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Favourable mix drives performance

We maintain a BUY rating with our target price of Rs. 3,477 (Rs.2,936). The company’s performance came in ahead of our expectation, with a strong recovery in speciality volumes in H2. The company reported overall volume growth of 8.4% YoY. The management reiterated volume growth guidance of 6-8% as the company remains confident of demand recovery in the speciality care segment post-Covid while performance segment volumes are expected to be robust due to structural change in consumer behaviour due to Covid.

Given the company is at the forefront of innovation and a powerful Oleochemicals portfolio the company is well-positioned for the surge in oleochemicals to replace harmful petrochemicals. Further, its products span across the HPC segments from mass to mass-tige to prestige. Long-term strategic partnerships with global MNCs, local and regional players provide formidable entry barriers, and hence revenue stability and potential to expand its product lines. Given the current performance and strong commentary we increase our EPS target for FY22E and FY23E by 10% and 15% respectively.

* Robust revenue growth- Galaxy posted revenue growth of 19% YoY to Rs.7,835, on account of better sales volumes in both Performance Surfactants and Specialty Care business and better sales mix. Performance Surfactants volume stood at 41,712 MT for Q4FY21, up by 7.4% YoY, while Specialty Care Products volume stood at 21,295 MT for Q4FY21, up by 10.5% YoY. Overall volumes grew by 8.4% YoY.

* One-off Expenses impact OPM- the company gross margins expanded by 10bps YoY to 36.5%, while OPM contracted by 60bps YoY to 15%. Margins were impacted by higher operating overhead, the company had seen an impact of Rs.150mn on account of lower export incentive and one-time provision, and higher employee cost. Overall EBITDA grew by 14% YoY to Rs.1,174mn.

* Growth Trickle downs to PAT- PAT for the quarter grew by 25% YoY to Rs.786.8mn, driven by higher other income and lower interest cost.

* Valuation and rating:

We assign a PE multiple of 31x (premium to other chemical companies as discussed above) on FY23E earnings of Rs112 (Rs. 97.9) post which we arrive at a target of Rs.3,477, an upside of 15% from the current levels. The company’s performance during the quarter was driven by strong realization growth in performance surfactants coupled with strong volume uptake in the AMET region. Speciality care volumes are expected to see recovery as supply chain issues normalize. New product launches are expected to further drive growth. We continue to remain positive about the long term prospects of the company.

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