Capitaline

Analyst Meet / AGM 30-Jun-20

Conference Call

Galaxy Surfactants

Growing awareness for home and hygiene augurs well for the company

Galaxy Surfactants held a conference call on 29 June 2020 to discuss the results for the quarter ended Mar20 and way forward. Mr. Unnathan Shekhar – Promoter, Managing Director, Mr. K. Natarajan – Executive Director, COO and Mr. K. Ganesh Kamath – Executive Director (Finance), CFO of the company addressed the call.
Highlights of the Concall

Revenue was down by 6% in FY20 on the back of lower fatty alcohol prices, flat India performance as well as headwinds faced by the developed markets due to the onset of COVID-19 pandemic in Q4FY20. Lockdown announced by the Government in the last week of March too played its role and adversely impacted its operations and business performance in Q4FY20. Going ahead, this shall have a significant bearing on Q1FY21 performance

Total volumes were up 4.4% YoY at 224237 tonne for FY20 as against 214711 tonne in FY19. Performance Surfactants volume stood at 143521 tonne for FY20, up 6% on YoY basis. Specialty Care Products volume stood at 80716 tonne for FY20 up 1.7% on YoY basis

The performance surfactants segment registered a volume growth of 6% YoY driven by the strong growth registered by the Local Egypt market. Egypt on the back of recovery in the home care market registered a healthy 22.2% growth in volume terms. Given that there were no disruptions at Egypt plant due to the COVID-19 pandemic, the company believes this growth momentum going ahead as well.

Specialty Care Products registered a 1.7% growth in volume terms. The second half of FY20 saw a slowdown in specialty portfolio. This was primarily on account of two reasons - the seasonality effect in Q3FY20 plus the outbreak of the pandemic which impacted its business in the developed markets in Q4 FY20.

AMET (Africa Middle-East Turkey) market grew by 9.4% due to recovery in the Egypt market.

Subdued demand led to a 0.5% growth in the India Market.

ROW (Rest of the World) markets grew at 2.8% driven by strong performance registered by the Specialty Care Products in the first half of the year.

Operations at the tarapur plant have resumed post the blast at the plant in April'20. The loss was completely covered by insurance. The plant comprises 8% of overall volumes (largely, specialty care products), so volume offtake was not severely impacted by the incident.

The growing awareness for home and hygiene augurs well for the company. Performance Surfactants primary attributes are cleaning and foaming and since these are the basic ingredients for manufacturing products classified as essentials, used for cleaning and sanitizing, after the initial hiccup on account of the lockdown, the company expects the momentum to get back to normalcy in the coming months

Cut back in discretionary spending along with job losses and hoarding of cash will impact consumer spending on beauty and personal care products going ahead. This will adversely impact specialty portfolio, though the company does not see any structural shift as of now.

CAPEX for specialty care products under execution, though delayed because of the pandemic, remains on track and it is hopeful to commission the same by the close of the year. The expenditure incurred for enhancing its R&D Infrastructure and setup also remains on track.

The company is facing issues in availability of labour, transportation, etc., but expects normalcy to return sooner than later.

The company expects down trading in certain categories as there is likely to be cut in spending on premium products which may impact performance of specialty surfactants going ahead while sales of performance surfactants is likely to remain stable

The company expects normalcy to return in the next three-six months.

Input costs have softened – both petrochemicals and oleo chemicals. Prices of oleochemicals depend on yields and demand and supply scenario, however are likely to remain stable for the next three months.

Gross margin was led by lower raw material cost and as the company was able to take price advantage in both specialty and performance surfactants business

New categories such as veggie wash, etc., are also emerging post COVID-19.

Plant capacity utilisation stood at an average of 61% in June'20 which was still lower than pre- Covid-19 levels. Tier 3 customers (small players) have been affected the most. Tier 1 players have resumed production backed by their global market share and resourcefulness.

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