IPO

Monday, January 22, 2018 Click here for Rating Reckoner
Galaxy Surfactants
Global supplier to FMCG brands
CM RATING43/100
Incorporated in 1986, and promoted by Unnathan Shekhar, Gopalkrishnan Ramakrishnan, Shashikant Shanbhag and Sudhir Dattaram Patil, Galaxy Surfactants manufactures surfactants and other speciality chemicals for the personal- and home-care industries. Products finds application in a host of consumer-centric personal- and home-care segments including skin-, oral- and hair-care, cosmetics, toiletries and detergent products.

Household cleaning and personal care together account for 49% of the surfactants market. Around 65% of the total sales come from surfactants and rest from speciality- care products.

Over the years, the product profile, client base and geographical footprints have been expanded and diversified. Currently, the product portfolio comprises over 200 grades marketed to more than 1,700 customers in over 70 countries. As many as 47 patents have been registered since the calendar year 2002 and 38 patent applications pending.

Products are supplied to FMCG companies in India such as Cavinkare Pvt Ltd, Colgate Palmolive, Dabur India, Henkel, Himalaya, L'oreal, Procter & Gamble, Reckitt Benckiser, Ayur Herbals and Jyothy Lab. Exports go to Africa Middle East Turkey, Asia Pacific, Americas and Europe FMCG giants. Products are in the mass, mass-tige and prestige range

Around 34% of total sales came from India, while rest from exports in the fiscal ended March 2017 (FY 2017). Nearly 52% of total revenues were derived from MNCs, 40% from local customers and rest from regional players.

There are seven strategic manufacturing facilities and one pilot plant. Five are located in India and one each in Egypt and the US. There are sales offices in India, Egypt and the US and representative offices in the Netherland and Turkey for marketing the products in these goegraphies.

The Offer and the Objects

An effort was made to launch the maiden IPO of Rs 120 crore in May 2011 but had to be withdrawn due to bad market condition. Subsequently, funds were obtained from International Finance Corporation (IFC) for expansion.

The current offer comprises offer for sale of 63.32 lakh shares by promoters and group. At the lower price band of Rs 1470 per share, the size works out to Rs 930.76 crore. At the higher price band of Rs 1480, the issue size is Rs 937.09 crore.

The minimum bid lot is 10 equity shares and in multiples of 10 equity shares. The issue is to be made through the book-building process and will open on 29 January and close on 31 January, with anchor investor bidding date of 28 January 2018.

The objects of the issue is to achieve the benefits of listing the equity shares on the BSE and the NSE, to enhance visibility and brand image and provide liquidity to the existing shareholders.

Strengths

The size of the Indian surfactants market was US$ 1.35 billion in CY 2015 and is expected to record CAGR of 6% to US$ 2.28 Billion by CY 2024.

The established global supplier to major FMCG brands has a strong track record.

The needs of customers across the segments are catered. Surfactant is a high-volume business and forms a substantive ingredient in customer-end products. Speciality-care products have high margins and low volumes, with unique functionality in customer-end product.

Of the total installed capacity of 2.42 lakh tonnes per annum, the capacity utilisation of surfactants was 60.3% end March 2017. Similarly, of the total installed capacity of 1.08 lakh tonnes, capacity utilisation of speciality products stood at 58.1%. Surplus capacities will mean no major capex going forward. Good of scope exists for operating leverage.

Consolidated sales recorded a CAGR of 8.4% and net profit 24.4% between FY 2014 and FY 2017.

Weaknesses

No long-term contracts for raw materials, accounting for 66.6% of the total revenues in the six months ended September 2017 and for 69.7% in FY 2017.

A significant portion of raw materials (around 72-75%) is imported from South East Asian countries and the US, and is subject to forex volatility.

The top 10 customers comprise 58.5% of the revenues in the six months ended September 2017 and 54.8% in FY 2017. Any loss of customer can significantly affect revenues going forward.

Any economic slowdown or change in regulations or political instability in the geographies of operations can affect performance.

Valuation

Consolidated net sales were up 20% to Rs 2161.34 crore and the operating profit margins (OPM) was down 50 basis points to 12.4%, restricted the operating profit (OP) growth to 15% to Rs 267.69 crore in FY 2017. Other income (OI) increased 51% to Rs 10.36 crore. Interest cost declined 18% to Rs 25.42 crore, while depreciation rose 7% to Rs 48.35 crore. Thus, profit before tax (PBT) growth stood at 25% to Rs 204.29 crore. After reducing provision of total tax by 5% to Rs 57.98 crore, consolidated profit after tax (Pat) spurted 42% to Rs 146.31 crore.

Consolidated net sales stood at Rs 1192.48 crore, with OPM of 11.8% resulting in OP of Rs 140.33 crore in the September 2017 quarter over a year ago. OI stood at Rs 4.80 crore. Interest cost was Rs 14.79 crore and depreciation stood at Rs 24.65 crore. After providing for total tax of Rs 30.54 crore, consolidated Pat was Rs 75.16 crore.

Due to seasonality of business, H1 ended September 2017 earnings cannot be annualised. Implementation of goods and services tax affected the performance in H1. But post September 2017, things have stabilized and growth is gaining momentum.

The diluted equity share capital is Rs 35.45 crore of face value of Rs 10. EPS for FY 2017 works out to Rs 41.3. At the higher price band of Rs 1480, the P/E on FY 2017 diluted EPS is 35.9. There are no listed peers with such a business model and asset structure.

Galaxy Surfactants : Issue highlights
Offer for sale (in Rs crore)
- On lower price band930.76
- On upper price band937.09
Total Issue size for offer for sale ( in no of shares in lakh)63.32
Price band (Rs)1470-1480
Minimum Bid Lot ( in number of shares)10
Post issue share capital (Rs crore) 35.45
Post-issue Promoter & Group shareholding (%)59.1%
Issue open date29-01-2018
Issue closed date31-01-2018
ListingBSE, NSE
Rating 43/100

Galaxy Surfactants: Consolidated Financials
1303(12)1403(12)1503(12)1603(12)1703(12)1709(06)
Revenue from operations1580.741697.291873.941801.912161.341192.48
OPM (%)7.6%12.7%10.1%12.9%12.4%11.8%
OP119.71215.52189.67232.75267.69140.33
Other in. 1.534.282.096.8410.364.80
PBDIT121.24219.80191.76239.59278.05145.13
Interest52.4641.5034.3930.8825.4214.79
PBDT68.78178.30157.37208.71252.63130.35
Dep.49.9855.2645.0845.2348.3524.65
PBT 18.81123.04112.29163.49204.29105.70
EO 0.000.000.000.000.000.00
PBT after EO18.81123.04112.29163.49204.29105.70
Tax (including Deferred Tax)18.5347.0544.8360.7757.9830.54
PAT0.2876.0067.46102.72146.3175.16
MI0.000.000.000.000.000.00
PAT after MI0.2876.0067.46102.72146.3175.16
EPS (Rs)*0.121.419.029.041.3#
*EPS is on post issue equity capital of Rs 35.45 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
EO: Extraordinary items, EPS is calculated after excluding EO and relevant tax
All the above financials and result are as per New Ind AS
Figures in crore
Source: Capitaline Database

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