Galaxy Surfactants is a leading manufacturer and marketer of surfactants and specialty chemicals in India for the personal and home care (PHC) industry. It has a portfolio of 66 products having applications in skin care, hair care, oral care, body wash, household cleaners and fabric care segments with sales spread over 70 countries. It currently has six manufacturing units out of which one is in the US.
Galaxy has come out with the IPO to set up new units and expand existing capacity. It plans to deploy issue proceeds of up to Rs 200 crore towards setting up new manufacturing units at Jhagadia, Gujarat and at Suez, Egypt. Both these facilities are expected to become operational by August 2011. It is also expanding its existing units in Tajoja and Tarapur by November 2011 and May 2012 respectively. These projects are estimated to cost about Rs 350 crore, with the balance Rs 150 crore coming from loans.
STRENGTHS
With a market share of over 60 per cent, Galaxy is a leader in the Indian personal care performance chemicals segment with a wide range of products. The company is well poised to tap the growth opportunities in the global personal and home care segments. Galaxy's upcoming facility in Egypt will enable it to capture the demand in high-growth markets like Africa, West Asia and Latin America, and drive growth in future.
| FIRM GROWTH | |||
| in Rs crore | FY09 | FY10 | 9MFY11E |
| Sales | 569.3 | 649.8 | 682.4 |
| Ebitda margin (%) | 11.3 | 12.7 | 12.5 |
| Profit after tax | 26.8 | 37.9 | 42.8 |
| Source: Company RHP | |||
| ISSUE DETAILS | |
| Price (Rs) | 325-340 |
| Size (Rs crore) | 193-202 |
| Opened on | 13-May |
| Closes on | 19-May |
| Crisil grading | 4/5 |
Both its upcoming manufacturing units are strategically located, allowing it to manage its supply chain effectively. It is also focussing on developing more products in the higher margin speciality chemicals space. Acquisition of TRI-K & Maybrook in FY10 will enhance its presence in the US as well as add new products like protein and protein derivatives, sunscreen formulations and botanicals to its product portfolio.
While the management has good experience, the company can also leverage on its strong and long standing relationship with leading global and domestic brands like Henkel, L’Oreal, Reckitt Benckiser, Unilever, Ayur, CavinKare, Dabur, Emami, ITC, Marico, P&G Home Products, to drive future growth. It also has strong R&D facilities and has applied for nine (eight in India and one in Europe) patents, which will strengthen its existing list of 28 patents (18 in India and 10 in the US).
SOME RISKS AS WELL
Galaxy faces high client concentration risk (66 per cent revenues from its top ten customers) and loss of one or more of these customers may impact its financials. It is also dependent on a single supplier for one of the raw materials — ethylene oxide. Any disruption in supply could impact its business. The company has limited experience in Egypt, which was recently in turmoil. Hence, any delay or cost overruns could impact its profitability.
That apart Galaxy is a small player in the global surfactants market with a share of less than one per cent. Thus, its ability to compete effectively with companies like Huntsman Corporation, Rhodia, Stepan Company, BASF Corporation, will determine its success in global markets, and growth trajectory.
VALUATIONS
Galaxy's consolidated revenues and net profits have grown at a compounded rate of 29.8 per cent and 20 per cent, respectively over FY08-FY10, with Ebitda margins steady at around 12 per cent. In fact, it has already crossed its 2009-10 performance in the first nine months of 2010-11. After annualising 2010-11 nine months profits, the PE stands at 13.5 times (at lower price band) on the post issue capital.
While there are no strict comparables, the same is higher than nine times for domestic specialty chemical players like Vinati Organics, which though smaller have better margin profile and have been growing at a good pace.
