Mr. Nilesh Ghuge & Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities
Our BUY recommendation on GALSURF with a price target of INR 2,265 is premised on (1) stickiness of business as 55% of the revenue mix comes from MNCs, (2) stable EBITDA margin at >12% since fluctuations in raw material costs (RMC) are easily passed on to customers, and (3) strong return ratios (RoE/RoIC of 24/20% in FY22E). 2Q EBITDA/APAT was 9/21% higher than estimates due to a 7% rise in sales and higher-than-anticipated other income.
Demand kicking in: 2Q revenue grew by 18/11% QoQ/YoY to INR 7bn, mainly due to a 22/10% QoQ/YoY growth in overall volumes. Demand has recovered well for both segments: Performance Surfactants (+15% YoY) and Speciality Care (+2% YoY).
Margins: Gross margin jumped by 211/305bps QoQ/YoY to 36.3% on the back of improving share of specialities, new products mix and higher capacity utilisations. EBITDAM grew 201/334bps QoQ/YoY to 16.9% owing to lower opex as a result of curtailed travel, fair and exhibition expenses.
Highest volumes ever: Total volumes grew by 22/10% QoQ/YoY to 63kT, owing to 13/15% QoQ/YoY growth in Performance Surfactants (66% of volume mix) volumes to 41kT and 39/2% QoQ/YoY growth in Speciality Care volumes to 22kT. Growth was driven by both the segments across geographies in 2Q. While India has made a strong comeback (+27% YoY volume growth), the momentum remains intact in AMET, which continues to grow ahead of the market (6% YoY). Rest of the World markets, too, are recovering sequentially.
Concall takeaways: Capex of INR 1.5bn to be spent on two major projects: the multi-purpose plant at Tarapur and expansion of the speciality plant at Jhagadia. Both these projects would be commissioned by 1QFY22. Capex guidance for FY22 at INR 1.3-1.5bn.
Change in estimates: We raise our FY21/22 EPS estimates by 8.7/3.7% to INR 78.0/93.7 to account better-than-anticipated performance in the quarter.
DCF-based valuation: Price target of INR 2,265 is based on Sept-22E cash flows (WACC 10%, Terminal growth 3.0%). The stock is trading at 19.8x FY22E EPS.
Shares of Galaxy Surfactants Ltd was last trading in BSE at Rs.1921.35 as compared to the previous close of Rs. 1842. The total number of shares traded during the day was 11483 in over 2370 trades.
The stock hit an intraday high of Rs. 1986.4 and intraday low of 1823. The net turnover during the day was Rs. 21927046.