GALAXY SURFACTANTS . ‘Buy,

Shareholding Pattern Particulars FEB’17 Promoter 70.9% FPIs 4.5% Insti. 5.5% N. Insti. 19.1%

Relative Capital Market Strength

• Galaxy Surfactants Limited is an India-based company, which is engaged in manufacturing and marketing surfactants and specialty chemicals for personal and home care industry.

• The Company produces a range of vital cosmetic ingredients, including active ingredients, ultra violet (UV) protection and functional products. Its products cater to various brands in the fast moving consumer goods (FMCG) sector and offers in various applications, including skin care, hair care, oral care, body wash, sun care, household cleaners and fabric care segments.

• It offers its products under various categories, such as mild surfactants, including sodium Cocoyl Isethionate, Alkyl Polyglucoside and Sodium Lauryl Sarcosinate; surfactants, including Betaines and Lauryl Alcohol Eithoxylates; rheology modifier, including Cocomonoethanolamide and Cocodiethanolamide; conditioning agents, including PEG-7 Glyceryl Cocoate and Polyquaternium-7; UV absorbers, including Octyl Methoxy Cinnamate and Octocrylene.

GALAXY SURFACTANTS LTD

1

Feb 28,2018

Rating Matrix

CMP Rs. 1627.1

Rating Buy

Holding Period 12 to 18 Months

Current Level Investment

52 week H/L Rs. 1742..8/1520

Upside Potential 25%

Face value Rs 10

Sector Speciality Chemicals

Category Mid cap

F&O Stock No

Financial Highlights:

Particulars (Rs. Mn) FY13 FY14 FY15 FY16 FY17

Revenue from operations 15,807.40 16,972.90 18,739.30 18,019.10 21,613.40 EBITDA (Excl OI) 1,197.10 2,155.20 1,896.70 2,327.50 2,676.90 EBITDA Margin (%) 7.6% 12.7% 10.1% 12.9% 12.4% PAT 2.8 760 674.60 1,027.20 1,463.10 NPM (%) 0.02% 4.48% 3.60% 5.70% 6.77% ROCE (%) 14.1 28.8 26.4 27.8 29.8 ROE (%) 0.1 23.6 17.9 22.9 15.6 P/E

EPS 0.08 21.23 19.18 28.53 41.27

EV/EBITDA 4.10 1.95 2.41 1.79 1.44

P/BV

Company Synopsis: • Galaxy is planning to focus more on specialty care products, which has higher margins as

compared to performance surfactants. Its specialty care products are used in sunscreens lotions, fairness creams and other personal care products.

• Galaxy has also applied for an aggregate of 38 patents globally, of which 21 applications has been made in India and an aggregate of 17 applications has been made for the registration of patents in Brazil, China, the European Union, Russia and USA.

Outlook: • The market for personal and home care products in India is expected to grow at 7.9% and

7.2% CAGR by 2024. Further, the aggregate market for personal and home care products in Africa and the Middle East is expected to grow at 4.4% CAGR by 2024. Galaxy with its presence in these mature and emerging markets is expected to benefit from increased demands. The company’s product are the ingredients for the personal and home care products, whose demand are inelastic in nature i.e. end users demand is hardly impacted by the change in the product price.

• Thus the company’s products will continue to be in demand and would have minimal impact from the financial position of the end users Going forward, Galaxy is planning to focus more on specialty care products, which has higher margins as compared to performance surfactants. Its specialty care products are used in sunscreens lotions, fairness creams and other personal care products. Going forward, with longer summer duration and increasing awareness of personal care, the strategy of the focusing on the specialty products augurs well for the company as this would assist in expanding the profitability margins.

• The manufacturing facility in Egypt was established in 2011 and enjoys a concessional tax regime for around 25 years. Pursuant to which it is exempted from all the direct and indirect taxes. Additionally, it has a manufacturing facility in the USA, which is engaged into the manufacturing of various grades of proteins for cosmetic applications. Over here also, the company would benefit from the proposed lower corporate tax rate (from 35% to 20%) by the USA government.

Valuations :There are no listed companies in India, which is engaged in the line of business similar to Galaxy, we have taken the above companies as the proxy peers for it. At the CMP of Rs. 1627.1 per share, Galaxy’s share is valued at a P/E multiple of 39.4x which is at a premium to the peer average of 21.4x. Sighting companies future potential we assign buy rating : .

Revenue Segmentation

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Galaxy Surfacants LimitedSensex

0.00%

5.00%

10.00%

15.00%

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FY13 FY14 FY15 FY16 FY17

Margins (%)

EBITDA Margin (%) NPM (%)

67%

33%

Performance SurfacantsSpeciality Care Products

2 Source: Choice Research/ Annual reports; Financial data-Ace equity

Particulars (Rs. Mn) FY13 FY14 FY15 FY16 FY17 Revenue from operations 15,807.40 16,972.90 18,739.30 18,019.10 21,613.40 Gr (%) - 7.37% 10.41% -3.84% 19.95% EBITDA (Excl OI) 1,197.10 2,155.20 1,896.70 2,327.50 2,676.90 EBITDA Margin (%) 7.6% 12.7% 10.1% 12.9% 12.4% PAT 2.8 760 674.60 1,027.20 1,463.10 NPM (%) 0.02% 4.48% 3.60% 5.70% 6.77% Net Worth 2,413.20 3,222.60 3,778.90 4,477.80 5,726.20 Total Assets 9,556.90 10,240.80 10,602.80 11,092.30 12,853.80 Debt 3598.1 3249.1 3`554.2 3221.7 3081.4 Cash flow from Operations 761.5 1,707.90 593.60 1,841.80 1,128.60 D/E (x) 1.5 1.1 1 0.8 0.6 Current Ratio (x) 1 1.1 1.1 1.3 1.4 Profitablity ratios (%) ROCE (%) 14.1 28.8 26.4 27.8 29.8 ROE (%) 0.1 23.6 17.9 22.9 25.6 ROA (%) 0 7.4 6.4 9.3 11.4 Efficiency ratios (x) Receivable days 36.64 39.35 39.76 45.99 48.42 Inventory days 45.28 42.98 44.49 46.99 44.91 Payable days 53.66 49.01 44.03 42.84 42.8

Companies Currency CMP ROE (TTM) 12M% M. Cap

(Rs. Mn) EPS

(TTM) BVPS

EBIDTA Margin (%)

NPM (%)

Galaxy Surfactants Limited INR 1627.1 25.6% 33.7 57680.7 41.3 161.5 12.5% 6.8%

BASF-SE EUR 86.9 12.9% 57.3 79817.7 5.6 35.4 19.3% 8.1%

SOLVAY SA EUR 115.7 7.3% 48.7 12252.6 11.0 91.7 22.4% 9.8%

Stepan Company USD 80.6 14.5% 36.3 1812.6 4.0 32.6 11.2% 4.8% Average 16.3% 7.4%

Companies Currency P/E (x) P/Bv (x) P/Sales(X) EV/EBIDTA

(x) D/E

PAT(Rs. Mn) (TTM)

EBIDTA(Rs. Mn) (TTM)

Sales (Rs. Mn) (TTM)

Galaxy Surfactants Limited INR 39.4 10.1 2.7 20.9 0.5 1,463.00 2,708.50 21,613.40

BASF-SE EUR 15.5 2.5 1.3 8.6 0.5 5,152.10 12,186.00 63,222.00

SOLVAY SA EUR 10.5 1.3 1.0 6.4 0.5 1,163.40 2,658.00 11,889.00

Stepan Company USD 20.0 2.5 1.0 9.1 0.5 90.60 210.00 1,871.80

Average 21.4 4.1 1.5 11.3 0.5

Proxy Peer Comparison:

Financial Snapshot:

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Source: Choice Research/ Annual reports; Financial data-Ace equity

Company Intro & Major Highlights • Galaxy is one of the 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, inter alia, skin care, oral care, hair care, cosmetics, toiletries and detergent products. Since its incorporation in 1986, the company has significantly expanded and diversified its product profile, client base and geographical footprint. Galaxy’s customers include some of the leading multinational, regional and local players in the home and personal care industries. Currently, the company’s product portfolio comprises over 200 product grades, which are marketed to more than 1,700 customers in over 70 countries.

• Galaxy’s products are organized into the following product groups: • Performance surfactants: Its portfolio of performance surfactants comprises over 45 product grades, and includes anionic

surfactants and non-ionic surfactants; and • Speciality care products: Galaxy’s specialty care products group comprises over 155 product grades, and includes

amphoteric surfactants, cationic surfactants, UV filters, preservatives, preservative blends and surfactant blends, specialty ingredients such as mild surfactants, syndet and transparent bathing bars and proteins, fatty alkanolamides and fatty acid esters, and other care products.

• In addition to domestic sales in India, the company has significantly increased its geographical footprint in recent years by focusing on certain emerging markets such as AMET. Its step-down subsidiaries, coupled with manufacturing facilities in Suez (Egypt) and New Hampshire (USA), enable it to service the international demand for its products. Galaxy has set-up sales offices in India, Egypt and USA, and representative offices in Netherlands and Turkey so as to get enabled to market its products as well as understand customer needs in these regions, and consequently, develop products to service such requirements.

• At present, the company has seven strategically located manufacturing facilities, out of which five are located in India and two are located overseas. It has also have setup one pilot plant at Tarapur, Maharashtra, for the scaling up of new products and processes from lab-scale to plant-scale. Out of its five manufacturing facilities in India, three are located at Tarapur (Maharashtra), one is located at Taloja (Maharashtra) and one is located at Jhagadia (Gujarat). Many of its key customers have audited and approved the manufacturing facilities and processes, which has helped the company to establish its reputation and reliability as a supplier of high-quality products and customized solutions, and also enabled it to receive recurring business as well as attract new customers.

Subsidiary Information

Major Highlights : • Galaxy is one of the India’s leading manufacturers of surfactants and other specialty ingredients for the personal care and

home care industries. , it has a dominant market position in the industry. Its products find application in a host of consumer-centric personal care and home care products such as skin care, oral care, hair care, cosmetics, toiletries and detergent products. Its products find application in a host of consumer-centric personal care and home care products such as skin care, oral care, hair care, cosmetics, toiletries and detergent products.

• Company has 200 product grades marketed to 1700 customers in over 70 countries As of FY17 end, it derived 35% of the gross revenue from the domestic customers, while the rest was derived from overseas markets. Around 52% of the revenue was generated from the multinational customers.

• Galaxy’s customers include some of the leading multinational, regional and local players in the home and personal care industries. The company’s customer base comprises a host of multinational, regional and local FMCG companies, which includes Cavinkare Pvt. Ltd., Colgate-Palmolive (India) Ltd., Dabur India Ltd., Henkel, Himalaya, L’ORÉAL, Procter & Gamble Home Products Pvt. Ltd., Reckitt Benckiser, Ayur Herbals (Pvt.) Ltd., Jyothy Laboratories Ltd. and Unilever

Name of Subsidary Reporting Currency Exchange rate Country % of holding Turnover ( RS in cr) PAT( Rs in cr)

Galaxy Chemicals Inc USD 64.85 USA 100 - -0.04

Galaxy Chemicals Inc USD 64.85 Mauratius 100 - 1.79

Rainbow Holdings GmbH Euro 69.29 Germany 100 - -1.14

Galaxy Chemicals (Egypt) SAE USD 64.85 Egypt 100 600.3 27.3

TRI-K Industries Inc. USD 64.85 USA 100 263.7 13.19

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Major Highlights ( Continued) • The company had an aggregate installed capacity of around 0.35mn tonnes spread across seven strategic locations. Five

manufacturing facilities are located in India and one each in the USA and Egypt. Through its facility in Egypt, Galaxy is able to address the needs of AMET, Europe and American markets. Thus its global network of manufacturing and sales activities helps it in reducing the dependence on any product and geography. Additionally, these capacities are operating at an average utilization of around 60%, thereby providing enough scope for production ramp-up.

• Since 2002, a total of 47 patents have been granted to the company. Galaxy has also applied for an aggregate of 38 patents globally, of which 21 applications has been made in India and an aggregate of 17 applications has been made for the registration of patents in Brazil, China, the European Union, Russia and USA

Companies Strengths : • 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 AMET region • Professional and experienced management team • Track record of robust financial performance Business Strategy: Increasing the share of specialty care products in the sales mix •Continue to focus on R&D and product innovation •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 •Continue improving financial performance through operational efficiencies and functional excellence

Risk and Concerns:

•Subdued domestic economic expansion •Volatility and availability of key raw materials •Unfavorable sales-mix •Difficulty in identifying and adapting the changes in the consumer preferences and tastes •Exchange rate risk

52%

8%,

40%

Multi national Customers Regional Customers

Local Customers

Revenue Segmentation based on Customer

42%

52%

Domestic Export

Export Revenue

Choice’s Rating Rationale The price target for a large cap stock represents the value the analyst expects the stock to reach over next 12 months. For a stock to be classified as Outperform, the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months. Stocks between these bands are classified as Neutral. Don’t be an Investor by Force, Be an investor by CHOICE

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suggested stock.

customercare@choiceindia.com

Fundamental Research Team

Name Designation Email id Contact No.

Sunder Sanmukhani Head-Fundamental Research sanmukhanis@choiceindia.com 022 - 6707 9910

Satish Kumar Research Analyst satish.kumar@choiceindia.com 022 - 6707 9913

Rajnath Yadav Research Analyst rajnath.yadav@choiceindia.com 022 - 6707 9912

Aman Lamba Research Associate aman.lamba@choiceindia.com 022 - 67079917

Dhruv Thakkar Research Associate dhruv.thakkar@choiceindia.com 022 - 67079916

Shrey Gandhi Research Associate shrey.gandhi@choiceindia.com 022 - 67079914

Rahul Agarwal Research Associate rahul.agarwal1@choiceindia.com 022 - 67079915

Aditi Damani Research intern 022- 67079916

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OUR TEAM

Disclaimer

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