GALAXYSURFNSEQ2 FY 2022-23November 17, 2022

Galaxy Surfactants Limited

7,260words
88turns
11analyst exchanges
4executives
Management on call
Unnathan Shekhar
PROMOTER AND MANAGING DIRECTOR, GALAXY SURFACTANTS LIMITED
Vaijanath Kulkarni
GALAXY SURFACTANTS LIMITED
K. Natarajan
GALAXY SURFACTANTS LIMITED
Abhijit Damle
GALAXY SURFACTANTS LIMITED
Key numbers — 37 extracted
50%
r defense. In a half there we have seen fatty alcohol prices and freight rates correct upwards of 50% along with the contraction and demand, a good defense that is robust risk management, a diverse p
100%
cious price calls, combined with experience acquired over decades enabled us to deliver an almost 100% growth in profits for Q2 and 55% for the first half vis-à-vis H1 of FY22, thus enabling the momen
55%
xperience acquired over decades enabled us to deliver an almost 100% growth in profits for Q2 and 55% for the first half vis-à-vis H1 of FY22, thus enabling the momentum garnered in Quarter 4 of fina
8%
tors influencing it. India continues to remain a bright spot for us. While the volumes have grown 8% for Q2 and 5.5% for H1, the bigger picture is what pleases us. Today we are on course to touch In
5.5%
ng it. India continues to remain a bright spot for us. While the volumes have grown 8% for Q2 and 5.5% for H1, the bigger picture is what pleases us. Today we are on course to touch India’s 100,000 me
3.5%
healthy. The Africa, Middle East, Turkey region has been a concern. The overall volumes declined 3.5% for H1 FY23 primarily due to the 19% decline in Africa, Middle East, Turkey volumes. The local Eg
19%
y region has been a concern. The overall volumes declined 3.5% for H1 FY23 primarily due to the 19% decline in Africa, Middle East, Turkey volumes. The local Egypt market which makes up for approxi
33%
e in Africa, Middle East, Turkey volumes. The local Egypt market which makes up for approximately 33% to 45% of our total AMET volumes, has been experiencing significant headwinds on account of curre
45%
rica, Middle East, Turkey volumes. The local Egypt market which makes up for approximately 33% to 45% of our total AMET volumes, has been experiencing significant headwinds on account of currency dep
14%
we remain optimistic about FY24. The rest of the world has been a mixed bag for us registering a 14% growth over Q2 and 3.6% for H1 FY23. While US and Asia Pacific markets have been stable, the slow
3.6%
bout FY24. The rest of the world has been a mixed bag for us registering a 14% growth over Q2 and 3.6% for H1 FY23. While US and Asia Pacific markets have been stable, the slowdown in Europe needs to
Rs. 22,000
outlook, let me dwell a bit more on the EBITDA per metric ton which has been consistently in the Rs. 22,000 to Rs. 26,000 metric tons for the past three quarters well above our guided EBITDA of Rs. 16,000 t
Advertisement
Guidance — 20 items
Unnathan Shekhar
opening
“The sales stood at 69,261 metric tons in FY18, thus growing at an 8% CAGR for the past 5 years.”
Unnathan Shekhar
opening
“Basis this performance, we can safely conclude that the structural optic we witnessed during COVID has not only been sustained but as inflationary pressures ease, we can expect further momentum.”
Unnathan Shekhar
opening
“This will be particularly true as the AMET volumes recover.”
Unnathan Shekhar
opening
“22,000 to 25,000 per metric tons for the past three quarters, we would like to revise our EBITDA guidance for the year to Rs.”
Unnathan Shekhar
opening
“Having said that we aspire for a 2% to 3% volume growth.”
Unnathan Shekhar
opening
“While we never issue any half-yearly or yearly guidance, this is being done to give a true picture of the current situation.”
Unnathan Shekhar
opening
“Going ahead we will always aspire for a 6% to 8% volume growth with EBITDA growth being 300 to 400 bps above it and ROCE of a minimum 22%.”
Sanjesh Jain
qa
“We have changed our guidance for EBITDA and volume, one for better and one for inferior from the long-term perspective.”
Unnathan Shekhar
qa
“Nobody can forecast the future regarding the industry's growth or decline.”
Unnathan Shekhar
qa
“We would expect once some stability comes into the world scenario, the volumes will pick up with respect to all the segments whether it is Mass, Mass-tige or Prestige.”
Risks & concerns — 15 flagged
The Africa, Middle East, Turkey region has been a concern.
— Unnathan Shekhar
The overall volumes declined 3.5% for H1 FY23 primarily due to the 19% decline in Africa, Middle East, Turkey volumes.
— Unnathan Shekhar
Given the macroeconomic dynamics of this region Mass and Mass-tige categories may witness a decline once in 3-4 years.
— Unnathan Shekhar
While US and Asia Pacific markets have been stable, the slowdown in Europe needs to be tracked carefully.
— Unnathan Shekhar
Yes, there have been multiple challenges, be it because of the pandemic which impacted consumptions in FY21, supply-driven volatility which impacted our performance in FY22 or broad-based slowdown in Europe we are experiencing now.
— Unnathan Shekhar
While multiple initiatives are being carried out in terms of product mix, operational improvements or judicious price calls to capitalize on emerging opportunities, we need to acknowledge that the decline in volumes and reversal of multiple supply led factors have also contributed to this jump.
— Unnathan Shekhar
But for ensuring sustainable growth volumes are the key while inflationary pressures have impacted the Mass and Mass-tige segments thus impacting our performance products using inflationary pressure will ensure volume growth which eventually will result in a correction of our EBITDA per metric ton as and when the same happens.
— Unnathan Shekhar
While prerogative remains on ensuring volume growth given the slowdown in volatility, we are witnessing globally meeting the previous year's volumes should be good.
— Unnathan Shekhar
To conclude ladies and gentlemen, it is said that the successful warrior is a man like no other with laser like focus and it is this laser like focus great defense in terms of risk management and an optimistic approach that will ensure your company continues to march ahead.
— Unnathan Shekhar
That means a significant portion of FY24 volume again is at a risk.
— Sanjesh Jain
Nobody can forecast the future regarding the industry's growth or decline.
— Unnathan Shekhar
Egypt’s market as you rightly said, the local guys are gaining the market share and this time the drag looks like it's longer than what has happened 2 years ago or 3 years back.
— Sanjesh Jain
One of your peers in his call said that the preservative non-toxic preservative which they sell in Europe, they are seeing a headwind there.
— Sanjesh Jain
If these two happen then we are looking at risk in both the volume and margin, right?
— Sanjesh Jain
Thanks for this question related to AMET and Egypts because the numbers express the concern.
— Vaijanath Kulkarni
Advertisement
Q&A — 11 exchanges
Q
I have got few questions, this time more than two probably. First on the emerging business model. We have changed our guidance for EBITDA and volume, one for better and one for inferior from the long-term perspective. Do you think this model sustaining more than FY23? Will this even flow to FY24 because you also made a commentary that Egypt may take another three to four quarter to stabilize? That means a significant portion of FY24 volume again is at a risk. Considering a low volume growth scenario and a better mix in favor of India and ROW. Do you think this higher EBITDA sustaining beyond F
Unnathan Shekhar
Good Sanjesh. See as we very clearly said we want to grow ahead of the markets in terms of volumes. That is a fundamental structure on which we would like to operate. Nobody can forecast the future regarding the industry's growth or decline. Of course, however we do believe that these are short term bricks The long-term story is very much intact. We would expect once some stability comes into the world scenario, the volumes will pick up with respect to all the segments whether it is Mass, Mass-tige or Prestige. So, to your second question the answer is, we would always like to focus on volumes
Q
I heard you that in terms of the margin guidance Rs. 21,000 to 22,000 per ton and though I understand the product mix may mainly drive it. Just want to have some more clarity in going ahead though it will be applicable for the current year. But the focus is as you rightly mentioned, more on volume growth. When we strive for volume growth and going for 8% to 10% volume growth trajectory in a medium term, do you see that it's necessary to dilute the product mix that will pull down the overall margin? I mean if we can maintain a Rs. 21,000 to 22,000 margin trajectory in the current scenario? Why
Unnathan Shekhar
We want to again clarify our approach. For us EBITDA is not a target, EBITDA is a derivative. Our target is always the market, our customers we want to grow with the market, grow ahead of the market. That has always been our approach and that will continue to be the approach for the next number of years Galaxy is going to be there because it's important for us. Margin is the most important thing; customers are the most important things and volume growth along with the market. Repeat EBITDA is a derivative. Rohan, we need to also probably keep in mind is that our objective will be in terms of g
Q
Two questions from my side. First question would be can you give us the possible geographical volume for H1?
K. Natarajan
Split of the volumes is something that we typically something that we don't want to be talking now but that's something that we want to keep it with us. We only talk about the category of customers and Tier I-Tier II and Tier III. My second question would be on the previous call that US has been a pretty good demand we are seeing. We are seeing a pretty good demand on that part and currently we are saying that the US demand has been currently at stable point of view. Are there been inflationary point of view, they are waiting for couple of months to stabilize and then start for the distributio
Q
My question is about the betaines part of your specialty portfolio. What I wanted to understand is, is it the slowest growing part of the specialty portfolio and if yes what are the reasons behind the same? Is this also one of the reasons why this growth in specialty has been low over the last 1 or 2 years?
K. Natarajan
There is nothing something like that. I don't know, how did you come to that conclusion? Betaines it's growing at around 6%-8% kind of volume CAGR as the other parts of the specialty portfolio? Correct but I cannot understand because we never specifically talk about each product within the category so I won't understand from where you get this your information on betaines degrowing and that being a problem. So, then I'll be able to answer your question. Broadly spoke to people in the industry who gave. So that is not right. It may be specific to them. That again I think you probably need not k
Q
In terms of the customer product commercialization due to the current issues and inventory destocking, have there been any delays from their end and probably that will have some consequent impact on our volumes?
K. Natarajan
There are which I did explain earlier in response to a question on similar lines that yes, the sentiments are not as bullish as it was the same time last year. Certain projects are getting a little bit pushed. Earlier, we had an issue because of COVID. On the supply side, some of the projects in the pipeline got delayed. Now there's a demand sentiment has turned negative we do see some, there have been some that have moved well, some of them will see some delay. But overall, what is critical is that we are ready now with our capacities and ready to serve the market movement, the demand starts,
Q
Couple of bookkeeping questions. First on the employee cost inflation. It’s quite high for last two to three quarter on a YoY basis even in the standalone India. I can understand from outside India given the currency movement but India inflation remains quite high. So what's leading to this employee cost inflation? That's number one. Number two is on the tax rate, now India minus, consol minus standalone if I do a subsidiary numbers there again the tax rate is around 15.5%. AMET is a tax free for us. It's all what we are paying tax in America and that means around 50% of your PBT is coming now
Abhijit Damle
You are right the employee cost has increased. I mean the primary reason is the normal increase in the employee cost year-on-year plus you have already mentioned the reason of currency depreciation which gets translated I mean the translation of subsidiary companies into INR and the other part is we have recently I mean last year if you see we were into two projects into the pre-capitalization stage. Now we have those projects up and running. Additional manpower for the two projects have also been flown in the P&L this year. And your next question on tax… And other thing also is Sanjesh last y
Q
One question is on the CAPEX pipeline for FY23 and FY24. Secondly just trying to understand the volume outlook. If at all right now as we are talking about the Europe slowdown and which is impacting the volumes so considering these things get prolonged for maybe 6 months more or 1-year. What would we be targeting at, whether we would be looking at a lower, operating at lower utilization level or to address the new market from whatever our production level would be?
K. Natarajan
First on the CAPEX so I think FY23-24 also typically our CAPEX per annum has been close to Rs 150 to Rs 175 crores. That is essentially be continuing into FY‘23 to ‘24 as well. Now our capacity utilization is about 67% to 68%. We don't expect that to be significantly different next year unless the demand environment corrects much more significantly and yes, objective, is to ensure we grow ahead of the market and we want to stick to our volume growth target of 6% to 8%. 6% to 8% right now as we are seeing this European situation as well. Taking into account that… What is happening in Europe is
Q
We understand that the raw material prices have gone down. Will they continue to go down for the let's say FY23-24 or will they stabilize at this point at this price level?
K. Natarajan
We don't have a crystal ball in front of us but what we can only understand is that if the global demand is going to be not very robust you suddenly have commodity prices being lower, and raw material prices would be lower in sympathy with the commodity prices being down. But we need to wait and watch. As of now we cannot make a clear statement on that. Our objective is to ensure that we have to manage the highs and the lows in a way that we don't have any risk flowing into the P&L. We are very conscious about but we don't have any clear statement on how are the raw material prices will be in
Q
The volume growth guidance you're talking about for the current year is 2% to 3%. I understand that is for the full year because our first half has almost been close to negative 4% volume growth so we're still looking 2% to 3% for full year volume growth, right?
Unnathan Shekhar
That is what we are aspiring for with a caveat that the demand environment has to turn conducive so that is what we are aspiring for. Second is the poor performance and the pressure in the AMET market. Just to dwell a little bit deeper so in AMET its mainly because of the Turkey we are facing all these issues, that market is continuously pulling down because of the country itself is facing multiple challenges or you see that the even Africa and Middle East are also contributing to the similar way in terms of the poor performance of AMET region? As I explained before Egypt and Turkey contribute
Q
Just follow up question that in terms of pricing scenario right now since we are seeing the inflationary pressure across the world so how are the contracts with our customers getting revised and is there any particular cycle in which is there or is it is a mix of 6 month or annual contracts which getting revised regularly?
K. Natarajan
Without specifics typically these things get revised quarterly and then that's normal. There's nothing different that we're doing in the current year.
Q
Thank you all ladies and gentlemen. Have a very good day. Thank you very much once again.
Management
Speaking time
K. Natarajan
20
Unnathan Shekhar
15
Moderator
13
Rohan Gupta
8
Sanjesh Jain
7
Rohit Nagraj
6
Vaijanath Kulkarni
4
Jasdeep Walia
4
Rohit Sinha
4
Abhijit Damle
3
Advertisement
Opening remarks
Unnathan Shekhar
Thank you. A very good afternoon to all of you. Welcome to this conference call of Quarter 2 Financial Year ‘22-23. Ladies and gentlemen, it gives me immense pleasure to welcome you all again for this quarterly conference call. As it is said offense wins games but defense wins championships. The first half of this year has truly tested our defense. In a half there we have seen fatty alcohol prices and freight rates correct upwards of 50% along with the contraction and demand, a good defense that is robust risk management, a diverse product portfolio and judicious price calls, combined with experience acquired over decades enabled us to deliver an almost 100% growth in profits for Q2 and 55% for the first half vis-à-vis H1 of FY22, thus enabling the momentum garnered in Quarter 4 of financial year ‘22 to continue into the first half of FY23. Before we get into details, I would specifically like to acknowledge the efforts put in by our team at Galaxy. Given the rapid change that has occu
Advertisement
← All transcriptsGALAXYSURF stock page →