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Friday, January 26, 2018

Galaxy Surfactants Limited is a Mumbai based manufacturer of surfactants and other specialty ingredients for the personal care and home care industries. The ingredients company manufacture are commonly used in consumer-centric personal care and home care products like skin care, oral care, hair care, cosmetics, toiletries and detergent products. Galaxy Surfactants product portfolio includes over 200 product grades, which are marketed to over 1,700 customers in 70 countries

Galaxy Surfactants products are classified in 2 categories:
1. Performance Surfactants: This includes anionic surfactants and non-ionic surfactants.
2. Speciality Care Products: This includes amphoteric surfactants, cationic surfactants, UV filters, preservatives, preservative blends and surfactant blends, speciality ingredients such as mild surfactants, syndet and transparent bathing bars and proteins, fatty alkanolamides and fatty acid esters, and other care products.

Customers include Cavinkare Private Limited, Colgate-Palmolive (India) Limited, Dabur India Limited, Henkel, Himalaya, LOREAL, Procter & Gamble Home Products Private Limited, Reckitt Benckiser and Unilever

Red flag: The company tried to raise money in 2011 but failed as only 30% subscription was garnered

Galaxy Surfactants IPO - Issue information
Date : Jan 29, 2018 – Jan 31, 2018.
Issue Price: Rs 1470 – Rs 1480, minimum lot of 10 shares.
Issue Size:  937.09 Cr
Objects of Issue: The issue is total offer for sale. No money will be received by the company.

Risks in Galaxy Surfactants IPO
  • As of September 30, 2017, they conducted operations through seven manufacturing facilities and one pilot plant.
  • They do not have long-term agreements with suppliers for their raw materials.
  • For the six months ended September 30, 2017 and the Fiscals 2017, 2016 and 2015,  cost of materials consumed was ₹7,976.96 million, ₹15,144.88 million, ₹11,153.65 million and ₹12,532.98 million, or 66.63%, 69.74%, 61.66% and 66.81% of  total revenue, respectively.
  • They currently generate a significant portion of  revenues from limited number of major customers. For the six months ended September 30, 2017 and the Fiscals 2017, 2016 and 2015, the top ten customers contributed ₹6,977.65 million, ₹11,833.64 million, ₹9,642.79 million and ₹11,252.47 million, or 58.51%, 54.75%, 53.51% and 60.05% of  total revenues from operations, respectively

Strengths in Galaxy Surfactants IPO
  • Established Global Supplier to Major FMCG Brands with Demonstrated Track Record.
  • Robust Product Portfolio Addressing Diverse Customer Needs.
  • Proven R&D Capabilities with Dedicated Focus on Innovation.
  • Global Footprint Supporting Local Reach.
  • Professional and Experienced Management Team

Analysis of Financial Statements:

Balance Sheet:
  • Reserves & Surplus have grown ~3x from 2013 to Sept 2017.
  • One notable observation is that the company has maintained its debt at healthy levels in the recent times.
  • ~25% of total assets are tied up in trade receivables for all the past periods. Perhaps this is a indicator of inefficient collection business.
  • Short term borrowings have also gone up in recent times. We will see if the spillover effect of High Trade receivables and short term borrowings are having an effect on the Cash flow of the business
  • The company has a notable debt to equity ratio trajectory:
Profit & Loss:
  • Strong consolidated growth in revenue observed at around 17% CAGR in past 5 years
  • However, cost of materials consumed form ~70% of the total costs. Any fluctuations in the prices of the same will have direct negative effect
  • EPS Trajectory is strong as shown below:

IPO Valuation:
There are no listed peers to compare the PE ratio. The company is having an EPS of Rs.41.27 at FY17. At this earnings, the PE ratio works out to be 35.80x at the upper end of the price band. Based on last 3 years consolidated restated EPS of Rs.33.46, the PE ratio works out to be 44.20x at the upper end of price band


IPO Recommendation Synopsis:
Although the good financials, increasing profitability trend and improvement in key ratios such as Debt to Equity may warrant a subscribe, investors need to exercise caution especially in the light of risks enlisted above. Although long term investors may be tempted to go for it as a sectoral addition to the portfolio, high listing gains may not be feasible for short term investors considering the PE ratio and no comparable peers around


The article is presented in conjunction with guest writer Aditya Kondawar from  stocksandbiceps.com

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