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RoW continues to support sales growth Operating performance in line

• Galaxy Surfactants (GALSURF) reported an EBITDA/kg of INR18.4 (est. INR19.3), down 5% YoY, while total volumes increased ~5% YoY to 67.3tmt (vs. est 64.4tmt), supported by robust growth in the RoW region (up 16% YoY) driven by LATAM and APAC. EBITDA remained stable at INR1.2b, while PAT was flat YoY at INR795m (our estimate: INR756m).
• Overall demand was mixed in 1QFY26. India volumes rose 3% YoY, driven by a growing shift towards re-engineering formulations, while AMET volumes remained flat, hit by subdued market conditions in Egypt and Turkey.
• The company remained resilient and committed to its long-term goals despite inflationary headwinds. The company is advancing towards “Strategy 2030” with a strengthened focus on innovation and operational agility, while enhancing customer service and future-proofing its portfolio.
• Factoring in its 1QFY26 performance, we broadly retain our FY26/27 estimates and reiterate our BUY rating with a TP of INR2,720 (based on 25x FY27E EPS).

Strong revenue growth offset by margin compression

• Revenue came in at INR12.8b (est. of INR12b), up 31% YoY/12% QoQ, led by 45%/12% growth in Performance Surfactants/Specialty Care Products to INR8.4b/INR4.4b during the quarter.
• Gross margin stood at 26.2% (-740bp YoY, -320bp QoQ), EBITDAM came in at 9.7% (-300bp YoY, -140bp QoQ).
• EBITDA stood at INR1.2b (est. of INR1.2b), flat YoY, -2% QoQ.
• Adjusted PAT stood at INR795m (est. of INR756m), flat YoY, +5% QoQ.

Highlights from the management commentary

• Guidance: The company plans to maintain regular maintenance and debottlenecking capex of INR1.2-1.5b, with no major new investments amid current market uncertainties. For FY26, management aims to sustain last year’s 4% growth rate, with a potential uptick to 6%, though achieving the typical 6– 8% range would require a meaningful demand recovery in India.
• Margin: The company maintained EBITDA per metric ton at ~INR20,000 in 1QFY26 (vs. INR20,200 in 1QFY25) despite prevailing challenges. Margin recovery remains contingent on a rebound in the premium specialties business and resolution of the US tariff situation, with management expecting margins to return to last year’s levels in Q2 and Q3 if prices remain stable.
• Inventory: GALSURF is carefully managing inventory levels and raw material price risk amid expectations of potential price corrections. Customers are maintaining minimal inventory due to demand uncertainty and elevated prices, shortening their inventory planning horizon from six months to three months.

Valuation and view

• We expect volume growth to be driven by the company’s sustained focus on R&D, improving domestic demand supported by a favorable monsoon and government-led rural stimulus, and the establishment of new teams in Europe, Latin America, and the US as part of its expansion strategy.
• We expect a CAGR of 18%/12%/12% in revenue/EBITDA/adj. PAT over FY25-27.
• Along with a volume CAGR of 6.6% over FY25-27, the stock is currently trading at ~20.9x FY27E EPS of INR109 and ~13x FY27E EV/EBITDA. We value the stock at 25x FY27E EPS to arrive at a TP of INR2,720. Reiterate BUY.

Key highlights from the management commentary

• EBIDTA /MT remains at the same level on a YoY basis to INR20,009/MT 1QFY26 vs INR20,197/MT 1QFY25
• In 1QFY26, consolidated volumes grew by 5% YoY and 9% QoQ, with sequential growth nearing double digits across Performance and Specialty care segments.
• In India, volumes grew 3% YoY and 15% QoQ.
• Raw material availability in 1Q was impacted by a sudden and prolonged disruption at one of the company’s key suppliers in East Asia. While the situation has begun to ease, feedstock prices remained elevated and may stay high through 2QFY26. The company expects a price correction in due course and is managing raw material price risks in a measured manner.
• In response to sustained high feedstock prices, some customers are revising their formulations. The company views this as a temporary trend but is maintaining flexibility in its product portfolio to cater to such requirements if needed.
• In AMET, while Egypt and Turkey faced headwinds, resilience in the Gulf and Sub-Saharan markets helped maintain momentum.
• Europe stayed flattish, while product mix improved, aligned with the company’s 2030 vision.
• Premium specialty is gaining traction.
• Supply-side challenges persisted with tight raw material availability and regional congestion, but price pass-through mechanisms and inventory vigilance helped mitigate the impact.
• The specialty care segment is not doing well in the US (the company has 8-10% exposure in the US). GALSURF may look to reroute its US sales from Egypt instead of India.
• The company remains committed to retaining its long-standing customers and is prepared to take margin adjustments as necessary to maintain these relationships.
• The US remains a strategic market for the company, and management is exploring measures to mitigate the impact of tariffs.
• For FY26, the company would be happy to maintain last year's 4% growth or reach 6%; thus, achieving its 6-8% range will be difficult without significant demand recovery in India.
• For 2026, the planned capital expenditure of INR1.2–1.5b will be directed towards debottlenecking initiatives and other projects.
• The company expects margins to recover to the previous year's levels in Q2 and Q3 if prices remain stable, though this depends on premium specialties recovery and North American business performance.
• Margins were impacted by product mix changes, particularly due to reduced premium specialty sales in North America because of tariff uncertainties.
• Due to uncertain demand, customers are keeping minimal inventory in their pipelines, just enough to serve consumers. Where customers previously planned for six months of inventory, they are now planning for only three months.
• Supply chains faced challenges with longer lead times and congestion in Europe, China, and Southeast Asia, affecting both export and import shipments.

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