Galaxy Surfactants Limited — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

Galaxy Surfactants reported a challenging Q3 FY25 with an overall volume decline of 1% YoY, largely driven by a 7% drop in India due to demand softness and high inventory. Raw material price volatility, particularly a 40% rise in fatty alcohol prices, also impacted sentiment. Despite these headwinds, the RoW segment showed robust growth, and management remains confident in its long-term growth trajectory and new product pipeline, while revising FY25 EBITDA per metric ton guidance to around INR 19,000.

Highlights

  • Rest of World (RoW) segment showed strong volume growth of 9.5% in Q3 FY25.

  • AMET segment volume decline moderated to 1.5% in Q3 FY25, showing Q-on-Q improvement.

  • New product 'Galseer DermaGreen' is receiving very good response in developed markets and is expected to be a game-changer.

  • Management remains confident in achieving 6-8% volume growth and INR 20,500-21,500 EBITDA per metric ton guidance for the next two years.

Concerns

  • Overall volume declined by 1% YoY in Q3 FY25, primarily due to a 7% decline in India.

  • India market experienced weaker festive season, excess channel inventory, and lower government spending, impacting volumes.

  • Fatty alcohol prices rose 40% during the quarter, impacting sentiment and demand pick-up.

  • Specialty segment volume degrew by 4.5% in Q3 FY25, with slower than expected conversion of some customers.

Key financials

2 periods

Q3 FY25

  • Volume Growth (Overall)
    -1%
    YoY -1%
  • Volume Growth (India)
    -7%
    YoY -7%
  • Volume Growth (AMET)
    -1.5%
    YoY -1.5%
  • Volume Growth (RoW)
    9.5%
    YoY +9.5%
  • EBITDA per Metric Ton
    ₹17,500

9M

  • FY25 Volume Growth
    4%
    YoY +4%

What they filed

Q1 FY27: revenue up 39.4%, net profit up 110.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,063 1,042 1,145 1,278 1,326 +25%1,329 +28%1,315 +15%1,782 +39%
EBITDA128 106 127 124 110 −14%119 +12%122 −4%249 +101%
Net profit85 65 76 79 66 −22%59 −9%62 −18%166 +110%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Specialty
    -4.5% Volume Growth
  • Performance
    0.5% Volume Growth

Capital allocation

medium confidence
  • Capex ₹150 Cr
    • Capacity additions or debottlenecking for specific products when utilization reaches 80%
    • IOT initiatives, digitalization for future business preparedness
    No, no. We are at 70% capacity utilization. So it is not that so there will be certain products in which we may have to do capacity additions or debottleneck, which we will do. But then we only do when we reach about 80% capacity utilization in any product, so which will continue to happen. But it will be as is the case, we'll always be frugal. We'll only go for debottlenecking. If not, we'll go for a brownfield. That's where we are. With regards to the capex, it'll be more in terms of what we'll be doing in terms of getting ourselves equipped for the future in terms of our IOT for initiatives to make ourselves more capable, efficient, how we're going to be looking at. Digitalization in a way that can prepare us to handle the business of the future. So those will be something that will come in, which we'll do, because they'll have their own returns in terms of making us operationally much better and giving us better ability to access newer revenue streams. No, I would want to be with this because there are some things that we're already planning.
  • Debt Debt disclosed
    We have negligible debt on the balance sheet.

Guidance & targets

Volume

  • Volume Growth Volume · next 2 years · High confidence 6-8%
    I have no reason to change anything with regard to my volume guidance of 6% to 8% for the next 2 years

    — K. Natarajan

  • FY25 Volume Growth Volume · FY25 · High confidence 4%
    for this full year, we will probably end at 4% volume growth

    — K. Natarajan

Profitability

  • EBITDA per metric ton Profitability · next 2 years · High confidence INR 20,500 to INR 21,500
    I have no reason to change anything with regard to my... EBITDA guidance. We don't see that this is something the structure that has changed, so it doesn't warrant any change in the guidance for the next 2 years

    — K. Natarajan

  • FY25 EBITDA per metric ton Profitability · FY25 · High confidence around INR 19,000

    Previously INR 19,500 to INR 20,000 → around INR 19,000

    this year, this year, we will not be achieving that. It will probably be a 4% growth and close to around INR19,000 tons of EBITDA per metric ton.

    — K. Natarajan

Raw Material Prices

  • Fatty Alcohol Prices Raw Material Prices · next quarter · Medium confidence stable at $2,300-$2,400
    Yes, next quarter should be probably the flattest at the current levels of $2,300, $2,400.

    — K. Natarajan

  • Fatty Alcohol Prices (Aspiration) Raw Material Prices · future · Low confidence around $1,500
    my only wish is that it should settle down much lower, probably around $1,500 to ensure that your demand robustness gets back in with the customers because that's important.

    — K. Natarajan

What to watch in Q4 FY25

India Demand Recovery

Q1 FY26 onwards
Current Low single-digit decline in Q3 FY25
Target Picking up, driven by rural and urban spending

Why it matters

India constitutes 40% of the business, and its recovery is crucial for overall volume growth.

While this is not encouraging, a lot of these cyclical blips are against any structure of this. Various measures such as reduction in damage, slower scale-up of new launches and slower than projected growth of the beauty and personal care segment also contributed towards this decline. While the season is continuing for one more quarter, we are clear that from Q1 '25, '26 onwards, things should start picking up as both rural and urban spending will drive the mass and masstige segment for the performance surfactants.

Risks & concerns

  • Weak demand in India

    high

    Weaker festive season, excess channel inventory, lower government spending, and weak urban spending led to low single-digit volume decline in India, deteriorating from November.

    Management acknowledged

  • Fatty alcohol price volatility

    high

    40% rise in fatty alcohol prices during the quarter impacted sentiment and demand pick-up, a cyclical phenomenon occurring every 2-3 years.

    Management acknowledged

  • Impact of high raw material prices on customer inventory and demand

    high

    Customers are averse to building high inventory with high-priced feedstock, leading to reduced demand and actions like grammage reduction.

    Management acknowledged

  • Slower conversion of specialty ingredient customers

    medium

    Slower than expected conversion with some specialty ingredient customers, partly due to geopolitical uncertainties and tariff wars.

    Management acknowledged

  • Inflationary pressures in developed markets

    medium

    Mild surfactants category faced headwinds due to inflationary pressures in developed markets and reformulations.

    Management acknowledged

Q&A highlights

6 direct
Volume growth for 9 months FY25 Direct
It's 4%.

Clarifies the cumulative volume growth for the first nine months of the fiscal year.

Asked by Aditya Khetan

Market size and margins of new product 'Galaxy DermaGreen' Direct
So this is a premium product because this goes into shower oils which is a big product that consumers use in the developed markets of the U.S. and Europe. So this is a green oil-soluble shower oil ingredient so which ensures that this will deliver significantly superior performance of moisturization with ingredients that are green. So this obviously will be a high margin product

Highlights the strategic importance and high-margin potential of a new product for future growth.

Asked by Aditya Khetan

EBITDA spread outlook and impact of rising raw material prices Partial
See, one thing that caught us off guard was the volumes started to get significantly lower, say, from the beginning of November, because I think many customers were looking at the Diwali season, giving them a good demand comeback, but I think when that didn't happen, they took actions in terms of reducing the pipeline inventory pretty swiftly, because with the increasing feedstock prices, they also didn't want to have more stock in the pipeline.

Explains the reasons behind margin pressure and volume decline, linking it to raw material volatility and customer behavior.

Asked by Aditya Khetan

Sustainability of return ratios and capital allocation strategy Partial
Return ratios because there are some investments that we did over the last 2 years, which obviously need to start picking up in terms of capacity utilization, which will happen. So this is more to do with in terms of timing of this investment. So that we don't see as a concern, it's temporary.

Addresses concerns about declining return ratios and clarifies that it's a temporary effect of recent investments awaiting full utilization.

Asked by Sanjesh Jain

Discrepancy between parent entity and subsidiary performance Direct
Yes. That's because one is the parent entity has been where the major volume issue has happened in the India business. That is one. Second is that some of the special ingredients where the pipeline was being worked out, that hasn't flowered the way it needs to flower. So these are the 2 things. So the major impact has been on the India degrowth of 7% that has impacted the India business.

Provides specific reasons for the underperformance of the parent entity compared to subsidiaries, highlighting India's challenges and specialty product delays.

Asked by Sanjesh Jain

Outlook for FY26 EBITDA per kg and volume growth Direct
Yes, Sanjesh, pretty confident.

Reaffirms management's confidence in achieving long-term EBITDA and volume growth targets despite current challenges.

Asked by Sanjesh Jain

Increase in other expenses despite volume decline Direct
So there have been some of the one-off situations that we have had, like a good amount of detention demurrage that happened in, say, our Egypt facilities because of all the issues on the supply chain getting impacted.

Explains a specific reason for higher operating costs, attributing it to one-off supply chain issues.

Asked by Sanjesh Jain

Fatty alcohol price outlook for next year and next quarter Direct
Yes, next quarter should be probably the flattest at the current levels of $2,300, $2,400. I don't have a crystal ball in front of me, but my only wish is that it should settle down much lower, probably around $1,500 to ensure that your demand robustness gets back in with the customers because that's important.

Provides a near-term forecast for key raw material prices and expresses a desire for lower prices to boost demand.

Asked by Shalini Gupta

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Galaxy Surfactants experienced a relatively weak Q3 FY25, with overall volumes declining by 1% YoY. The 9-month FY25 volume growth stood at 4%. This weakness was attributed to several one-off factors, and management does not foresee a structural change in its growth trajectory. The EBITDA per metric ton for Q3 FY25 was INR 17,500.

India Market Challenges

The India market, which constitutes 40% of the business, saw a 7% volume decline in Q3 FY25. This was due to a weaker than expected festive season, excess channel inventory, lower government spending, and unusually weak urban spending. The slowdown started deteriorating from early November, impacting both mass and masstige segments.

Raw Material Volatility and Pricing

Fatty alcohol prices increased by 40% during the quarter, impacting market sentiment and demand. This volatility is a cyclical phenomenon, typically occurring every 2-3 years, and is expected to normalize over two quarters. Management noted that while price increases are passed on, there is a lag, and continuous increases make the demand scenario problematic as customers reduce inventory and increase end-product prices.

Specialty Products and Growth Drivers

The specialty segment degrew by 4.5% in Q3 FY25, with slower than expected conversion of new customers. However, the new product 'Galseer DermaGreen' is receiving strong positive responses in developed markets and is anticipated to be a high-margin game-changer for shower oils. The company is also focusing on sustainable and non-toxic preservation solutions for future growth.

Capital Allocation and Future Preparedness

The company maintains a frugal approach to capital expenditure, with current capacity utilization at 70%. Capex for the next year is planned at around INR 150 crores, focusing on capacity additions when utilization reaches 80% and investments in IOT and digitalization for future business preparedness. Management emphasized that past investments, including INR 700 crores over 4 years primarily for specialty ingredients, are expected to yield results as these products gain traction.

Outlook and Guidance

Management reiterated its long-term volume growth guidance of 6-8% and EBITDA per metric ton guidance of INR 20,500-21,500 for the next two years, viewing current challenges as temporary. For FY25, the volume growth is expected to be 4%, with EBITDA per metric ton revised to around INR 19,000 from the earlier INR 19,500-20,000 range.

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