IPO Note on Galaxy Surfactants Ltd. by Atish Matlawala, Senior Analyst, SSJ Finance & Securities Pvt Ltd.
Galaxy Surfactants Limited (Galaxy) is one of India's leading manufacturers of surfactants and other specialty ingredients for the personal care and home care industries. Its products find application in a host of consumer-centric personal care and home care products, including skin care, oral care, hair care, cosmetics and detergent products.
Established global supplier to major FMCG brands with demonstrated track record
Galaxy has evolved from being a local supplier to now a global supplier to FMCG companies across major geographies, such as India, Africa, Middle East Turkey (AMET), Americas (North and South) and Europe. Its sticky customer base comprises a host of major FMCG companies like Cavinkare, Colgate, Dabur, Henkel, L'ORÉAL, P&G and Unilever. It enjoys relationships in excess of 5 years with each of its top ten customers. Further, the product approval cycle goes beyond 2-3 years creating a moat for Galaxy to keep the competition under check.
Focus on high margin specialty segment and strong R&D capabilities
The company is focusing on high margin specialty care segment by cross selling to its existing strong customer base for Performance Surfactants. Moreover, growth in mature markets such as USA and Europe will come largely from Specialty Care Products. Accordingly, margins are likely to sustain at 12.5%+ level. The company also has strong R&D focus reflected in its 47 patents which helps in customizing products as per customer requirement and foraying in new product categories.
Strong presence in high growth markets / segments
Indian personal care products industry (India forms 34% of its revenue) is expected to grow at a CAGR of 8%, to touch $ 22.5 bn by 2024. AMET region forms ~44% of its revenue and has grown by 22% CAGR over FY14-17. Growth in these regions is expected to be robust owing to growing personal care market and focus on premium quality products. Further, its acquisition of Tri-K Industries in USA in FY10 significantly enhanced its product portfolio of specialty care products and its technological capabilities whilst also extending its reach in the developed markets of USA.
Galaxy has reported a CAGR of 8.4% and 24.4% on revenue and net profit fronts respectively over FY2014-2017. On its upper band of price of Rs 1480, the issue is priced at PE ratio of 34.9x of its H1FY2018 annualised EPS of Rs 42.4. We believe that the IPO is fairly priced leaving a room for upside. Hence, we recommend to Subscribe the IPO.