Galaxy Surfactants Limited (NSE: GALAXYSURF) Q2 2025 Earnings Call dated Nov. 13, 2024
Corporate Participants:
Natarajan Krishnan — MD & Executive Director
Analysts:
Aditya Khetan — Analyst
Rohit Nagraj — Analyst
Shalini Gupta — Analyst
Prashant Poddar — Analyst
Prasad Vadnere — Analyst
Nirav Jimudia — Analyst
Nilesh Ghuge — Analyst
Tejas Lakhani — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Galaxy Surfactants Limited Q2 and H1 FY ’25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. K. Natarajan, Managing Director. Thank you, and over to you, sir.
Natarajan Krishnan — MD & Executive Director
Thank you, Rahul. Very good morning, ladies and gentlemen. Once again, welcome to our quarterly earnings call. At the outset, I take this opportunity to thank all the experts for a stable quarter despite the headwinds that we had. While compared to Q1, the Company did clock sequential volume growth, it is important to understand the business environment influencing it.
Let me start with the supply side. While supply volatility has continued to pose challenges with varying intensities across quarters, the southern wise and fatty alcohol prices combined with both conditions unavailable of containers did disturb momentum in this quarter.
No improvement also was seen with regard to the elongated supply chain on account of the escalating geopolitical scenario. To summarize, while the supply side situation has significantly improved compared to ’22 or ’23, increase the effect of the same H2 was going ahead for H2 FY 2025.
Moving on to demand side, starting with India, the last two quarters. Including current one, have seen flat volume growth. While supplier challenges did disturb momentum, underlying demand has slowed. This is mainly due to slowing demand for premium, home, and personal care and slower-than-expected rural recovery. The sudden and significant rise in fatty alcohol prices added to the uncertainty. We see this form continuing for the next two quarters, while this is not a structural slowdown for volume momentum to pick up in FY 2026 household as well as government spending needs to improve.
Moving on to the other big market for us, Africa, Middle East, and Turkey. While demand has shown signs of revival, these separate challenges have prevented us from fully capitalizing on the same. Steps have been taken in this quarter to ensure H2 FY ’25 is going back to the 6% to 8% band in our Africa, Middle East Turkey volumes.
Rest of the world has been a bright spot for us for the past four quarters, while this quarter 2 saw a strong double-digit growth, signs of revival in premium specialty was the biggest positive. With inflation easing, household spending improving and economies, especially use stabilizing H2 FY 2025 should see further momentum. While volume may taper off due to the base effect as in our previous calls, pickup in premium specialty should aid EBITDA per metric ton in H2.
Coming to specific numbers for H1, volume growth stood at 6.3%. While we retained our volume growth guidance of 6% to 8% and are also working towards ensuring we end in the upper band, EBITDA per metric tons stood at 20,097 per metric ton while it is below our guided band, we retain our guidance of 20,500 to 21,500 per metric ton. An uptick in premium specialty should enable improvement in H2 as we have been communicating in our earlier calls as well.
India and AMET have been flat, mainly offers [Phonetic] of slowdown in underlying demand. As far as India is concerned and supplier remains in AMET, for India, we believe gross around 1% to 2% [Phonetic] for the full year. In case of AMET, H2 should see reasonable growth with full-year growth being around 4% to 5%.
Rest of the world, I’ve seen 26% growth for H1 driven by Masstige specialties with H2 should see some moderation volume growth with pickup in premium specialities and base coming in. Overall, we see rest of the work ending in mid-teens volume growth for the year. While the performance segment registered volume growth of 5.8%, specialty on the back of the strong growth rate to the Masstige segment saw volume growth of 7.2%.
To conclude, while demand and supplier uncertainties continues to pose challenges at a different point, we strongly believe unless inflation makes a strong comeback, gradually, we see a structural pickup in demand. It may not happen across regions simultaneously, but there are visible signs of strong demand revival. This bodes well for us in the medium term.
And the performance in the last two quarters also underscores the robustness of our business product and our geographical spread because if some of the regions do see some headwinds, we have other regions where we are able to capitalize on the momentum that we have and achieve our numbers on the guided range. But like always, we are leaving nothing to chance and remain fully committed to capitalize on the same.
Thank you, ladies and gentlemen.
Operator
Sir, should we open the floor for questions?
Natarajan Krishnan — MD & Executive Director
Please.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]
Our first question comes from Aditya Khetan from SMIFS Institutional Equities. Please go-ahead.
Aditya Khetan
Yeah, thank you, sir, for the opportunity. Sir, my first question is on to the Indian market. Sir, I believe six months back, so we were quite confident that Indian market would continue to grow. And I understand, sir, so with the recent commentary by the FMCG players, there seems to be some structural impact on the demand side, especially on to the body side. Any sort of color so you can give how much — for how much time this market would remain impacted? And are there any signs of uptick you’re witnessing for second half?
Natarajan Krishnan
So if you see here the Indian market, actually sequentially improved quarter-on-quarter. Compared to last quarter one, quarter two volumes improved by about 3%. So it does tell us that typically your quarter two of the financial is always good quarter as India is concerned because of the festive demand. This time, it has been higher, but not as high as what it was in the previous year.
See, when we talk to our customers, I’ll be [Phonetic] commentaries that we need of our vast customers after the Q2 results, all of them are pointing towards rural demand is reviving but not to the extent that it could compensate for this sort of demand challenges they’re seeing in the urban side. And all of that, I indicated that it will take about two to three quarters for things to improve, and they’re working towards ensuring that they take the right price calls because one of the things that they’ve also said in the call is that the inflation coming back in terms of commodity prices is actually posing a new challenge, and they really need to see how they’re able to be calibrated price increases without depending on the very nascent demand revival that is happening. So we need to wait and watch and then see as to how things are panning mode as far the customers are concerned.
Aditya Khetan
Sir, my second question is on to the AMET market. Sir, earlier, we were guiding that this market has touched a rear bottom, and there would be some double-digit growth in sight. Sir, for the first half, there is, I think the volume has been almost flattish. But the rest of the world market has grown by roughly around 20% [Phonetic] volume growth. Sir, which are the markets which are growing in this speed and why the AMET market is not performing?
Natarajan Krishnan
See, AMET market, as I said, AMET market, the unfortunate situation has been the demand suddenly was coming back after all the economies went through their own issues grappling with inflation and currency devaluation. But then as the demand was coming back, the supply side got significantly impacted because of the Red Sea blocking that happened. So in fact, supply chain into Egypt to [Phonetic] almost 30 days. This will be actually piling more orders.
Now things have started improving only some probably 15 days into the current quarter. So I think that this quarter will show some better numbers for AMET, and we should see the impact of a positive impact of the growth that is coming there. But yes, we do not want to have any further escalation in the supply challenges because of any exploration that may happen with geopolitical scenarios.
Aditya Khetan
And sir, which are these other markets which are performing in 20s, 20 volume growth, mid-20s?
Natarajan Krishnan
Yeah. So we have — you know, it’s probably across America, America, North America, you also have Europe getting better and Latin America as well. These are the three major refinity [Phonetic] top.
Aditya Khetan
Okay. And sir, one more question, if I can squeeze in. Sir, on to the raw material prices of lauryl alcohol, sir, we are standing at almost a two-year high in terms of the lauryl alcohol prices. I think these sorts of prices were last seen in 2022, somewhere around $1,900. So sir, how confident are you? So with this right — with this pricing raw material price prices, we can maintain our EBITDA per tonne. Considering the demand is faltering into the Indian market and AMET is also not performing well. Is there any risk to that EBITDA per tonne guidance which we had given earlier?
Natarajan Krishnan
No, we don’t see any risk on EBITDA per tonne guidance because we did say that our — the product mix that we have and the geographies that we have actually gives me the conference in terms of retaining the guidance. The risk to these numbers can only be any huge escalation in the geopolitical situation, leading to a significantly problematic supply chain situation. And it also in the price is going at this time, but then you don’t want to see a situation where it becomes so volatile that you have price going up and down, up and down because that’s more of a risk. So we do see that the price that has gone up also needs to be sustained in coming — settling at a stable level rather than you having significant price movements at short sequences, that is — can be a big problem.
So you know, this particular day that the prices have gone up is also something that no one in the commodity market anticipated. We’re still trying to understand one of the reasons. We only pray that you don’t have this getting corrected significantly in a very short time. So that can pose challenges in terms of the way customers, our customers then would get little bit jittery in terms of the way that they need to tie up their volumes.
Aditya Khetan
But we can comfortably pass on to — so these higher raw-material prices with the quarter-end?
Natarajan Krishnan
Obviously, because everyone knows it’s not that we are the only person impacted. Everyone is impacted with these increasing commodity prices and feedstock prices. So there is no issue in terms of passing on. That’s not an issue at all.
Aditya Khetan
Got it. Thank you, sir. Thank you. That’s it.
Operator
Thank you. [Operator Instructions] The next question comes from Rohit Nagraj from Centrum Broking. Please go-ahead.
Rohit Nagraj
Thanks for the opportunity. Sir, the first question, again, delving into the EBITDA per metric ton. So first-half we have done closer to 20,000 and we still stick to the guidance of 20,500 to 21,000. Given that on a lower side, we will have to do average of, say, 21,000 for the next couple of quarters. And again, the raw-material price inflation is also there. So what gives us confidence that we will be able to have better EBITDA per metric ton in second half than what we had reported in first half?
Natarajan Krishnan
So actually, if you have to look at what the impact, only be guided by what is happening externally, then everything can we look very pessimistic. But the way — what gives us the content is in terms of the way that we are able to see our team preparing itself how we are managing the risk position as far as raw materials are concerned and how well the team, okay, is geared and committed to make a difference and see how we are able to end the year, okay, within the guided range, whichever to both volume and EBITDA per metric ton, that’s very important. Because if you look at everything seems to be externally with a lot of challenges, but it’s also important that the team — what the quality of the team that I have gives me the confidence that we should be able to end this year on a positive note.
Rohit Nagraj
Sure. That’s helpful. Sir, for Q2, if you can just give a YoY volume growth across the three geographies and on performance and Specialty Care products for Q2 on a year-on-year basis?
Natarajan Krishnan
One minute.
Rohit Nagraj
Sure.
Natarajan Krishnan
So you want to have — you said you want to have these year-on-year, correct?
Rohit Nagraj
Correct. For the quarter.
Natarajan Krishnan
I think our quarter volumes grew by about 5%. And out of that, our performance surfactants grew by about 6% and specialty grew by about 2.5%.
Rohit Nagraj
Okay. And a similar number for India AMET and RoW.
Natarajan Krishnan
India was flat, AMET was minus 5%, and ROW was plus 27%.
Rohit Nagraj
This is for the quarter.
Natarajan Krishnan
Yes.
Rohit Nagraj
Okay. Fair enough. Just squeezing in last one. In terms of the supply chain challenges, are those challenges now have become stable and those — I mean, incremental cost have we completely embedded while we are giving the pricing to our customers? Or will that come in coming quarter and probably that will also give some kind of boost to the EBITDA per metric ton?
Natarajan Krishnan
Supply chain challenges, as I did say during my opening remarks is that they are still continuing. We expected that things were improving. So the good part is that they are not regressing as compared to what it was. So all of the — so they are probably at the same stage what it was in the quarter 1, but the intensity seems to be reducing.
The freight rates are correcting lower, but nothing significant. But we — that also, we had to wait for this quarter in terms of seeing as to how the freight rates are going to pan out in terms of getting back to the earlier levels in 2022.
So we now need to beat them, but we don’t see any significant challenge in terms of passing on the freight rate increases or whatever. We only do not want — the team is prepared in terms of handling what current challenges we have into the next two quarters, but if the challenges get intensified or the new challenges coming up because of any issues on the geopolitical side, then yes, that’s a different subject that we may have to talk later. But if this current situation continues, the team is fully geared.
Rohit Nagraj
Sure. That’s all, sir. All the best, sir. Thank you.
Operator
Thank you. [Operator Instructions] The next question comes from Shalini Gupta from East India Securities. Please go-ahead.
Shalini Gupta
No. My question is answered. Thank you
Natarajan Krishnan
Thank you.
Operator
Thank you. [Operator Instructions] The next question comes from Prashant Poddar from ADIA. Please go-ahead.
Prashant Poddar
Good morning, Natarajan. Sir, just one question, can you speak a little bit about the market development efforts in terms of new markets as well as any new products that you want to share, which would be, let’s say, big volume driver or value driver in the next two, three years?
Natarajan Krishnan
Yes. So what we see is that in terms of our Europe and Americas, including Latin America will be something that we are preparing ourselves to have a good amount of focus and growth there. That is the reason why we have actually incorporated subsidiaries in Europe and in Mexico. So there is [Phonetic] prepare ourselves in terms of the digital development agenda that we have for these locations because we have not been present in a very significant way. We mean more in terms of trying to manage those through distributors and through supplies from Egypt and India. So that is going to be something which is going to be a focus market for us in the coming years, and we are preparing for it.
With regard to new products, we said in terms of premium specialty. Sorry, Yeah.
Prashant Poddar
Sorry, yeah. And sir, just a follow-up on that. So when you say Latin-America and Europe, so can you help us understand the potential of these markets vis-a-vis, let’s say, an amid market that presence that you have?,
Natarajan Krishnan
Potential is huge because we are just scratching the surface very because you see we are a local player there and these sort of product categories that we work on there is main — is essentially what we need to be looking for the local supply-chain. Whereas if you look at what product categories we are focusing on for Egypt or Latin-America and Europe, it is more in terms of how do you focus on specialties. There will also be some performance of patterns, but it will be majorly led by our specialty ingredients portfolio.
Prashant Poddar
Okay.
Natarajan Krishnan
So the market [Indecipherable] Yeah.
Prashant Poddar
Okay. Specialty as well as performance.
Natarajan Krishnan
Majorly, the focus will be specialties. But yes, we’ll also have the performance affected as part of the basket, but our product focus will be Specialty Ingredients.
Prashant Poddar
And on the products, sir?
Natarajan Krishnan
The product, yes, it will be, essentially, meaning new products that we are looking, we are our Mild Surfactants, Non Toxic preservatives. And there are some MLS and stills [Phonetic] that we are working on in the pipeline, which we’ll be launching shortly, which will enable us to participate more in the B1 skincare range, so that is something that the team is preparing well. So we will be launching those products in the coming quarters.
Prashant Poddar
So with the — I mean, with the ESG now not at the forefront of things that have been spoken, have you seen any softening of efforts from your, let’s say, FMCG partners in terms of introducing more sophisticating, more environment-friendly products?
Natarajan Krishnan
See, one is where that particular you know, the environmentally products, green natural okay, those continue, and they continue to be niche. I think if the external number was conducive, probably the rate of growth would have been much better. But the focus continues by the — by our customers. But yes, they’re probably waiting and watching whether they need to introduce more categories, more SKUs into that since given that the demand scenario is a little bit tepid.
But the focus continues. The projects continue to be run by customers. So that hasn’t — the intensity hasn’t been reduced, but then the amount of efforts that have been put in, the growth have been much better, but for the way the external situation is panning out.
Prashant Poddar
Okay. And I have one more question on the India market. So you traditionally discussed the — that the new companies give you a lot of value as well, while the volumes might be relatively smaller, and the larger companies, they give you volumes. The mid-sized companies are the ones which are tracking behind both of these companies. So multinationals were doing fine. New start-ups were doing much, much better. And the price which between them were generally getting squeezed, is what we understood in the last five years of discussing with you and some other companies as well?
Can you help us understand the market environment today while you’ve spoken about India being soft in general? And there was a question earlier about the demand conditions. And I understand you were a — you have — you come to know the derivative of the demand that your customers see, but anything that you can share, any insights you can share?
Natarajan Krishnan
Yes, you see — if you see, generally, all the categories, all the categories or segments of our customers. Be it a global multi-nationals or and especially in India or you look at the Indian regional majors or the tie-up with customers, all of them, okay, have been not seeing a good volume growth.
If you see the commentaries of all of them, this has been very typical of what has happened in the last two quarters. The direct-to-consumer segment which we were — which we have a lot of players coming in and launching of new prospects, I think that also we have seen there — they’re also having to bear the grunt of this demand environment getting weaker. So you do find that they’re also looking at inventory in the pipeline. We also see that they are launching schemes to get the inventory plus that. So we are able to see that across segments. So it is not that any segment has been spared of this demand environment being tepid.
Prashant Poddar
Okay. Just one more extension. So you talked about AMET as well. Can you give us some insights into your relative competitiveness versus the local players? As you said, you are as good as a local player there, but there was increment — there was some competition in between where you had lost to lower-value you know, competition. Can you help us understand?
Natarajan Krishnan
So that was our customers because India plays a majorly home care market, Africa, Middle East, Turkey. In Egypt, one of our — the major customers with global multinationals lost share to local players, okay, because of the highly inflationary situation. So that situation because even today, Egypt after having 100% depreciation interest rates of 28%, 30% is still settling down, okay? So currency now has been made pre-floating. The foreign currency availability has improved, but yes, the inflationary situation continues. So that situation hasn’t changed significantly for the better.
Prashant Poddar
Okay. But it’s growing — it’s tracking in line now.
Natarajan Krishnan
It is going because smaller seen, whenever this situation happens, it takes about a year to 18 months for things to come back on track, and we are seeing a momentum towards things improving, yes.
Prashant Poddar
Fantastic. Thank you so much, sir.
Natarajan Krishnan
Thank you, Prashant.
Operator
Thank you. The next question comes from Prasad Vadnere from HDFC Securities. Please go-ahead.
Prasad Vadnere
Hi, sir. Thank you for giving me a chance to speak. Sir, you have mentioned in a previous comment that the EBITDA per kg will be primarily driven by Specialty Care going higher in H2. And you also mentioned that the ROW volume was primarily driven by the Masstige Specialty Care. So anything you could guide upon premium Specialty Care, the regions which will be primary driver going ahead?
Natarajan Krishnan
So the premiums specialties are driven majorly by Europe and North America. Okay. So the reason why we are saying because we’re seeing that the products in pipeline are getting built and customers are engaging pretty well. So that gives you the confidence that things will start panning out better. At the same time last year, I said that you know, speciality actually got impacted because Europe and Americas was grappling with significant inflation and increased interest rates.
I’m saying that now the interest rate being reduced and inflation getting better. We are seeing that there is a good improvement in the way the products in pipeline are getting built for the premium specialties, majorly in Europe and Americas.
Prasad Vadnere
Okay. Okay, sir. Thank you.
Operator
Thank you. The next question comes from Nirav from Anvil Corporation. Please go-ahead.
Nirav Jimudia
Yes, sir. Thanks for the opportunity. Sir, I have two questions. So one on the rest of the world market. If you can just help us understand, this sort of volume growth, what we have lost in H1, was it predominantly — so if you can just bifurcate in terms of the contribution of this volume growth coming from new products, new customers, newer applications or the existing customers taking higher volumes from us, and because of which we have clocked that sort of volume growth?
Natarajan Krishnan
I can’t answer everything in the sort of granularity that you want, okay? I have to say that, as I said, Europe, America, and Latin America have been the major growth drivers as far as desktop deball [Phonetic] is concerned, okay?
And essentially in Europe and Americas, it has been majorly through your Specialty Ingredients. And whereas if you look at Latin America, it has been majorly driven the performance surfactants.
Nirav Jimudia
Got it. So let’s say, currently, if we see in terms of our overall volumes in the rest of the world market, how much would be the share of specialty in the overall volume mix?
Natarajan Krishnan
So rest of the world, if you look at it, it’s majorly — you can say that I’m just trying to make it because I don’t have this number with me.
Nirav Jimudia
Not a ballpark number, if you can just help because I just wanted to understand what was the base last year in terms of the overall volumes of specialty. And how much it is currently? Because now what we have been adding is that our.
Natarajan Krishnan
It’ll be upwards to 50%.
Nirav Jimudia
Got it, got it. And similar was the last year also?
Natarajan Krishnan
Yeah. I don’t have it with me, but yeah, I don’t see the reason why it will not be in the similar zone.
Nirav Jimudia
Got it. And sir, second, you mentioned that we have been opening offices in Europe and Mexico.
Natarajan Krishnan
Not offices, subsidiaries.
Nirav Jimudia
Subsidiaries, sorry, my apologies. So what I wanted to understand is like the main logic for is — for us is to compete based on the freight cost, which probably the domestic players would have an advantage there. And because of which we have been now setting up the subsidiaries and most probably the warehouses and the storage facilities there, this would help us to compete with the local players despite of the fact that the volumes may not be going up in the same proportion what we have seen in India like India has been a growing market, but those markets are mostly saturated. So probably we may be taking the market share from the existing players in order to grow our volumes by setting up the subsidiaries there.
Natarajan Krishnan
So it’s like this, again, the subsidiaries that is being set up, we only underscore the strategic importance that locations have in our strategy for the future, okay the business strategy that we have.
So I think if you really need to be looking at those look at significant in terms of business growth because it is a given fact that we are not a big player in these geographies as far as our volumes are concerned. We did a good job, but not good enough in terms of being significant there. So getting the subsidiary only to — as part of our go-to-market strategy. How do we convince our customers that I’m looking at this region in a big way and enabling them to look at me for bigger projects, correct? So you know, this is the reason why we’re doing it, and that’s what anyone could do it, not only me. That’s the rationale, okay?
Nirav Jimudia
Got it, got it. Sir, second question is, a few months back, there was an article about HUL cutting it, the consumption of palm oil to an extent of 25% to be used in the soaks. So would it affect it anyway in terms of our volumes to HUL or if you can say that how much of our products goes into HUL in terms of their soap usage, some understanding on the same would be helpful.
Natarajan Krishnan
Normally, palm oil derivatives are used into normal regular source, and we have no participation in terms of our ingredients getting into regular source. We’re only into the premium soap category where this is not. Palm oil is not the major usage there. So it is not going to have any impact.
Nirav Jimudia
Got it, sir. Thank you so much and wish you all the best.
Natarajan Krishnan
Thank you.
Operator
Thank you. The next question comes from Rohit Nagraj from Centrum Broking. Please go-ahead.
Rohit Nagraj
Yeah. Thanks for the follow-up. Sir, fatty acid prices, sorry, fatty alcohol prices during the quarter have jumped significantly. And you also mentioned, if I’m not wrong, that they are likely to remain high for the next couple of quarters. What has changed in terms of the dynamics and why such a sudden spurt in the prices expenses give a broader perspective? Thank you.
Natarajan Krishnan
Yes. So let me correct, I didn’t say that it will remain high for the next two quarters. I only said that I only hope that even the prices remain stable. You cannot — we do not want volatility price going up and on up and down and with very increased frequency, because that impacts, okay, customer confidence in terms of doing [Indecipherable]. So that is first.
Second is I don’t have a crystal ball in front of me in terms of you know, what’s going to be the future. With regard to pass for, one of the reasons that it is causing this, we have spoken to multiple players in the [Phonetic] segment. I think it is being attributed to lower production, lower inventory, yield being lower, okay? But then not everything fits in, but only fact remains that the price has gone up. And the way this price has gone up, it has not gone up in a very, very gradual way. They’ve gone up in spurts, which essentially is not a good thing to happen.
The reason that essentially more on the supply side. The demand on is not what is causing the price going up. I think it’s more in terms of the supply not being as conducive. That’s what the players in the segment colors.
Rohit Nagraj
Sure, that is helpful. And second, in terms of the Specialty Care products, I mean, generally, if you can give us the idea how the contribution from the new set of products, including the mild surfactants has changed over the last maybe two or three years. Just to get a perspective and I mean, if there is a continuous rise in EBITDA per metric ton, this also could be one of the factors to add to it.
Natarajan Krishnan
So what we say is that I think this thing in terms of the way that we are approaching the business development of these categories in a very focused way in terms of — very clear in terms of what product, what priority markets, and the way we’re resourcing the specialty ingredients organization, I can tell you that obviously, the reason we’re doing all this because we do see a huge potential and we also see a good growth happening and that will continue.
I would not be able to share the sort of numbers specifically they are asking, that’s not something that we reveal.
Rohit Nagraj
But just directionally, the contribution is going every single year, right? I mean from a our new product development perspective or the focus on mild surfactants and some more sustainable products.
Natarajan Krishnan
Yes, it is — obviously it is growing. And with the sort of efforts we’re putting in, we are very clear that given the opportunity available in the market, it should be something that grows in a very significantly superior way in the coming years.
Rohit Nagraj
That’s all from my side. Thank you.
Operator
Thank you. The next question comes from Nilesh Ghuge from HDFC Securities. Please go-ahead.
Nilesh Ghuge
Sir, if I look at the lauryl alcohol prices, they have gone up by about 36% Y-o-Y. Are you able to pass on the entire jump in raw material? Or will there be a pass on in the third quarter of FY ’25?
Natarajan Krishnan
No, no. So the question is, you very rightly said the entire jump, so the way it jumps, your ability to jump in terms of price increases is not something that we can do. But then I only say that our ability to pass on given the way it has significantly gone up is certainly much better. It is no way that we can absorb these sort of increases into our listing. But there can be timing differences, but that may not be significant.
Nilesh Ghuge
Okay. So if prices remain elevated, you will subsequently — in a subsequent quarter, you will pass on?
Natarajan Krishnan
Yeah. The bigger risk is — the bigger risk, okay, not only for me, for even my co-players is that if we have significant corrections happening downward for the prices, then you have exposure. And that is where our risk management framework gives us the confidence that even if the prices correct significantly downwards, we have the ability to manage it.
Nilesh Ghuge
Yeah. And sir, if I look at your revenue contribution coming from the local and niche players, if I compare the first half FY ’25 with the FY ’24, so it has gone up to 39% compared to 34% in FY ’24. So is Company taking focus or shifting focus to local and niche player or is it just happening because of the maybe spurt in demand for — in — coming from the local and niche player? Or is there — is there a structural change or the focus of the management to supply more to local and niche player?
Natarajan Krishnan
It’s not that. It’s not the — it essentially again underscores the superiority of the way the business model that we have in terms of how we are well-entranced with all segments of customers. So what if you see today in the market is you do see that you have more D2C brands coming, more quick commerce channels getting better in terms of the way that many volumes, a good amount of volumes are flowing through them, although the base is small. So what happens is that you have some of the smaller customers coming in with niche players who are able to push certain things through the you know, quick commerce or e-commerce channels. And the way that we are integrated with all of them, it gives us opportunity to be able to participate with them in the growth that they are having.
There is no customer change that is happening, okay? One thing that even you would know is that people are trying to access more through the quick commerce channels. So — but for us that really doesn’t matter because what we do is we serve — we serve all the customers and if there is some amount of increase change that happens in terms of the material going more to the quick commerce channel, okay, it’s good for us because we are well-entrenched with all the category of customers.
Nilesh Ghuge
Okay. So how easy or difficult it is to pass on raw-material costs to local and niche players compared to MNCs because earlier in our conversation, you always mentioned that it’s for MNCs take some time, but for a local or niche player, you can — because there is a spot buying — buying also, so you can pass-on easily to local niche players. So any comment on that?
Natarajan Krishnan
No, no, it’s not — it’s not a question easily passing on or difficult to pass on. It’s a question of see, when you are going to be having such steep increases in prices, okay, of 30% and 40% in one quarter, the issue is not in terms of going to the customer and saying it’s one of the — I need a price increase of 30%. The important thing is how well you’re able to keep them informed, how well we inform them about what do you see as the things in the coming months, give them a good rationale as to why this has gone up, what do you see in terms of the sustaining. How do you enable them to take a decision to buy?
The smaller aspect is saying that you need to give a price increase of 30%, okay? But if you approach it that way, then your customer is going to lose confidence in our ability to be able to look at things in a very — and in terms of AD, their business. Finally, we need to make the customer win in the marketplace, correct? So how well we are able to give a rationale, support them with information, okay, as to why things are happening, what do we see in the coming three months, whether they should go long or go short, okay.
So that — if you look at it, that’s a difficult job. Just sending a price increase, communication of saying the price has gone up by 30%, easy job, but we always take the difficult path. And that ensures that we are able to in a very effective and elegant way pass-on, a very fair increase of what we need to pass on as far as nominal cost increase is concerned.
Nilesh Ghuge
Okay. Okay. Thanks, sir. Thanks a lot.
Operator
Thank you. The next question comes from Tejas Lakhani from Unifi Capital. Please go-ahead.
Tejas Lakhani
Yeah, hi. Mr. Natarajan, could you just talk about you know, the mix in the India business across the three channels or see if I were to break it up in you know, traditional FMCG, you know modern trade and online aggregators, the Big Baskets, the D Marts and the Reliance’s of the world and the D2C brands which are doing well. Could you just?
Natarajan Krishnan
Hello.
Tejas Lakhani
Hello, are you able to hear me?
Natarajan Krishnan
I think the line dropped, I guess. So can you repeat your question?
Tejas Lakhani
Yeah, just a second. Hello, is this better?
Natarajan Krishnan
Yeah, better.
Tejas Lakhani
Yeah. Sir, I wanted to understand that in the India revenue, could you just quantify, you know the percentage broadly of the traditional FMCG channel, the modern trade, and online aggregators as one cohort, the likes of the D Marts, Reliance’s, the Big Baskets and the D2C brand, you know the newer HD2C brands, what is the approximate revenue breakup of these three segments and which is the segment that is growing the fastest for you?
Natarajan Krishnan
See, one thing is, Tejas, I will not be able to — because we took at customers. Now with a customer then their mix in terms of how much through modern trade or how much to do you know, your quick commerce or what we do in D2C, that I will not be able to quantify that. What we do is that we know that we have a Tier-1, which is a global multinational, Tier-2 which are regional majors and Tier-3 are all the local players, okay.
So basically, if you say our — this thing is you know like overall we are at about — if you look at H1, we were about 50% was the Tier-1 customers about — the balance was Tier-2 and Tier-3 customers.
Tejas Lakhani
Got it. So let me rephrase you know, my question with a slightly more nuanced approach. Could you tell me that you know your percentage of India sales that was going to D2C brands irrespective of where they sold, how has that been trending?
Natarajan Krishnan
Oh, yeah, correct. So that I can tell you. So that is something that we grew well and I did say as part of the response to the earlier question that even they are now finding in the last two quarters certain challenges in terms of the way they are — their pipeline is not moving well. So all of them are looking at how do they now start adjusting to the new normal and they’re coming up with some schemes and all that to get the inventory out of the system. They also are now grappling with the increased prices that are happening. So they’re all redefining things as to what they need to do.
But the sort of intensity that we see in terms of newer and new brands coming, newer and new D2C players coming in, they’re launching a new product, we do see that is pretty healthy and we are — our innovation team is doing a good job in terms of engaging with them. So we see that this is all temporary stuff, but this particular focus of the direct-to-consumer clients increasing is going to be there.
Tejas Lakhani
Okay. Is it possible to quantify that, say, two years back, what was the percentage India — percentage revenue of these brands to India sales versus the same for FY ’25, your estimate?
Natarajan Krishnan
The percentage is small, that may not give you any great because finally, even today, all the legacy brands are a very small fraction of the overall market. But if you look at last two to three years, if you had to look at two, three years back where we were in terms of the business with them and where we are today, I think I’ll say that they would have gone up by about 30% to 50% what we sell, what is the volumes we do with that. This tells you in terms of the intensity of what work we do and what is the sort of action that is happening as well that is the D2C brand sequentially.
Tejas Lakhani
Got it. So basically, you’re saying wallet share with them has significantly improved and increased.
Natarajan Krishnan
Correct.
Tejas Lakhani
Got it. Okay. And sir, secondly, you know, I’ve heard you through the call, I’m just trying to contextualize this better that there is — there is a situation where the RM has increased where inherently freight cost is higher and it is hurting us and is reflected in the OpEx number. There is demand slowdown in India demand is hopefully receding a little bit, you know, coming back in the AMET region. ROW is doing at least you know from the — from the — from the destocking in the face of restocking. You know, if I were to sort of look at all these plays in aggregate, how do we get the sense that we will be able to improve our EBITDA per kg in the second half?
Natarajan Krishnan
So that’s what I said. Raw material size is going up is not a factor that we look at in terms of because it’s not that your ability to pass on is not there, you will pass on. So that’s not an issue.
The confidence comes from we expecting demand as to — we expect demand things to a demand situation to at least get better, better, I mean, I’m not looking at it getting it at least start improving or not go in the first two quarters. Second is the premium specializes, getting into a better traction in the second half, which I even told in my call for the first quarter that we do expect this to happen when we revised the guidance for EBITDA to a higher range of INR20,500 to INR21,500. So I still remain optimistic on that front in terms of what work my team is doing. The expense situation obviously has to be cooperating and we don’t see any reason as to why if that happens, the sort of work that we are internally doing is not going to yield results.
Tejas Lakhani
Got it, sir. All the best.
Natarajan Krishnan
Thank you.
Operator
Thank you. The next question comes from Aditya Khetan from Smiths Institutional Equities. Please go-ahead.
Aditya Khetan
Yeah, thank you, sir, for the follow-up. Sir, my first question is on to the Indian market volumes. Sir, into the presentation, we have mentioned that the volumes have remained flattish, largely because of the slowdown into the premium consumption and then expand — and a lower than expected recovery into the rural areas. But I believe, sir, the Indian market the contribution from the premium side is very lower. So majority of the portion is only the performance side only. And the recovery into the rural market, I believe, so the urban market was weak as you had also mentioned that the rural recovery was good, but the urban markets were weak. So there is some disconnect into the presentation what you mentioned and…
Natarajan Krishnan
There’s no disconnect. The urban market, if you see, okay, the urban market is bigger. When you say the premium categories in terms of, say, your personal care and beauty and wellness has got impacted, correct? When we look at that, it is a premium positioning of my customer. It is not my premium ingredients are you getting me? It is the way in my customers, customers have a masstige and prestige. So they have certain premium categories that they launch, which is more — majorly consumed in the urban market.
So when you look at the companies of many of our customers, they say that they do see that the demand has got impact in the urban area in terms of the iron brands that they are, correct? And rural didn’t pick up because rural steel is majorly at the masstige — mass segment and that didn’t pick up significant enough for them to have a good volume growth.
Aditya Khetan
Okay. And sir, possible to quantify what would be the premium and the performance split into the Indian volumes only? Just a broad idea.
Natarajan Krishnan
I don’t think we have that and neither would we want to do that. We don’t have it right now. Yeah.
Aditya Khetan
Okay. My second question is on to the other expenses. Sir, there is a steep jump into the other expenses. I believe largely this is led by the threat only. Sir, on an average, when we look at the threat cost, that is, so that remains at around 4% to 4.5% of sales generally for the last four to five years, any number, sir, which you can quantify how much — so this number has jumped from the 4% to 4.5%, which is why we are seeing this higher other expense.
Natarajan Krishnan
See, what we need to understand is that any increase in the freight rate also reflects in my revenue. So what happens is that the revenue has a higher freight rate in terms of the selling price. And then you have the higher freight rate that gets booked in the expense. So that is only one of the reasons. I don’t see freight rate as a percentage will work if you have depending on what sort of materialize spend, what is the countries to send to that spend the mix of the geographies and the product needs as the spend [Phonetic]. That also lags the freight rate. But one thing is very clear is that there is nothing that is significantly impacting us because you’re not able to pass on the higher freight rate rates, okay? It happens with the lag, but we pass on. So it is not that we are going to have a negative in terms of your freight is going up. Hello?
Operator
Sir, the line for the participant has been dropped from the queue.
Natarajan Krishnan
Okay.
Operator
And as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Natarajan Krishnan
Yeah. Thank you, ladies and gentlemen. Thank you for patiently listening to my opening remarks and the very interesting Q&A that we had. I look forward to talking to all of you for the Q3 results call. Thank you so much. Wishing you all a good day. Bye-bye.
Operator
Thank you. On behalf of Galaxy Surfactants Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.