GALAXYSURFNSEQ4 FY 2021-22May 23, 2022

Galaxy Surfactants Limited

8,460words
161turns
9analyst exchanges
2executives
Management on call
Unnathan Shekhar
PROMOTER & MANAGING
K. Natarajan
EXECUTIVE DIRECTOR & CHIEF
Key numbers — 39 extracted
Rs.25,400
developed markets played a key role in notching up our highest quarterly EBITDA per metric ton of Rs.25,400. Contract divisions and recoveries ensured better realizations. Disruptions and inflationary scen
1%
sks that will have our attention. The home and personal care market grew in the minus 1% to 1% band globally with most of our customers registering a decline or flat volume growth. Thoug
50%
ok, the inflationary scenario has impacted consumption in Turkey and Egypt. These markets make up 50% to 55% of our AMET business. The entire decline in our Q4 volumes was due to the decline in our p
55%
inflationary scenario has impacted consumption in Turkey and Egypt. These markets make up 50% to 55% of our AMET business. The entire decline in our Q4 volumes was due to the decline in our performa
9.4%
and while we are geared up to address the same, we remain cautious. India while has registered 9.4% volume growth for FY2022, the trajectory of growth has been scaling down every quarter. We are se
rs,
specialty Capexes has started yielding results. We see this trend continuing in the coming quarters, which will ensure that we meet our stated EBITDA per metric tonne guidance of 16,000 to 18,000 per
1.4x
I am extremely delighted to share with you all about the accomplishment of our goal of becoming a 1.4x water positive company, which is a rare achievement by a chemical company. We are very, very prou
Rs.60
ow the FY2023 is going to pan out. A few questions from my side, first on the gross profit per kg Rs.60 from a Rs.44 from Q3, can you help us bridge this expansion even rough guess will do on what is
Rs.44
s going to pan out. A few questions from my side, first on the gross profit per kg Rs.60 from a Rs.44 from Q3, can you help us bridge this expansion even rough guess will do on what is the pricing rea
40%
coming months. Sanjesh Jain: Is it fair to assume that our US has grown in FY2022 upwards of 40% to 50%? K. Natarajan: In terms of their performance they have grown. Sanjesh Jain: They hav
29%
e AMET side this is the fifth quarter of a volume decline and they have declined quite sharply by 29% on a base where they have declined already 5% , it looks like a complete collapse in AMET and in
5%
me decline and they have declined quite sharply by 29% on a base where they have declined already 5% , it looks like a complete collapse in AMET and in the last few quarters I could have understood
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Guidance — 20 items
Unnathan Shekhar
opening
“A volatile supply-side combined with cutback in demand due to downtrading will be the potential downside to our business model in the coming year.”
Unnathan Shekhar
opening
“FY2023 we believe will be all about effective risk management and capitalizing on every metric tonne of volumes to ensure sustainable growth.”
Unnathan Shekhar
opening
“We see this trend continuing in the coming quarters, which will ensure that we meet our stated EBITDA per metric tonne guidance of 16,000 to 18,000 per metric tonne with a higher probability of us remaining in the upper band.”
K. Natarajan
qa
“Yes, we do see that continuing okay, except that I would like the word of caution because we are also seeing that inflationary pressures are impacting the US as well, so how that market pans out or how the consumer demand will get impacted because inflation is the question that none of us are able to answer now, but if I see as of today I expect these things to continue because everything remaining same.I do not see why this can’t continue”
K. Natarajan
qa
“What I would respond Rohan is that we improved our guidance from Rs.15,000 to Rs.17,000 per metric tonne to Rs.16000 to Rs.18000 tonne and then if you see now we had told in the last investor call that we would come back, we were lower than Rs.16,000 per metric tonne for the nine months and we said we will get back to 16,000 to 18,000 tonne at the full year level, which has happened because of what we did in Q4.”
Rohan Gupta
qa
“Sir, any particular reason that still we will not change the guidance to slightly on maybe 20,000?”
K. Natarajan
qa
“If the harvest is good and there is a good liquidity in the hands of the rural population we do see that the demand is not going to be significantly impacted, so we need to see the ability to observe the various moving parts and we think these things all have to play out very well and that is why we say that in the next three to four months will tell us the story as to how things will look going forward.”
Unnathan Shekhar
qa
“This year, we do not expect these ratios to significantly alter, but AMET is something that can be a little muted.”
Rohan Gupta
qa
“Sir, as far as the surfactants business is concerned, we have done a significant capex in last year completed and we see that this year was a ramp up year for the specialty chemical business, what kind of growth one can expect in FY2023 from our specialty chemical business because given that we do not have any capacity constraint now?”
Unnathan Shekhar
qa
“See, normally as we say when we build the capacity for horizon in the specialty for something like 7 to 8 years or so, so there will be progressive growth as far as these products are concerned, so we have seen the first leg of growth in last year and this will continue, this momentum will continue.”
Risks & concerns — 14 flagged
While EBITDA per metric tonne and profitability improved remarkably quarter-on-quarter the volume decline is something to be noted and cautiously managed.
— Unnathan Shekhar
The home and personal care market grew in the minus 1% to 1% band globally with most of our customers registering a decline or flat volume growth.
— Unnathan Shekhar
A volatile supply-side combined with cutback in demand due to downtrading will be the potential downside to our business model in the coming year.
— Unnathan Shekhar
FY2023 we believe will be all about effective risk management and capitalizing on every metric tonne of volumes to ensure sustainable growth.
— Unnathan Shekhar
The entire decline in our Q4 volumes was due to the decline in our performance surfactants business in these markets.
— Unnathan Shekhar
The situation remains muted in the short-term and while we are geared up to address the same, we remain cautious.
— Unnathan Shekhar
As John Allen Paulos, a famous professor said, “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security,” amidst these uncertain times we continue to focus on our internal stability and march ahead steadily and with firm result.
— Unnathan Shekhar
What I was trying to explain was, these are specialty highly special cosmetic proteins, so what can happen is that if the inflation situation continues to be very high you can have consumers starting to downtrade so that can be a risk there, although that is something that may not happen quite suddenly.
— K. Natarajan
What was the learning from ourselves because this happened in Turkey in 2019 alsoright, where we saw two quarters of sharp decline and then we smartly bounced back.
— Sanjesh Jain
First correction is the market is so volatile that we are not reading, we are only watching, so if you see it went up significantly because of that Indonesia stuff and then it started correcting downwards, then again it went up because of the ban that Indonesia put.
— K. Natarajan
If you see the last 15 years this volatility has been a part of this commodity industry and particularly with respect to palm and palm kernel oil, so as we said the bottomline for us is that the way to grow our business is to have effective risk management with respect to our feedstocks and that is what Galaxy has been doing over the last 10 years.
— Unnathan Shekhar
We have gained our skills with respect to effective risk management on this and we do not believe in predicting what will happen whether feedstock prices will go up or go down, for us the constant is how we manage this risk.
— Unnathan Shekhar
On the risk management part, so how are the contracts that are happening on that side as far as procuring Lauryl alcohol?
— Anubhav Sahu
I cannot say how we manage it because that is something that is proprietary to us, but it is suffice to say that it is ensuring that we did not have any open positions which are something that we cannot digest in case a big correction happens that is the way risk is managed.
— K. Natarajan
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Q&A — 9 exchanges
Q
Good afternoon everyone. First of all, congratulations on exceptional performance and Shekhar, Sir, opening remark, which gives a lot of confidence and how the FY2023 is going to pan out. A few questions from my side, first on the gross profit per kg Rs.60 from a Rs.44 from Q3, can you help us bridge this expansion even rough guess will do on what is the pricing realignment benefit, what is the mix improvement benefit, what is the gain on some inventory and any other factor, which has helped because this expansion in a quarter looks quite sharp for us and how much of it should be a sustainable
K. Natarajan
Yes, Sanjesh, Good afternoon. So, if you look at the margin expansion that has happened we had said there have been three factors, so what I like to say about the inventory gains and the recovery is that we have started getting a new contract and the mix improvement that happened in terms of our specialty ingredient getting better in the last quarter were the major reasons for this gross margins to go up to Rs.60 per kg. It is also important to note that our US subsidiary TRI-K has been doing exceptionally well given that the US market has been pretty robust, and they have been able to get the
Q
Good afternoon and thanks for the opportunity and Shekhar Sir thank you very much for sharing all those insightful wisdom quotes in your opening remark that is great.
Unnathan Shekhar
All the credit goes to our team. Sir, definitely they have done a remarkable job in linking all those quotes with our current performance of the company. A few questions from my side, the first is on this EBITDA per tonne or gross margin per tonne, definitely, it is unheard journey improvement in such a small period of time from EBITDA of almost Rs.12,000 to Rs.13,000 couple of quarters back to Rs.25,000 driven by gross margin, we have seen that how the Galaxy’s journey has been from almost Rs.12,000 average margins to 15 to 18 sustaining there and now we have seen this unheard Rs.25,000 per t
Q
Thanks for the opportunity. Couple of questions, one is in previous quarters you have also mentioned that volume is getting impacted because of supply issues in terms of timely availability of raw material something like that, how is the situation on that front, are we still getting impacted on that front?
K. Natarajan
The situation did improve in Q4, but because of the Russia-Ukraine issue and also because of this very, very stringent lockdown in China we suddenly again see presenting new challenges and we are already seeing that, so we do hope that it will take another about two months with something new not happening for things to resolve itself, so we were pretty happy in the beginning of Q4 the things are getting resolved, but these two events again started complicating the international logistics scenario and thereby also creating issues on the supply side. By anyway can you quantify this impact, in te
Q
Thank you for taking my question, Sir and congratulations for a good set of numbers. So, some of my questions were already answered, one obviously we know that there would be some contract revision in this January period commissioning of this new year, so out of how much total contracts being revised and let us say contracts to be realigned with the current existing price or we should be having all those contracts has been already realigned to the current market price?
K. Natarajan
There is nothing like our contact will happen only in the beginning of the calendar year, so there are contracts starting at various periods during the year, so it is not that the contracts that start getting only at the beginning of January, so there are lot of contracts that keep happening at various times of the year depending on the products and the customers, so what we would need to know is that we are ensuring that every contract is properly renegotiated to take care of the current scenario. What we are probably seeing also in the current scenario is that the long-term contracts, which
Q
Thanks for the opportunity and congrats on a very good Q4. Sir first question again on the volumes front, I understand since our IPO we had been saying that our volume growth will be in the range of 6% to 8%, last two years have been quite challenging, FY2023 also you just suggested that would be a challenging and we are not having any clarity, but instead of having this volume growth, which will probably be skewed towards specialty care products where the volumes will be lesser for the incremental quantities like mild surfactants, etc., however, the pricing and EBITDA would be far better than
K. Natarajan
On EBITDA we said that the guidance will be at Rs.16,000 to Rs.18,000 per metric tonne and we said if you look at a positive side we probably will be in the upper end of the band. I am talking about absolute EBITDA in items of not EBITDA per ton? Absolute EBITDA I do not think we will be able to give that guidance. Fair enough Sir. No worry. Sir, the second question is in terms of our product basket or diversification, so earlier we had gone into adjacencies like TRI-K acquisition where it is into proteins and high end products, so any such adjacencies are there for us to venture into that is
Q
Sir, my questions is on the working capital of the company so we see a lot of deterioration in the operating cash flows of the company primarily because the company is being invested in the inventories and receivables, so can you give us some clarity on where does the company stand in terms of trade since we have structurally changed our inventory days or inventory levels and payment terms or is it just a transitionary phase which we are witnessing right now?
Ganesh Kamath
See, in case of working capital it is essentially a function of what the dynamics of the market is today. Earlier also we have said higher price values will result in higher monetary working capital I think during the discussion we have said that right, it is a feature, now the price levels are impacted that is one. The second is transit times and the third is essentially raw material uncertainties have resulted in procurement of raw material from those sources which are not regularly resulting in advancement, these are temporary factors and once they cease to exist this liquidity will get rel
Q
Good afternoon, Sir. I wanted to understand the debt, that has been increased this year, where that has been allocated and the capex that you mentioned about 150 to 200 Crores next year wherein we will be using that and the 150 Crores that we used last year, where did we use that?
K. Natarajan
We were not able to hear you clearly, can you repeat your question, and we were not able to hear you clearly? I will go step by step, firstly, the debt that we have? What you say the debt is increased? The short-term debt size if you see is about 290 Crores. That is on an account of two things, the cash generation has gone into the working capital which has been expressed right, but the debt equity ratio has not changed it remains as it is. That has not changed; this is for working capital requirement? What we have mentioned earlier in the last question is that the entire cash generation that
Q
Regarding the performance surfactants how is the demand now versus the COVID times, whether it gone back all the way to 2019?
Unnathan Shekhar
The demand certainly as we said there has been a cutback, your inflation has certainly had an impact on consumption, our customers and that is FMCG manufacturers that is home and personal care manufacturers have resorted to maintain their magic price points by reducing grammages. That is how they are trying to serve the customer so that they are able to retain the customers albeit with the volume really impacted at their end, so this is going to be certainly an issue on a situation while the commodity prices remain very high, once the commodity prices start correcting I think we should see we
Q
Thank you very much ladies and gentlemen. See you again in another 90 to 100 days, thank you.
K. Natarajan
Thank you all of you. Thank you so much.
Speaking time
K. Natarajan
40
Unnathan Shekhar
27
Sanjesh Jain
17
Abhijit Sinha
15
Rohan Gupta
13
Moderator
12
Anubhav Sahu
8
Rohit Sinha
6
Bob
6
Rohit Nagraj
5
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Opening remarks
Unnathan Shekhar
Thank you. A very good afternoon, ladies and gentlemen. It gives me immense pleasure to welcome you all for our final quarterly earnings call for FY2022. Nicholas Taleb in his famous quote summarizes in one statement what happened in the year 2021-2022. He says 'Fragility is the quality of things that are vulnerable to volatility.’ Taking from this if we were to summarize 2021-2022 in one statement, we would say it was the year that separated the best from the rest, differentiated fragile from robust and tested the vulnerabilities of every business model. While the year began on an optimistic note, supply-led volatility on account of feedstock shortages, shipment delays, rising freight costs and feedstocks adversely impacted our performance in the first 9 months of this financial year. Though the situation exacerbated on account of Russia-Ukraine war and the Chinese lockdowns, our Q4 performance clearly reflects the robustness of our business model. But we need to understand the crux o
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