Unlocking Growth: Motilal Oswal's Bullish Outlook on Galaxy Surfactants

In a significant boost for investors eyeing the specialty chemicals sector, leading brokerage Motilal Oswal has not only reiterated its 'buy' recommendation for Galaxy Surfactants but has also upped its target price to an impressive Rs 2,720. This revised target, a jump from their previous Rs 2,500, reflects a strong conviction in the company's robust performance and promising outlook, especially following its stellar Q1FY24 results.

Galaxy Surfactants, a dominant force in the production of surfactants and specialty chemicals for personal care and home care industries, has demonstrated remarkable resilience and growth.

Despite facing headwinds from a muted demand environment in key markets like India and Europe, the company delivered a standout performance in the first quarter of fiscal year 2024. Its adjusted Profit After Tax (PAT) soared by 23.3% year-on-year to Rs 100.8 crore, while adjusted EBITDA witnessed a healthy 23.9% year-on-year surge, reaching Rs 150.3 crore.

While revenue saw a slight decline of 12.8% year-on-year to Rs 905.7 crore, primarily due to price rationalization stemming from softening raw material costs, the underlying volume growth tells a story of strength.

The company reported a 3% quarter-on-quarter and 2% year-on-year volume growth, totaling 67,235 tonnes. What's particularly encouraging is the 6% year-on-year increase in specialty products volumes, indicating a strategic shift towards higher-value offerings.

A key highlight of Galaxy Surfactants' Q1FY24 performance was the significant expansion in its EBITDA per tonne, which jumped by an impressive 22% quarter-on-quarter and 21% year-on-year to Rs 22,357.

This impressive efficiency gain, coupled with a notable EBITDA margin expansion to 16.6% (up from 13% in Q4FY23 and 11.2% in Q1FY23), underscores the company's effective cost management and favorable product mix. The higher contribution from specialty products and the beneficial impact of moderating raw material prices played a pivotal role in this margin uplift.

Looking ahead, the management exudes confidence, anticipating steady growth driven by stable raw material prices and a projected improvement in global demand.

Galaxy Surfactants aims for a 10-12% growth in Specialty Chemical volumes and a 5-6% growth in Performance Surfactants volumes for the entire fiscal year 2024. With current capacity utilization at a healthy 80% and ongoing capital expenditure projects, the company is well-positioned to capitalize on future opportunities and meet increasing demand.

Motilal Oswal’s optimistic valuation, based on 28x FY26E EPS, reinforces their 'buy' thesis.

Galaxy Surfactants stands out not just for its strong financials but also for its entrenched competitive advantages. As a leader in specialty chemicals for personal care, it boasts a diversified product portfolio, robust R&D capabilities, and a significant global footprint. Its deep-rooted relationships with leading FMCG giants further solidify its market position, making it a compelling investment prospect in the evolving chemical landscape.