were the sectoral laggards.

Excerpts of an interview of Mr. U Shekhar, Founder Promoter and Managing Director, Galaxy Surfactants (GALAXY) with CNBC TV18 on 6th January 2021:
• The raw material prices have surged significantly in the last month. The freight rates have gone up by more than 4-6 times across the world. GALAXY has been able to pass on the price hikes to customers.
• Despite the raw material price increase, he expects the margins to be stable.
• With the supply chain being disrupted across the world, getting the supply remains the number one priority for customers. At current levels, price increases seem to have been absorbed by the customers.
• 2QFY21 saw record volumes for the company. FMCG products, particularly the ones required for cleaning and sanitization have maintained the tempo but the trend of pantry stocking has subsided. The demand has been strong and buoyant.
• For GALAXY’s products, the pipeline got built in September and that should translate into sales for their customers in December quarter.
• Even on exports, the demand has been pretty strong but supply chain challenges remain. Getting the containers is a challenge and even if they get the containers, the freight rates have gone through the roof. Demand remains strong but supply chain challenges remain.
• The expansion plans are on track and he remains hopeful of commissioning the existing products by 1QFY22.
• They have acquired new land and the process of applying for clearance will take some time.
• GALAXY is not opting for the PLI scheme now but they would be happy expanding in the existing premises.
• For the last 2-3 years, they incurred a capex of Rs 1300-1400 mn every year financed through internal accruals. The capex for the next year or two will also be financed through internal accruals.
• Their R&D expenditure has been about 1.5% of their sales consistently. The entire R&D has been in-house for them.
• He expects 6-8% volume growth in FY22 and the growth will be gradual over time.

Consensus Estimate: (Source: market screener website)
• The closing price of Galaxy Surfactants was ₹ 2280 /- as of 07-January-2021. It traded at 32x/ 27x/ 24x the consensus earnings estimate of ₹ 71.5/ 83.1 / 95.7 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 2118 implies a PE multiple of 22x on FY23E EPS of ₹ 95.7/-.

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