Galaxy Surfactant - Growth, Quality; Maintain Buy With A Target Price Of Rs 3,465: HDFC Securities

HDFC Securities Institutional Equities

Galaxy Surfactants Ltd.’s volume growth momentum has the potential to accelerate, accompanied by margin expansion. Global home and personal care leaders have increased the volume growth outlook for 2024 after strong volumes in Q1.

Demand for premium specialty care products is expected to rebound as demand in Europe and North America rebounds with the easing of inflation and the end of inventory destocking.

Demand in the domestic and RoW markets shall continue. We expect per unit Ebitda to improve from Rs 18.59/kg in FY24 to Rs 20.45/22.23/kg in FY25/FY26 owing to-

1. a change in product mix towards better-margin products and

2. operating leverage.

Volume growth will be 9/9% while Ebitda margin will expand by 89/72 bps to 13.1/13.8% in FY25/26.

Galaxy Surfactants’ balance sheet has turned net cash with Rs 1.1 billion of net cash at FY24 end. The company will generate operating cash flow and free cash flow of Rs 7.27 million and Rs 4.87 million, spread over FY25-26.

We are expecting an earnings CAGR of 22% over FY24-26E. RoE will improve from 14.8% in FY24 to 17% in FY26. Currently, the stock is trading at 26.8/22.1 FY25/FY26. We believe it is contextually low. Maintain Buy on Galaxy Surfactants with a target price of Rs 3,465.

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