IGI Logo

Logistics issue hurt volumes

Galaxy Surfactants’ (GSL) Q1FY22 volumes grew at a slower rate of 15.4% YoY and was impacted from logistics issue and non-availability of certain raw materials. It is impressive that gross profit per kg was strong at Rs43.8 (up 9.4% / down 3.6%) despite freight cost inflation. Company sees demand remaining steady, and is managing the supply chain for timely delivery of products, while logistics cost has been volatile making price decisioning difficult.

We see new product launches in pods and capsule detergents as new categories, which will drive growth in the future. Commissioning of capex in Sep’21 should further help drive higher volumes in specialty care. We have marginally tweaked our EPS estimates for FY22E / FY23E, while we cut the target price to Rs3,076 (from Rs3,102) valuing the stock at 30x FY23E EPS. Maintain HOLD.

* AMET volumes dipped 5.8% YoY. GSL revenues rose 36% YoY to Rs8.3bn driven by 18% growth in realisation to Rs138 per kg (on RM inflation) and 15.4% volume growth to 60kte on low base. India volumes grew 32% YoY and RoW was up 28.6% on low base, while AMET volumes fell 5.8% YoY due to non-availability of raw materials on logistics issue. Performance product volumes rose 6.5% YoY and specialty care volumes were up 36% YoY on volume bounce-back in RoW. Company expects demand to hold steady. It attributes lower volume CAGR for past two years mainly to supply chain bottlenecks, which it believes may continue for next 3-4 quarters. Specialty care volumes were further hit from delay in commissioning of new facilities at Tarapur and Jaghadia.

* Gross profit per kg was Rs43.8, up 9.4% YoY (down 3.6% QoQ). Gross profit rose 26% YoY to Rs2.6bn and remained healthy. It dipped sequentially, but that is not a cause of worry since it should be mainly due to higher inward freight cost. AMET and US performance continues to be strong, while India had lower margins on delay in price hikes for specialty care. Gross profit margin dip of 480bps QoQ to 31.7% is optical given high RM costs while conversion profits remained steady. EBITDA grew 20% YoY to Rs1.1bn; EBITDA per kg was at Rs18.1 (up 4% YoY, down 2.7% QoQ). Other expenses rose 40% YoY on higher volumes and rise in freight expenses, which impacted EBITDA margin (down 190bps to 13.1%). Net profit grew 36% YoY to Rs768mn.

* Conference call highlights. 1) AMET volumes have started to normalise from Jul’21 with improved availability of raw materials, but the logistics issue is likely to continue impacting for next 3-4 months; 2) new capacity in specialty care is to be commissioned in next 45 days, which should help drive higher volumes; 3) company expects gross profit per kg to sustain on normalisation. Management would revisit its EBITDA per kg guidance of Rs16-18 if GSL sustains margins at higher levels for a few more quarters; 4) Egypt has been benefiting from rising contribution from specialty care segment, and US sales remains strong on the back of underlying demand.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer