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Triggers for sustainable growth in place!

* India’s personal care market is at an inflection point, with rising disposable income and premiumization trends driven by new applications such as dish and washing liquids. Galaxy Surfactants (GALSURF) is positioned to benefit as rural awareness, robust distribution, and local players prompt a shift from mass to premium segments.

* GALSURF anticipates robust growth in FY25 across the RoW, AMET, and Indian markets, driven by demand recovery, inflation easing, and profitability focus barring ongoing macroeconomic risks, thereby aiming for PAT growth > EBITDA growth > volume growth and a 22% RoCE.

* We estimate a volume CAGR of 9% over FY24-27, led by robust volumes in the domestic market and a recovery in the volumes of specialty care products in developed markets, which have already started growing. The stock is currently trading at ~22x FY26E EPS of INR118.3 and ~14x FY26E EV/EBITDA. We value the company at 30x Sep’26E EPS to arrive at a TP of INR3,865. We reiterate our BUY rating on the stock.

Decadal opportunity to ensure sustainable growth…

* India is at a growth inflection, similar to China in CY06 and the US in the CY60s. Currently, the personal care markets in the US and China are 6x and 5x the size of India's. Shampoo and toothpaste penetration in India exceeds 90%, but emerging applications promise further growth in performance and specialty care products. However, dish wash and washing liquids still have under 25% penetration.

* Premiumization is now more feasible, with GALSURF well-positioned to capitalize on this trend due to its existing global specialty care presence and anticipated growth from rising disposable income in India. Increased spending on premium beauty, personal care, and home care products (liquid detergents, dish washes, and premium powders) is expected to support growth opportunities. Rising expenditures on these products and consumer durables with sustainability awareness will further accelerate demand.

* The Indian market is set for growth across all segments, consistently expanding at 10-12% on a lower base. Rural awareness of personal and home care solutions is rising, and deep distribution channels promise last-mile connectivity, reinforcing our bullish outlook. Growth is also expected to be fueled by local and niche players, especially in South India, as some smaller players cater to limited areas with quality products (within 2-3kms radius). The entry of new players, private labels, and D2C brands will support growth in specialty categories and the migration of consumers from mass to premium tiers through better distribution.

…with recovery across regions to aid volumes and margin

* The RoW market witnessed mid twenty’s volume growth in 1HFY25 on YoY basis (13% for FY24), driven by post-destocking recovery and increased demand in the mass and masstige segments, positioning the company for growth in FY25. With easing global inflation, demand in North America and Europe is expected to rise, though GALSURF remains cautious about economic uncertainties- barring any macro-economic volatility management has maintained its guidance of 6-8% volume growth with a bias on the higher side of the range.

* The AMET region faced demand challenges in FY24 due to inflation and geopolitical tensions, but GALSURF anticipates a recovery in the remainder of FY25 (volumes flat in 1HFY25 on YoY basis) as inflation stabilizes and supply chain disruptions ease. The company is focusing on supply chain efficiencies and inflation mitigation to support demand rebound in personal care products as purchasing power improves.

* India is a key growth market and witnessed 11% volume growth in FY24 (volumes flat in 1HFY25 on YoY basis), with GALSURF focusing on urban demand and rural recovery to strengthen expansion. Supported by projected GDP growth (~8% in FY24 and ~7% in FY25), rising consumer spending on personal and home care products, and government-led infrastructure initiatives, GALSURF anticipates robust demand ahead, as highlighted above as well.

* That being said, macroeconomic risks such as geopolitical tensions, slow recovery in China, and high inflation in advanced economies pose ongoing challenges. With FY24 focused on volume normalization, FY25 is expected to see profitability normalization, driven by premium specialties growth in 2HFY25, supporting GALSURF’s principle of PAT growth > EBITDA growth > volume growth and a target RoCE of 22%.

Valuation and view

* The continued focus on R&D (with an annual expenditure of INR400-500m) and increased wallet share from its existing customers and acquisition of new customers should drive volume growth. Margin is also likely to expand gradually with an increase in volume of premium specialty products.

* We estimate a volume CAGR of 9% over FY24-27, fueled by robust volumes in the domestic market and a recovery in the specialty care product volumes in the developed markets, which have already started growing. The stock is currently trading at ~22x FY26E EPS of INR118.3 and ~14x FY26E EV/EBITDA. We value the company at 30x Sep’26E EPS to arrive at a TP of INR3,865. We reiterate our BUY rating on the stock.

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