Published on 10/06/2019 11:01:00 AM | Source: ICICI Securities

Buy Galaxy Surfactants Ltd For Target Rs. 1540 - ICICI Securities

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* Strong right to play in emerging categories

We attended Galaxy Surfactants (GSL) analyst meet themed Value Creation through Innovation and Sustainability where the company provided insights into emerging categories within HPC, and how GSL is placed to benefit. GSL’s close relationship with MNC clients, right R&D efforts and economical process has helped repeat its success in the Performance Products category even in Specialty Care Products (SCPs). SCPs grew at 37% CAGR over past 10 years with GSL capturing a significant presence in global mild surfactants and non-toxic preservatives. GSL is in the process to expand its R&D facility area by 1.5x and invest into pilot and mini plants with an outlay of Rs1.2bn. Reiterate BUY.


* Strong track record in specialty care products.

GSL benefited hugely from its close relationship with MNC customers and early understanding of emerging trends. This, along with R&D efforts in product development quite early in lifecycle of emerging products, has significantly paid back with SCP’s revenue rising at 37% CAGR in the past 10 years. The two blockbuster products were: 1) non-toxic preservatives, which grew to Rs2.5bn product in FY19 from just Rs0.2bn revenue in FY09 (28% CAGR, and contributed 24% to SCP’s revenue in FY19), and 2) mild surfactants, which rose to Rs1bn in FY19 from nil revenue in FY09 (10% of SCP revenue in FY19). The US and EU markets contribute 60% of SCP revenue.


* Specialty care products offer promising growth in India.

India is still a small market for SCP though very promising. GSL see four key themes in HPC: 1) fastgrowing categories, viz. baby care, face care, men’s grooming and affordable luxury; 2) sulphate- and paraben-free products; 3) ayurveda and naturals; and 4) online retail (omni-channel). Baby care market is expected to become Rs50bn by FY22 (from just Rs0.7bn in FY09). Men’s grooming market size has grown 2x in past five years to Rs110bn and is expected to grow at a CAGR of 13% over FY08-FY22. Premium beauty care category is expected to grow at 17% CAGR over FY08-FY22. GSL believes it has right to play in these categories as it is already supplying intermediary products to MNC clients in other geographies.


* Trust on R&D, not just for new product development but also commercialisation.

GSL spends 1-1.5% of its total revenue on R&D, but we believe this does not provide the right picture. More relevant is that it spends 4-4.5% of SCPs revenue on R&D. The focus is not just to develop new products but also commericalisation, which is reflected in the fact that 33 of GSL’s 62 patents are commercialised. GSL’s new products in ultra-mild surfactants and blended preservatives have been well recognised, and the installed capacities for these products are over-booked. GSL is in process to increasing its R&D facility area by 1.5x, and build pilot and mini plants with an outlay of Rs1.2bn.


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