Galaxy Surfactants Limited (NSE:GALAXYSURF) Q2 FY23 Earnings Concall dated Nov. 10, 2022
Corporate participants:
Unnathan Shekhar — Managing Director, Executive Director
Par Sevens — President
Niranjan Ketkar — Compliance Officer, Company Secretary
Analysts:
Sanjay Jain — ICICI Securities — Analyst
Rohan Gupta — Rogama — Analyst
Pooja Shah — Congruent Advisors — Analyst
Steve Walia — Clock Wine Capital — Analyst
Rohit Nagraj — Centrum Broking — Analyst
Ajinkya Jadhav — Camia Wealth Management — Analyst
Presentation:
Operator
Ladies and gentlemen. Good day and welcome to Galaxy Surfactants Limited Q2 FY ’23 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 guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for AAC’s questions after the presentation concludes. [Operator Instructions] I now hand the conference over to Mr. Unnathan Shekhar, Promoter and Managing Director. Thank you, and over to you, sir.
Unnathan Shekhar — Managing Director, Executive Director
Thank you. Very good morning, good afternoon to all of you. Welcome to this conference call of quarter two financial year ’22, ’23. Ladies and gentlemen, it gives me immense pleasure to welcome you all once again for this quarterly conference call. As Eli said, offense wins games with defense wins championships. And the first half of this year has truly tested our defense. In a half, — there have seen fatal coal prices and freight rates correct upwards of 50%, along with the contraction in demand, a good defense that is robust risk management.
A diverse product portfolio and judicious price calls, combined with experience acquired over decades, enabled to deliver an almost 100% growth in profits for Q2 and 55% for the first half Veevas H1 of FY ’22. — thus enabling the momentum garnered in quarter four of financial year ’22 to continue into the first half of FY ’23. — before we get into details, I would specifically like to acknowledge the efforts put by our team at Galaxy. Given the rapid change that has occurred over the last 12 months, both on the supply as well as the demand side. Consistently achieved in the last three quarters is worth the of price and acknowledgment.
Moving on to the business performance, it is important that we understand the structural drivers as well as the short-term factors influencing it. India continues to remain a bright spot for us. While the volumes have grown 8% for Q2 and 5.5% for H1, the bigger picture is what pleases us. Today, we are on course to touch the 100,000 metric sales number for India. The sales stood at 69,261 metric tons in FY ’18 thus growing at an 8% CAGR for the past five years. Based on this performance, we can safely conclude that the structural uptick we witnessed during COVID has not only sustained — but as inflationary pressures ease, we can expect further buildup in momentum. I would ask you all to look at the bigger picture, which remains bright and healthy.
The Africa, Middle East, Turkey region has been a point of concern. The overall volumes declined 3.5% for H1 FY ’23. — primarily due to the 19% decline in Africa Middle East truck volumes. The local market, which makes up for approximately 23% to 42% of our total AMT volumes has been experiencing significant headwinds on account of currency depreciation, down-trading and cutback in demand. The Egyptian pound we stood at one to one in March 22, today stands at 24.37 depreciating 55% in just last eight months. Downtrading has resulted in a local backward integrated player gaining share at the cost of our customers, which has adversely impacted our performance.
While this may be a repeat of FY ’19, given the sharp depreciation seen over the last eight months, the loan market might take three to four quarters more to stabilize. But I would like to assure you that the MH story remains intact. Given the macroeconomic dynamics of this region, — while mass and masstige categories may witness a decline once in three, four years. They were also the first ones to make a comeback, tracking in higher levels than before. We have witnessed in FY ’20 — 22, and we remain optimistic about FY ’24. The rest of the world has been a mixed bag for us, registering a 14% growth over Q2 and 3.6% for H1 FY ’23. While U.S. and Asia Pacific markets have been stable, the slowdown in Europe needs to be tracked carefully. Europe is a big market for our mice refractors, preservatives as well as other specialties.
If you look at our Rest of the World volumes over the past three to four years, while they have remained in the 54,000 to 59,000 band, we remain optimistic. Yes, there have been multiple challenges, be it on account of the pandemic, which impacted consumptions in FY ’21, supply-driven volatility, which impacted our performance in FY ’22 our broad-based slowdown in Europe, we are experiencing now. But despite all of this, let me assure you, the structural story remains intact. — reducing inflation and improvement in global demand for premium products we see the next leg of growth starting soon for our specialty products.
Before we move on to the outlook, let me dwell a bit more on the EBITDA per metric tonne, which has been consistently in the INR20,000 to INR26,000 metric tonnes for the past three quarters, well above our guided EBITDA of INR16,000 to INR18,000 per metric ton. The EBITDA for Mentions a derivative of our EBITDA performance and volume growth. While multiple initiatives are being carried out in terms of product mix, operational improvements or judicious price cost capital is on emerging opportunities — we need to acknowledge that the decline in volumes as well as reversal of multiple supply-led factors have also contributed to this jump. But for ensuring sustainable growth volumes are the key — while inflationary pressures have impacted the mass and massage segments that’s impacting our performance products using inflationary pressure will ensure volume growth, which eventually will result in correction of our EBITDA per metric ton as and when the same happens.
This will be particularly true as the MT volumes recover. But for now, — given that we have been consistently clocking in EBITDA per metric ton of INR22,000 to INR25,000 per metric tons for the past three quarters, we would like to revise our EBITDA guidance for the year to INR2,000 to INR22,000 metric tons from INR16,000 to INR18,000 per metric tons. While the privative remains on ensuring volume growth, given the slowdown in volatility we are witnessing globally. — meeting the previous year volumes should be good. Having said that, we aspire for a 2% to 3% volume growth.
But for that to happen, we need a more conducive demand environment. While we never issued any half yearly or yearly guidance, this is being done to give a true picture of the current situation. Going ahead, we will always aspire for a 6% to 8% volume growth with EBITDA growth being 300 to 400 bps might and a ROCE of minimum 22%. A structural framework that has enabled our growth over decades remains the same, and volumes are an integral part of it.
To conclude, ladies and gentlemen, it is said that the successful warrior is a man like no other with a laser-like focus. And it is this laser-like focus great difference in terms of risk management, and an optimistic approach that will ensure your company continues to march ahead. Thank you very much. Once again, ladies and gentlemen. Thank you. Now over to you for your questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. Par Sevens, President on the audio bridge, who is a question standalone. [Operator Instructions]
Par Sevens — President
Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanjay Jain from ICICI Securities. Please go ahead.
Sanjay Jain — ICICI Securities — Analyst
Good afternoon, everyone and thanks for taking my question.
Unnathan Shekhar — Managing Director, Executive Director
Good afternoon, Sanjay.
Sanjay Jain — ICICI Securities — Analyst
Thank you, sir. I’ve got a few questions this time more than two probably. First, on the emerging business model, we have changed our guidance both for EBITDA and volume. — one for better and one for inferior from the long-term perspective. Do you think this model sustaining more than FY ’23? Will this be even be flowing to two because you also made a commentary that Egypt may take anotherthree to four quarters to stabilize.
That means a significant portion of FY ’24 volume again is at a risk. — considering a low volume growth scenario and a better mix in favor of India and ROW, do you think this higher EBITDA sustaining beyond FY ’23, that’s number one? And number two, do you also see that in a longer term, this could be a more emerging model than the volume growth? Is that a possibility? Or we would want to go towards more volume growth than higher EBITDA. How do you see the model
Unnathan Shekhar — Managing Director, Executive Director
Good, Sanjesh. See, as we very clearly said, we want to grow ahead of the markets in terms of volumes. That is a fundamental structure on which we would like to operate. Nobody can forecast the future with respect to the growth or decline in the industry. Of course, however, we do believe that these are short-term blips. The long-term story is very much intact.
So we would expect once some sort of stability comes in into the world scenario, the volumes will pick up with respect to all the segments, whether it is mass, masstige or prestige — so to your second question, the answer is we would always like to focus on volumes because we need to grow with the industry and grow ahead of the industry on all segments of personal and home care, okay?
So then — and whenever the volume growth happens as in a normal or a secular trend. Our EBITDA per tonne will automatically adjust itself. So however, as I have told you multiple times, the EBITDA per tonne will securely move up because as the world gets to become more and more premium penetration increases more and more. The requirement of specialty ingredients will increase, okay? So that’s the answer. I hope I have answered your question.
Sanjay Jain — ICICI Securities — Analyst
First part of the question was also related to how do you see FY ’24 more near term in
Unnathan Shekhar — Managing Director, Executive Director
We cannot really predict, okay? I just said so many things can happen, okay? We would wish that the world returns back to normalcy and you have growth on all categories on all trends.
Sanjay Jain — ICICI Securities — Analyst
Just to add, what worries me a little bit is that continues to struggle for us. Egypt market, as you rightly said, the local guys are gaining the market share? I understand the drag is looks like it’s more longer than what had happened two years back or three years back. Number two, Europe continues to struggle. One of your peer in his call said that the reserve nontoxic preservatives which they sell in Europe, they are seeing a headwind there. So if these two happen, then we are looking at a risk both to volume as well as margin, right?
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes, Sanjesh, so this is Rajan at here. So I think thanks for this question related to Amita Egypt because, yes, the numbers surely expresses the concern. But we need to understand what exactly is happening in that part of the world. You might have noticed that last six to nine months, Consistently, specifically now I’ll talk about Egyptian government because that is a significant share of our met market. The government’s entire influence was to drastically reduce the imports and food barriers because this currency was under pressure.
IMF was negotiating with the Egyptian Central or bank. And this was a phase was more or less a replica of what happened in 2016 if you really go back and check. So obviously, the availability of foreign exchange was completely controlled and many local home and personal care industries though we produce and supply a significant amount of ingredients to them, they’re also dependent on certain critical imported ingredients. So — they were really Joko block in terms of getting things into the market. So this was affecting the operations in almost all the customers in Asia.
Apart from that, the supply chain has not really fully restored in the region, which we are seeing that is now substantially restored since last few months, and we see that it is almost getting towards normalization. So two important points that the currency, the devaluation now, which was about to happen now that has happened. The event has happened. — the currency as on float, the negotiations are over between the country and the IMF.
This — if we can correlate with 2016 terms exercise was similar, — we had seen that it took almost four to five months’ time for the market to fully absorb the impact and start resuming the normal demand curve — we expect it to more or less follow the similar trend, and this is what our interaction with our customers in that particular country has shared with us the consumption of home care and personal care products per they are good in the country.
The habits are seasoned. So we don’t expect it to follow any different trend than what had happened in the last major currency change that has happened. And so recovery should be visible in four to six months’ time as we have discussed. And the added factor is that supply chain is a good normalcy is experienced in the region. So that should also smoothen the accessibility of imported raw materials and market environment should normalize. So our prediction is on — based on that understanding — the only one factor which is beyond anybody’s guesses the Ukraine Russia or situation is affecting Europe.
And Europe is close to meningitis in that region. — we will not be really able to estimate those impacts, but we feel that more or less, it is isolated, the energy costs have been very much maintained in the country. So I think things should normalize infour to six months’ time. And Egypt constitutes almost 35% of our Amid business that has taken a hit. And once that restore, I think we should come back more or less as far as our story in care.
Sanjay Jain — ICICI Securities — Analyst
Thanks –. Detailed answer. Just one related question to that the peak MT contributed 91,000 metric tons, we are at 65% this year, probably there about where we will close this year. we have lost close to 30,000 metric ton there. We couldn’t place that anywhere in the other geography, say, in Africa, in Europe in in Lat Am. No, that’s a very big loss of volume we have
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes. Natrogen yes. So that is obviously is the way we look at it. But if you look at entire Africa was also troubled with food inflation they are their own challenges because all the economies in Africa aren’t doing that well. So import as we getting material out, there are supply chain issues until almost June. — getting material out, then the demand in those countries also were not conducive for us to be able to place those volume.
If you look at previous when it goes only the problem was only with local Egyptian currency depreciation we had a good opportunity to be able to place those volumes into other markets in Africa and Middle East. — this problem seems to be across, okay, the Africa Middle — Turkey was again a bright spot last time in Egypt market had initial due to the currency depreciation. But even Turkey now is an issue with the way inflation and country depreciation happen. So this has been a very unique situation.
Sanjay Jain — ICICI Securities — Analyst
Got it. Got it. And any comments on the Europe and your peer talking about
Niranjan Ketkar — Compliance Officer, Company Secretary
As we — Sanish, you know that we have — we never give actually revised guidance. We have given a for this year because we know that there is too much amount of moving parts as far as the macroeconomic environment is concerned. But yes, we need to be giving some sort of profit guidance specific only to this year. because we want the investors to be having a good picture about what we see by end of this year.
But yes, if you ask me, we would like to be decoupled from the global macro environment and what happens in Europe in terms of their demand but doesn’t work that way. So what is our objective very clearly. First is to prioritize volume growth. And we need to be growing higher of the market. That’s very clear. So if the global economy doesn’t grow degrow, then obviously, we need to see whether the degrowth is lower than the degrowth of the global economy. That is one.
Second is the EBITDA per metric ton is always a derivative, okay, of the business model that we have. So when the situation is there where there is macro coming environment preventing you from growing volumes in the 6% to 8% band the only lever available with us is to how do we then look at various opportunities in terms of operational excellence getting our costs properly done and then ensure that we’re actually able to deliver that growth in EBITDA. And that’s what we’ve been doing.
That is testimony to the capability of our team as also a business model. They really manage risk, the way we manage our operational efficiencies is what is going to issue this. But yes, we want to come back to the 6% to 8% volume growth — and EBITDA will be a derivative of that into the 6,000, 8,000 per metric ton that I’ve been talking about. And that should happen as Amit volumes pick up. If Europe again picks up pretty well, yes, we probably will be at the higher end of the EBITDA per INR18,000 per metric ton. — in the subsequent financial year of FY ’23, ’24.
Sanjay Jain — ICICI Securities — Analyst
Thanks, Niraj. — that’s quite clear now. I have a few more, but I will come on the queue. I think I’ll take a
Unnathan Shekhar — Managing Director, Executive Director
Okay, Sanjay, thank you.
Par Sevens — President
Thank you. Participants who wish to ask a question and on to telephone. Participants who wish to ask a question may be annotate telephone. We have the next question from the line of Rohan Gupta from Rogama. Please go ahead.
Rohan Gupta — Rogama — Analyst
Yes. HI, sir good afternoon and thanks for the opportunity. Congratulations on a good set of numbers despite the challenging environment, so I heard you that in terms of the margin guidance, INR27,000 to INR22,000 per tonne. And do I understand it may be mainly driven by the product mix. Sir, I just want to have some more clarity in terms of like going ahead, though it will be applicable for the current year. But the focus is, as you rightly mentioned, is more on the volume growth.
So when we — when you are striving for volume growth and going for 8% to 10% volume growth trajectory in the medium term, do you see that it’s an absolute necessary to dilute the product mix that will pull down the overall margin. I mean if we — in the current scenario, can maintain a INR27,000 to INR22,000 margin trajectory, why you see that once the focus will be more on volume growth, the margins have to come down and fall down to INR16,000 to INR18,000 EBITDA range. So I just wanted to understand that is it absolutely necessary in the deterioration in product portfolio, product market? Or I mean, why the margin contraction will happen?
Unnathan Shekhar — Managing Director, Executive Director
We want to, once again, clarify on our approach. — for us, EBITDA is not a target. EBITDA is a derivative, okay? Our target is always the market. Our customers, we want to grow with the market, grow ahead of the market. That has always been our approach and that will continue to be the approach for the next whatever number of years, Galaxy is going to be the case because it’s important for us margin is the most important thing. Customers are the most important things and volume growth on along with the market. repeat, EBITDA is a derivative.
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes. Rohan, other thing what we need to also probably keep in mind, is that our objective will be in terms of growing in both the and the developing markets, grow the likes of both our performance of surfactants and specialty ingredients. That’s the way it will be — now it is our effort. Now how the way the market really evolves, okay? It’s quite possible that once the growth starts coming back, it’s quite possible that you will have performance products doing significantly better because it has been growing because your Amit will come back.
And then you also have demand of specialty incidental rest of the world giving you a momentum.
So that’s what I said, for us to be looking at revising guidance we need to see a steady state — if it was a steady state in the global macroeconomic environment and our efforts then will determine as to how we partake here is a situation where we are at the receiving and now we want the global matching environment is have a clear picture. We’re always going to even in FY ’24. So what my talking is based on not a as of today, given how we approach the business.
Rohan Gupta — Rogama — Analyst
Got it, sir. Sir, second question is on our specialty care per basket. So I think that, that market is primarily driven by Europe and maybe U.S. — primarily U.S. market. there also Slide 15 in volume.
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes. It’s clear now. Note that. Rohan, are you there? Hello?
Rohan Gupta — Rogama — Analyst
Yes, on. We can hear you now.
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes.
Rohan Gupta — Rogama — Analyst
So sir, I was saying that coming back on the specialty care product market. So I understand the performance of and the pressure on volume, but Specialty Care markets are more in the U.S. and Europe divinmarket. And there also in this quarter, we see some weakness in volume. So this specialty care market, which is where we have already added capacities in first half, I mean, in the end of the last year, probably that we are — our operating leverage will not be playing here and utilization level will be quite low as of now. So why there is a pressure on the specialty care product market? When in last two to three years, we have seen that the Specialty Care has done very well, and we have added many products and have also commissioned the additional capacity.
Unnathan Shekhar — Managing Director, Executive Director
Yes, correct. So if you look at it, Rohan, is that the rest of the world, which is majorly driven by specialty Canadian market. If you look at it, it has grown by almost 35% in the first half. And if you look at quarter-on-quarter, it’s almost 7% to 8%. But the issue that we need to be cognizant at this that the major impact is because the way Europe has been not measuring up.
So yes, we do have the product. There are several projects in the pipeline that were maturing, but then people in a given scenario where the demand itself is under question. people have taken a step back. So this will come back once the sentiment changes.
See, finally, any new product reductions with specific ingredients requires the sentiment to be positive, — whereas I mean, U.S. has been a bright spot in terms of specialty incident because that has been holding up at least as of — up to quarter two. And Asia Pacific also has been stable. The concern, obviously, is Europe, and all of us know why it is so. Once that starts turning around, things will start looking better on the special ticket ingredients. We are ready now
Niranjan Ketkar — Compliance Officer, Company Secretary
One other very important thing to note is the macroeconomic environment with respect to inflation in these developed markets also has an impact on the sentiment with respect to consumption. That is one. And number two, we also hear, of course, this is not validated or proven that all the major customers as well as retailers like Walmart and overstock themselves in the context of the super chain issues, which the world experienced, and they are now inventorizing as far as their pipeline is concerned. So this is going to — this also will have an impact for maybe a few months or so. Of course, this particular thing, I just wanted to tell you that this was what was told to us, we have not validated it as yet. Okay. These are the two primary. One is the macroeconomic inflation impacting the sentiment of consumption and two, eventizing the finer pipeline. Got it. Sir, the third, if I’m allowed to and otherwise, I can quickly go back into the queue. We have seen a sharp fall in oil prices went almost to $500 quite sharply corrected from almost $2,900 at the peak level. Still the somehow, the correction in raw material prices is not visible in the inventories like our inventory level are still at almost INR700 crores — I mean, INR775 crores in September versus March. And also, there has not been a very sharp correction in the trade receivables actually it has gone up. So this raw material prices led correction and falling raw material prices should have led to lower working capital requirement. That is not visible. Just wanted to understand our prime
Unnathan Shekhar — Managing Director, Executive Director
Then. So what needs to be understood is that the raw metal pass are correcting since significantly since the end of May. June. So obviously, you also have the contracts don’t get them on one month. So you’ll have a contract that will flow in to what you have done prior to the correction happened. The other thing, so obviously, you’ll start seeing the impact in the coming quarters. In terms of the lower price of the inventory.
The other thing also is that the inventory in the pipeline also was enhanced where given the supply uncertainties that were there. Now that is also something that will start getting corrected. So the receivables, again, are not resetting because my receivables are based on what was sold in the month of June in — typically use about 60 days is our receivables position. So they reflect what was sold even on the higher feedstock prices. So you will see this reflecting in the coming quarters progressively.
Rohan Gupta — Rogama — Analyst
Okay. Got it, sir. Thank you very much, sir. I will come back in queue further further questions.
Par Sevens — President
Thank you. [Operator Instructions] We have the next question from the line of Pooja Shah from Congruent Advisors. Please go ahead.
Pooja Shah — Congruent Advisors — Analyst
Yes. Two questions from my side. First question would be, can you just give us the possible geographical volume for edge on
Unnathan Shekhar — Managing Director, Executive Director
Yes. So it was — I think two
Niranjan Ketkar — Compliance Officer, Company Secretary
About, say, H1 23 was about 51,000 in India, rest of the world you wanted the volumes or the percentage growth?
Unnathan Shekhar — Managing Director, Executive Director
E percentage
Pooja Shah — Congruent Advisors — Analyst
No, no, no, I just want the split of the volume for H1
Niranjan Ketkar — Compliance Officer, Company Secretary
So this is a
Unnathan Shekhar — Managing Director, Executive Director
Yes.
Niranjan Ketkar — Compliance Officer, Company Secretary
As this Bette volumes is something that we typically is something that we don’t want to be talking now, okay? But that’s something that we want to keep it with us. We only talk about the category of customers and Tyrone —
Pooja Shah — Congruent Advisors — Analyst
Okay. Okay. Okay. And my second question was which on the previous call, we were saying that U.S. has been a pretty good demand. We are seeing a pretty good demand on that part. And currently, we are saying that the U.S. demand is being currently a stable point of view. So have there been inflationary point of view, they are waiting for a couple of months to stabilize and they start to — for the distribution or anything like that? Or it’s been like the U.S. has been pretty strong currently as well.
Unnathan Shekhar — Managing Director, Executive Director
No. So if you just look at it last year at the same time, U.S. was extremely strong in terms of demand. Now that obviously has got a little bit tempered. So U.S. is not as — the sentiments are not as negative as what we have seen in Europe. We need to wait and watch as to how things are going to pan out in U.S. at least till quarter two, when we have been speaking to our customers in the U.S., they have been not that very negative.
Although they did say that they are seeing correction as Shekels explained earlier, there is inventory correction happening in the U.S. at the — by the retailers, like almond a target, which is obviously getting passed on, okay, to everyone in the value chain. So that may be an issue that needs to be kept in mind. Now whether the consumer demand is going to turn negative in the U.S., we need to wait and watch. We’re not seeing certification as of now.
Pooja Shah — Congruent Advisors — Analyst
Okay. Okay. Okay. — thanks that–
Par Sevens — President
We have the next question from the line of Rohit Nagraj from Sandoroking. Please go ahead. —
Operator
This is the operator, Mr. –.
Par Sevens — President
The participant has left the queue. We have the next question from the line of Steve Walia from Clock Wine Capital. Please go ahead.
Steve Walia — Clock Wine Capital — Analyst
Hello. Sir. Thanks for taking my question. Am I audible?
Unnathan Shekhar — Managing Director, Executive Director
Yes.
Steve Walia — Clock Wine Capital — Analyst
My question is specifically on the beta part of your specialty portfolio. So what I wanted to understand is, is it the slowest growing part of the specialty portfolio? And if yes, what are the reasons behind the same? And is this also one of the reasons why this growth in specialty has been low over the last one to two years?
Niranjan Ketkar — Compliance Officer, Company Secretary
No, there is nothing something like it. I don’t know how did you come to that conclusion.
Steve Walia — Clock Wine Capital — Analyst
Betaine is like it’s growing at around 6%, 8% kind of volume at as the other part of the specialty portfolio
Niranjan Ketkar — Compliance Officer, Company Secretary
Correct. But I am not able to understand because we never specifically talk about each product within the category. So I won’t understand when bad you get where you get this information on BTDowing and that being a problem. So then I will be able to answer your question.
Steve Walia — Clock Wine Capital — Analyst
Broadly spoke to people in the industry. Yes.
Niranjan Ketkar — Compliance Officer, Company Secretary
Okay. So that’s — that obviously is not right. It may be specific to them — so it is not — so that — I think you probably need not keep them in your mind.
Steve Walia — Clock Wine Capital — Analyst
Got it, sir. My second question is on the APG class of surfactants. My understanding is Galaxy not present in this market, whereas this market is much bigger than the mine asset base factor — so what are your long-term plans with respect to launching production in this market?
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes. So my effect in is a strategic category for us as seen part of our Specialty Care Ingredients portfolio. APG is one of the misfactants. And yes, that is in our radar. And at the appropriate time, we’ll be able to tell the market as to what our plans are about there. As of now, we will not like to be talking about what we’re thinking on that.
Steve Walia — Clock Wine Capital — Analyst
Got it, sir. Thank you. That’s all for me
Par Sevens — President
Thank you. We have the next question on line of Rohit Nagraj from Centrum Broking. Please go ahead.
Rohit Nagraj — Centrum Broking — Analyst
Yes. Thanks for the opportunity. Sir, in terms of the customer product commercializations due to the current issues and inventory destocking — have there been any delays from their end and probably that will have some consequent impact on our volumes. Thank you
Unnathan Shekhar — Managing Director, Executive Director
There are which I did explain earlier in response to question on similar lines that yes, the sentiments are not as bullish as the same time last year. So custer in projects are getting a little bit pushed earlier, we had an issue because of Coiton the supply side, there’s some of the projects in pipeline are delayed. Now there’s a demand sentiment in the negative, we do see some. There have been some that has moved well. Some of them are — we’ll see some delay. But overall, what is critical is that we are ready now, okay, with our capacities and ready to serve the market movement the demand starts sentiment starts picking up.
Rohit Nagraj — Centrum Broking — Analyst
Right. Got it. Sir, second question is in terms of India growth. So the volume growth has been again relatively muted. And fortunately, there are no headwinds that have been placed by other global countries in India. So is there any possibility of this India growth accelerate to maybe 8%, 10%? And what would be the levers for the same?
Unnathan Shekhar — Managing Director, Executive Director
I don’t know. You mentioned that India growth has been muted. Now is it India as an economy or Galaxy senior business. So I wanted to understand that.
Rohit Nagraj — Centrum Broking — Analyst
No, I said that it is about 6% as now.
Niranjan Ketkar — Compliance Officer, Company Secretary
We would like to share your optimism, okay? We would wish that India growth at even much, much faster rate
Unnathan Shekhar — Managing Director, Executive Director
Yes, and that will be good. Yes, that will be good. Economy is in a very bright spot. And we’d like it to get better and better.
Rohit Nagraj — Centrum Broking — Analyst
Perfect. Perfect. Just one last clarification. So you mentioned that our focus next year would be on volume growth, and that could have.
Niranjan Ketkar — Compliance Officer, Company Secretary
For years
Rohit Nagraj — Centrum Broking — Analyst
Generally Right, right. I mean, right. So it will be predominantly on volume growth and the EBITDA per tonne would be a derivative of the same — so this year, since the volume growth seems to be muted and the EBITDA per tonne is higher. Next year, given just mathematically speaking, would the performance be more or less similar to FY ’23, given that we have the volume growth which we are targeting. Thank you.
Unnathan Shekhar — Managing Director, Executive Director
Yes, you’re right. I would be happy if the business follows the rules of mathematics, but Infosys not so. So what is important is over, we being ready, we understand the markets, our deep customer engagements, and able to ensure that we are able to get — keep growing our volumes with them, be ready with our supply side capabilities. And yes, the EBITDA as a derivative will obviously be good.
So the issue is that we need to be very clearly focused on our strategy. Only thing is that the external environment has to be conducive, which obviously has not been on the demand side for the last six to nine months. We do hope that these things — everything has to come to enhance even this particular negative sentiment on demand side should turn around and then we are well positioned to be able to grow our volumes in the 6% to 8% range that we’ve been talking about.
Rohit Nagraj — Centrum Broking — Analyst
Right, sir. Got it. Thanks a lot and best of luck.
Unnathan Shekhar — Managing Director, Executive Director
Yes.
Par Sevens — President
Thank you. We have the next question from the line of Sanjay Jain from ICICI Securities. Please go ahead.
Sanjay Jain — ICICI Securities — Analyst
Thanks for taking my question, again. A couple of bookkeeping questions.
Unnathan Shekhar — Managing Director, Executive Director
Yes.
Sanjay Jain — ICICI Securities — Analyst
Question on the employee cost inflation — it’s quite high for last two to threequarters on a Y-o-Y basis, even in the stand-alone India, I can understand from for outside of India, given the currency moment, but India inflation remains quite high. What’s leading to this employee cost inflation? That’s number one. Number two is on the tax rate.
Now India minus console stand-alone, if I do subsidiary numbers, there again, the tax rate is around 15.5%. MAT is a tax free for us. So — it’s all what we are paying tax in America and that means around 50% of our PBT is coming now from U.S. and a bit the contribution from MAT has significantly come down. And that’s — is that leading to the tax rate going up in the subsidiaries business? These are my two questions.
Unnathan Shekhar — Managing Director, Executive Director
Yes, Sanjesh. So this is Abhijit here. You’re right, the employee cost has increased. I mean the primary reason the normal increase in the employee cost year-on-year. Plus, you already mentioned the reason of currency depreciation, which gets translated — I mean, the translation of subsidiary companies into — and the other part is we have recently — I mean, last year, if you see, we were into two projects into the recapitalization stage. So now have those projects up and running. So additional manpower on account of the two projects have also been flown in the P&L this year. And your next question tax.
Niranjan Ketkar — Compliance Officer, Company Secretary
And the other thing also is San. Last year base, if you compare the variable pay was not covered for based on the muted performance we had. But this year, the variable pay and commission for the employees eligible for the hairiest.
Unnathan Shekhar — Managing Director, Executive Director
And tax rate, you rightly mentioned, it’s basically — the subsidiary tax rate will be dependent upon the composition of the Egypt and Trik Profitability. Egypt being a new tag zone and accordingly, that variation will always bigger.
Niranjan Ketkar — Compliance Officer, Company Secretary
However, we know the corporate tax rate in India is 25%. For U.S. again, it is about 20%, and Egypt is 0.
Sanjay Jain — ICICI Securities — Analyst
So U.S. is a 30% tax rate or more than that?
Unnathan Shekhar — Managing Director, Executive Director
No, it will also be around 25%, around 25%.
Niranjan Ketkar — Compliance Officer, Company Secretary
Around 25%
Sanjay Jain — ICICI Securities — Analyst
That’s it from my side. Thank you.
Par Sevens — President
Thank you. We have the next question on the line of Rohit Sinha from Synergy Securities. Please go ahead.
Rohit Nagraj — Centrum Broking — Analyst
Hello Thank you for taking my question sir. So one question is on the capex pipeline for ’23 and ’24 FY 2018 ’24? And secondly, just trying to understand the volume outlook. I mean, if at all right now as we are talking about the Europe slowdown and which is impacting the volumes — so considering these things get prolonged for maybe six months more or one year. So what we would be targeting I mean, whether we would be looking at a lower operating at lower utilization level or would be looking to address the new market from whatever production level would be?
Unnathan Shekhar — Managing Director, Executive Director
Yes. So firstly, on the capex, so I think 2024 also typically, our capex per annum has been close to INR150 crores to INR175 crores. So that is essentially continuing into ’23, ’24 as well. Now our capacity utilization is about 66% as of now, we don’t expect that to be significantly different next year unless the demand environment corrects much more significantly. And yes, our clear thing is to ensure we grow out of the market. and we want to stick to our volume growth target of 6% to 8%.
Rohit Nagraj — Centrum Broking — Analyst
6% to 8% right now as we are seeing this euro situation as well. So taking into account that?
Unnathan Shekhar — Managing Director, Executive Director
Yes. Yes. So what is happening? What is happening in Europe is only known to us after things have happened, but we need to be moving with what we want to be targeting. So obviously, we use to see which markets we can run up with new customers we can add on — so that is a constant effort that we do because our key objective is to grow ahead of the market. Where the market, when we say we want about 6% to 8%, the market has to grow, at least at 3% to 5%, correct? So we do expect that things should turn around. The demand environment will become conducive to start growing at those levels and then we want to be targeting that. And that is what drives our business initiatives in terms of our desire to grow volumes
Rohit Nagraj — Centrum Broking — Analyst
Okay. So that is what I was trying to understand. I mean, if at all in case the Europe situation get worse or still going to impact our volumes. So which region would be our next target to maintain this kind of volume growth
Niranjan Ketkar — Compliance Officer, Company Secretary
Galaxy, as you know, Sells its products across the various regions in the world, okay? As you know, the general macroeconomic sentiment across the entire world There is a high level of inflation, which is impacting the consumption sentiment, which is what we need to be aware of and alert about, okay? So out of all these things, what we are seeing as a bright spot is one is, of course, India and number two, USA. Even in these two countries, — the sentiment we saw this inflation is not as encouraging as it was in the first two quarters of this particular year. So we have to wait and watch for this particular quarter, that is September to December as well as January to March.
Rohit Nagraj — Centrum Broking — Analyst
Okay. Okay. And one last thing. I mean,
Par Sevens — President
Low I think the line drop Mr. Synagis.
Unnathan Shekhar — Managing Director, Executive Director
Yes.
Par Sevens — President
Paraspinal connected. We move on to the next question from the line of Ajinkya Jadhav from Camia Wealth Management. Please go ahead.
Ajinkya Jadhav — Camia Wealth Management — Analyst
Thanks for the opportunity.
Par Sevens — President
This is not very clear. If you could go off the speaker phone,
Niranjan Ketkar — Compliance Officer, Company Secretary
Yes, audible Yes. Yes
Ajinkya Jadhav — Camia Wealth Management — Analyst
Yes. Thanks for the opportunity. We understand that the raw material prices have gone down. So going ahead, will they continue to go down for the, let’s say, FY ’23, ’24 or will they stabilize at this point? — at this price level?
Unnathan Shekhar — Managing Director, Executive Director
So we don’t have a crystal ball in front of us. But what we can only understand is that if the global demand is going to be not very robust. — you’d certainly have commodity prices being lower and raw material prices would be lower in simple with the commodity prices being down. But we need to wait and words of now, we are not able to make a statement on that. Our objective is to ensure that we have to manage the highs and the lows in a way that we don’t have any risks flowing into the P&L. So that we are very conscious about. But we don’t have any clear statement on how the normal press will be in the next year.
Ajinkya Jadhav — Camia Wealth Management — Analyst
Okay. That helps. Thank you Sir.
Par Sevens — President
We have the next question from the line of Rohan Gupta from Noam. Please go ahead.
Rohan Gupta — Rogama — Analyst
Thanks a lot for the follow up. Sir, the volume growth guidance which you’re talking about for the current year is 2% to 3%. I understand, sir, that is for the full year, right, because our first half has almost been close to negative 4% volume growth. So still looking 2% to 3% for full year volume growth, right?
Niranjan Ketkar — Compliance Officer, Company Secretary
So that is what we are aspiring for with a caveat, that’s the demand environment has returned conducive. So that is what we are aspiring for.
Rohan Gupta — Rogama — Analyst
Got it. Sir, second is that the poor performance and the pressure in Amit market — so just to drill a little bit deeper. So in it, is it mainly because of the Turkey, we are facing all this issue. That market is continuously pulling down because of the country itself is facing multiple challenges — or you see that even Africa and Middle East are also contributing to the similar way in terms of the poor performance of met region?
Unnathan Shekhar — Managing Director, Executive Director
Yes. So as I explained before, Egypt and Turkey, both countries contribute the significant share of the admiration volumes as far as — and then in that, I explained the Egypt case in details. So we expect the currency has now settled. The free float is there. the foreign exchange availability has started to ease out. Supply chain situation has almost coming to normalcy. So based on our past experience of 2016, ’17, we expect the volume recovery should start in the three to six months’ time frame to come to its normalcy. Turkey also has undergone a similar inflationary pressures, currency has almost devaluated more than 100% over a period of years.
So it had seen an impact progressively getting built up over a period of nine to 12 months, not that it has happened suddenly. But now we feel that it has come to some state of equity rem as far as the country is concerned. So these 2 countries since they contribute something like 60% total volume, we believe that in next three to six months’ time, the recovery of volume should be visible very much Turkey also is attractive low-cost export destination into European market. They don’t have any significant energy crisis. So we believe that even Saroki should start to catch up their export business is in the rest of the Europe.
It’s concerned in turn, our export to Turkey also should resume to its normalcy. So I think — and that governs the significant story for us in metro Specific point to rest of the countries in Africa is concerned, they have also undergone not equivalent depreciation of their currencies, but there are visible sense of inflationary pressures — the lot of food supply chain has got disrupted because of Russia and Ukraine was — so to an extent, there is dislipinterms of demand there, but it’s not as severe as we have seen in Egypt and Turkey market. So a significant amount of our recovery will continue to depend on Egypt and Turkey market. And we just expressed that the time frame we believe is something like three to six months based on our past experience. We have to wait and watch how the Europe situation further settles down. So that’s how we look at it.
Rohan Gupta — Rogama — Analyst
And sir, you mentioned Egypt plus Turkey put together roughly 60% to 65% of your total volume or it is the MX volume?
Unnathan Shekhar — Managing Director, Executive Director
So we restrict to the MD and the region.
Rohan Gupta — Rogama — Analyst
Okay. So 60% to 65% of the met volumes come from Egypt plus Turkey?
Niranjan Ketkar — Compliance Officer, Company Secretary
No, no, we haven’t — we wouldn’t like to his call, keep those breakouts.
Unnathan Shekhar — Managing Director, Executive Director
Yes. So Egypt and the rest of me.So Turkey is one of the significant
Niranjan Ketkar — Compliance Officer, Company Secretary
Are clear. They contribute a significant proportion of the AMT region business.
Rohan Gupta — Rogama — Analyst
Sir, earlier, you used to share the regional breakup. I’m not asking for the particular current quarter, but possible for you to share the revenue mix of India, AMET and ROW now
Niranjan Ketkar — Compliance Officer, Company Secretary
I think we have already done that even in our presentation, which we have said
Unnathan Shekhar — Managing Director, Executive Director
Rest of the world is 40, 28, 32 for the first half, 40 to 28 is to 32.
Rohan Gupta — Rogama — Analyst
Thanks a lot for answering all the questions.
Par Sevens — President
We have the next question from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.
Rohit Nagraj — Centrum Broking — Analyst
Thank you for taking my question again. So just a follow-up question — in terms of pricing scenario right now since we are seeing the inflationary pressure across the world. So how the contracts with our customers getting revised? And is there any particular, I mean, cycle which is there or it is I mean the mix of 6-month or annual contracts, which get revised regularly
Niranjan Ketkar — Compliance Officer, Company Secretary
Betting into specifics, typically, these things get revised on a quarterly basis and then that’s normal. There’s nothing different than we’re doing in the current year.
Rohit Nagraj — Centrum Broking — Analyst
Okay. Okay. That is from me sir. Thank you.
Par Sevens — President
That was the last question. I now hand it over to the management for closing comments.
Niranjan Ketkar — Compliance Officer, Company Secretary
Thank you all, ladies and gentlemen. Have a very, very good day. Thank you very much once again.
Unnathan Shekhar — Managing Director, Executive Director
Now thanks thank all of you. Thank you. Have a good day.
Niranjan Ketkar — Compliance Officer, Company Secretary
Bye-bye.
Par Sevens — President
[Operator Closing Remarks]