IPO – Galaxy Surfactants Ltd.
Galaxy Surfactants Ltd – Subscribe
Subscription Dates : 29 – 31 January, 2018
Issue Size : Rs. 937.08 Crores
Issue Price Band : Rs. 1470 – Rs. 1480 per share
Offer For Sale : 63,31,674 shares (100% of IPO)
Total IPO Size : 63,31,674 shares
Minimum Bid Size : 10 shares
Objects of the issue: To achieve the benefits of listing the Equity Shares on the Stock Exchanges and the sale of Equity Shares by the selling shareholders.
Company Profile:
One of India’s leading manufacturers of surfactants and other speciality ingredients for personal care and home care industries. Their products find application in a host of consumer-centric personal care and home care products, including, inter alia, skin care, oral care, hair care, cosmetics, toiletries and detergent products. It has an expanded and well-diversified product profile, client base and geographical footprint.
The Company is a global supplier to FMCG companies across major geographies, such as Africa Middle East Turkey, Asia Pacific, Americas, and Europe. It has a diversified customer base currently comprises multinational, regional and local FMCG companies, including Cavincare Private Limited, Colgate- Palmolive (India) Limited, Dabur India Limited, Henkel, Himalaya, L’OREAL, Procter & Gamble, Reckitt Benckiser and Unilever.
Its product portfolio comprises over 200 product grades, which are marketed to more than 1700 customers in over 70 countries.
Products are organized into following groups:
Performance Surfactants: The portfolio of performance surfactants comprises over 45 product grades, and includes anionic surfactants and non-ionic surfactants and
Speciality Care products: This product group comprises over 155 product grades, and includes amphoteric surfactants, cationic surfactants, UV filters, preservatives, preservative blends and surfactant blends, speciality ingredients such as mild surfactants, syndet and transparent bathing bars and proteins, fatty alkanolamides and fatty acid esters, and other care products.
Basis of Recommendation:
MACRO FACTORS:
The Global Economic Outlook and India
- The global upswing in economic activity is strengthening. Global growth, is projected to rise to 3.6% in 2017 and to 3.7% in 2018*.
- Among the emerging markets and developing economies, India is forecasted to be one of the fastest growing economies with GDP growth expected at 7.4% for 2018 and 8.2% for 2019. Middle East and North Africa region is expected to grow at 3.2% and 3.5%; Egypt specially at 4.5% and 6.0%, Turkey at 3.5% and 3.6% during 2018 and 2019*.
(*Source: “World Economic Outlook, October 2017 Seeking Sustainable Growth : Short-Term Recovery, Long-Term Challenges” by International Monetary Fund)
The Indian Economy
- The April 2017 MPR (Monetary Policy Report) had projected an acceleration in real GVA for 2017-18 on the back of (a) a recovery in discretionary spending spurred by the pace of remonetisation; (b) the reduction in banks’ lending rates on fresh loans brought about by demonetisation induced liquidity; (c) the growth stimulating proposals in the Union Budget 2017-18; (d) a normal southwest monsoon; and (e) an improvement in external demand. Taking into account the outturn in the first half, the baseline assumptions, survey indicators and model forecasts, real GVA growth is projected at 6.7% for 2017-18 – 6.4% in Q2, 7.1% in Q3 and 7.7% in Q4 – with risks evenly balanced around this baseline path.
(Source : RBI Monetary Policy Report, October 2017)
Global Personal and Home Care Markets
Global personal care and cosmetics market is a large and lucrative consumer market, with the market size approaching USD 215 billion in 2015, expected to approach USD 301 billion by 2021 and reach USD 358 billion by 2024, with CAGR of 5.8%, skin care being the fastest growing segment at 6.7%. India personal care market is expected to grow at 7.9%.
The market of household cleaning agents was valued at USD 43.40 billion in 2015. As a mature market, it is expected to report a moderate growth of around 3.3% in the coming years. Indian household cleaning market is expected to grow at 7.2%
(Source: “Report on Chemical Industry with focus to Gujarat & Speciality Chemicals” by FICCI and Tata Strategic Management Group).
Positives for the company : Established global supplier to major FMCG brands with demonstrated track record. In Fiscal 2017, 52% of the total revenues from operations were derived from multinational customers. This reflects on the company’s ability to cater to the continual procurement needs of multinational FMCG customers across diverse geographies.
Home and Personal Care Ingredients Market
Personal Care is one of the most attractive sectors for the chemical industry – it has successfully weathered economic recession; also growing awareness for new formulations is creating new opportunities for speciality personal care ingredient suppliers. Increased consumer awareness of sun exposure side effects, the use of UV absorbers has extended to an increasing number of skin care products, ranking them among the rapidly growing markets. Skin care is the largest segment contributing 29%, followed by hair care at 21%.
The ingredients market is a USD 14 billion to USD 18 billion market with 25% made up by commodities, 35% by fine chemicals and 40% by differentiated specialities. (Source : “ Global Beauty Ingredients : New Strategic Segments for Growth” by Kline & Company).
Strong Presence in High Growth Markets of India and AMET Region :
Between Fiscals 2014 and 2017, the total revenues of Galaxy Chemicals (Egypt) S.A.E have grown at a CAGR of 22.31%, which reflects the growth in company’s market presence in the AMET region.
Further, as the facility is located in the Free Zone Area, it benefits from a concessional tax regime, and is exempt from all direct and indirect taxes and this benefit will enable them to leverage the expected growth in the AMET region in the years to come.
Factors Specific to Company
Factors in favour of the Company :
- Established Global Supplier to Major FMCG Brands with Demonstrated Track Record.
- Robust Product Portfolio Addressing Diverse Customer needs.
- Proven R&D Capabilities with dedicated focus on Innovation.
- Global Footprint Supporting Local Reach
- Strong Presence in High growth markets of India and Africa and Middle-east territory region.
- Track Record of Robust Financial Performance
Forward Looking Strategies:
- Increasing the share of Speciality care products in Sales Mix.
- Increase wallet share with existing customers and continued focus to expand customer base.
- Mutually Complimentary two-pronged strategy to drive growth in both emerging and mature markets.
Factors against the company
- Pending legal proceedings and outstanding criminal proceeding against one promoter.
- No long-term agreements with suppliers for raw materials.
- General risks applicable to Chemical Industry.
- Significant portion of revenue from few major customers.
- There had been instances in Fiscal 2013 and Fiscal 2015, where there was a negative cash flow.
- Some of the group companies have incurred losses in last preceding financial year and have negative net worth, based on last audited financial statements available.
Financials: (Rs. In Cr.)
| Particulars | FY2015 | FY2016 | FY2017 | H1 FY2018 |
| Total revenues | 1,876.0 | 1,808.8 | 2,171.7 | 1,197.3 |
| Total expenses | 1,763.7 | 1,645.3 | 1,967.4 | 1,091.6 |
| Profit after tax | 67.5 | 102.7 | 146.3 | 75.2 |
| Net margin (%) | 3.6 | 5.7 | 6.7 | 6.3 |
| Share Capital | 35.46 | 35.46 | 35.46 | 35.46 |
| Networth | 377.89 | 447.77 | 572.61 | 635.04 |
| EPS | 19.03 | 28.97 | 41.27 | 21.2 |
| ROE | 17.85 | 22.94 | 25.55 | 11.84 |
At the higher price band, the share is priced at p/e multiple of 35 of its annualised HIFY18 EPS.
Galaxy Surfactants being established global supplier to major FMCG brands with demonstrated track record has robust product portfolio & proven R&D capabilities with strong presence in high growth markets of India and AMET region.
Considering strong fundamentals, financial performance and growth potential, we recommend “Subscribe” on issue.