Galaxy Surfactants’ IPO Opens Today: All You Need To Know

Galaxy Surfactants Ltd.’s three-day initial public offer opens today as the promoters and investors sell shares in the maker of ingredients for personal and home care products.

The chemicals maker will raise close to Rs 937 crore by selling shares at Rs 1,470-1,480 apiece. At the upper band, the company will be valued at Rs 5,200 crore. The IPO is an offer for sale by existing shareholders and the company is not raising capital.

Business

Galaxy Surfactants is India’s leading maker of surfactants—raw materials for personal hygiene and sanitation products—and speciality ingredients—used in sunscreens, fairness creams and other such products. It supplies ingredients to more than 70 countries and generates nearly 65 percent of its revenue from overseas sales.

The company counts the likes of Cavinkare, Colgate-Palmolive (India), Dabur India, Henkel, Himalaya, L’Oreal, Procter & Gamble, Reckitt Benckiser, Ayur Herbals, Jyothy Laboratories and Unilever among its major clients. It has been supplying products to each of its top 10 clients for more than five years and earned about 59 percent of its sales from them in the first half of the year to March.

The chemicals maker has seven manufacturing facilities—five in India and overseas. The plants operated at an average capacity utilisation of 62.5 percent for the first half.

Raw material is the key cost component for Galaxy Surfactants. Since it imports most of it from South East Asia, Germany, the U.S. and Japan, any foreign currency fluctuations or changes in raw material prices impact its operating margins.

Financial Highlights

The net worth of the company, as of Sept. 30, was close to Rs 635 crore, translating into a book value of Rs 179 per share post listing.

• Galaxy Surfactants’ revenue has grown at an annualised rate of 8.4 percent in four years to March 2017, while the net profit grew at 24.4 percent during the period.
• Its revenue and net profit stood at Rs 1,192 crore and Rs 75 crore, respectively, in the first half of the year ending March.

• Earnings before interest, tax and depreciation and amortisation rose at a CAGR of 7.5 percent, while the margin remained close to 12 percent. Ebitda and Ebitda margin stood at Rs 140 crore and 11.8 percent, respectively, in the first half.
• The double-digit profit growth is aided by reducing interest burden over the period.

• Galaxy Surfactants has a total debt of close to Rs 402 crore.
• The company’s working capital cycle rose in the financial year ended March 2017 to 69 days. A company with a longer cycle usually faces cash-flow difficulties and has to deploy additional funds to manufacture products.

• It has healthy return ratios, annualised for financial year 2017-18.
• The company consistently paid dividend in the last five years.

Valuations

Galaxy Surfactants has no listed peer. Among the few surfactant makers in India are Godrej Industries Ltd., India Glycols Ltd. and Aarti Industries Ltd.

Its earnings per share for the year ending March is Rs 42.4 and, at the upper end of the price band, it trades at 35 times its earnings, according to BloombergQuint’s calculations.

Shareholding Pattern

After the share sale, the promoter holding will fall to 71 percent from 79 percent.

Brokerage Take

Angel Broking

• Expect the company to maintain a 20 percent-plus growth trajectory in the coming few years, given the growing personal care market and increasing product offerings and geographies.
• Recommends ‘Subscribe’ for a mid- to long-term period.