Hold Galaxy Surfactants, target price Rs 2,545: ICICI Securities

ICICI Securities has hold call on Galaxy Surfactants with a target price of Rs 2545. The current market price of Galaxy Surfactants is Rs 2710.

Galaxy Surfactants, incorporated in the year 1986, is a Mid Cap company (having a market cap of Rs 9529.53 crore) operating in Chemicals sector.

Galaxy Surfactants key Products/Revenue Segments include Other Operating Revenue and Scrap for the year ending 31-Mar-2021.

Financials
For the quarter ended 31-03-2022, the company has reported a Consolidated Total Income of Rs 1054.13 crore, up 13.24 % from last quarter Total Income of Rs 930.85 crore and up 34.10 % from last year same quarter Total Income of Rs 786.10 crore. Company has reported net profit after tax of Rs 98.40 crore in latest quarter.

Investment Rationale
Galaxy Surfactants’ (GSL) Q4FY22 EBITDA/kg at Rs 25 (vs Rs 13.2 in Q3FY22) shows resilience in GSL’s business model. Previously, margins were impacted by various factors, and it has adjusted new contracts to negate the impact of operating cost inflation. GSL has guided for EBITDA /kg of Rs16-18 (unchanged) for FY23 with bias towards the upper end. However, volume growth will be challenging particularly in AMET region which is also fighting currency depreciation. GSL continues to incur capex of Rs 1.5-2 bn to augment capacity, and has launched new products in specialty which is helping it drive better margins/ROCEs. Working capital increase is transitory to safeguard production schedules and should normalise on easing logistic situation. The brokerage has cut EPS by 4-6% over FY23-24E on lower volume assumption and accordingly reduced target price to Rs 2,545 (from Rs 2,710) with an unchanged PE multiple of 30x FY24E.

Promoter/FII Holdings
Promoters held 70.93 per cent stake in the company as of 31-Mar-2022, while FIIs owned 1.89 per cent, DIIs 13.78 per cent.