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EBITDA to grow in FY24 despite weak start in Q1

Galaxy Surfactants’ (GSL) Q1FY24 EBITDA/kg stood at INR 20.8, down 16.8% YoY. Volume growth was steady at 7.4%. India volume continues to be strong; AMET has stabilised at low levels, and RoW has been impacted by the de-stocking in North America. GSL has guided EBITDA/kg to grow at INR 20-22.75 in FY24. This will be driven by recovery in North America market which will likely drive higher sales for specialty care segment; AMET volumes should start growing on a low base. We believe EPS growth for FY24 looks challenging due to highly unfavourable base of FY23, which we anticipate to normalise; however, volume growth can be better than company guidance as AMET has stabilised. EPS growth will appear soft over FY23-25E on an unfavourable base.

We have cut our EPS estimates by 6-7% for FY24-25E, but increased our target price to INR 2,475 (from INR 2,440), valuing GSL at a PE multiple of 24x FY25E EPS (earlier: 22x). Maintain HOLD. Key risks: 1) Significant drop in EBITDA/kg and 2) continued weakness in RoW.

Volume up 7.4% YoY

GSL’s revenue dipped 18.7% YoY to INR 9.4bn affected by a dip of 24% in realisation to INR 159/kg on lower input cost, and volume rose 7.4% to 59kte, which was hurt by weak demand in AMET and North America. AMET volume was flat YoY (on a low base), largely due to lower volumes in Egypt and Turkey on macro headwinds. The company is slowly reducing its dependence on these two large geographies that have been very volatile. North America was impacted from destocking and lower demand while Europe has grown slightly. India is a bright spot with double digit volume growth. The company expects volume to grow at 6-8% pa. AMET and US are expected to grow from H2FY24. Performance surfactants’ volume grew 11.8% YoY to 40kte; specialty volume dipped 0.5% YoY to 20kte with improved mix.

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