Key highlights from Galaxy Surfactants Limited (GALAXYSURF) Q4 FY23 Earnings Concall
Q&A Highlights:
- [00:10:24] Nikhil Rungta from Nippon India Mutual Fund asked how will the company’s decision to stop giving EBITDA per tonne and falling RM prices affect margin visibility. K. Natarajan COO said the company’s objective is to grow EBITDA and PAT ahead of volume growth by capitalizing on opportunities, managing RM prices judiciously, and ensuring demand growth.
- [00:12:39] Nikhil Rungta from Nippon India also asked about the company’s view on US markets now. K. Natarajan COO replied that the U.S. market has been undergoing inventory corrections due to an overhang of inventory in the pipeline from Walmarts to the company’s customers. The company expects demand to return from 2Q24 after the inventory corrections are completed by 1Q24.
- [00:13:41] Sanjesh Jain from ICICI Securities enquired if the sequential improvement in performance chemicals realization and the significant decline in specialty realization due to lower sales to the U.S. and Europe. K. Natarajan COO answered that the mix has not been favorable in terms of better realization, which impacted the lower realization in specialty.
- [00:16:05] Sanjesh Jain from ICICI Securities asked how will the ADD imposed by India on LA affect the company’s margin profile and will it have any meaningful impact. K. Natarajan COO said that GALAXYSURF is contesting the ADD imposed by India on LA and is in discussions with domestic customers and strategic vendors to understand how to adjust to the new levy. The company believes that the ADD is unjust and inflationary, and it is taking steps to mitigate the impact of the levy on its customers.
- [00:18:33] Sanjesh Jain from ICICI Securities enquired if the volume growth in the U.S. and Europe is due to inventory destocking because of falling RM prices or concerns about underlying demand. K. Natarajan COO replied that in Europe, there is an underlying demand cutback and consumers are more towards mass and masstige products. In the U.S., inventory destocking has been going on for six months and is expected to stop by the end of 1Q24, with more clarity in 2Q. The pain in Europe is expected to be longer.
- [00:21:17] Aditya Khetan from SMIFS Institutional asked what percentage of the company’s RM is fatty acid, ethylene oxide, and DMAPA if 50-55% is fatty alcohol. K. Natarajan COO said that total RM to take is about 70%, so this is 50%, 55%, the balance would be all these put together.
- [00:23:22] Aditya Khetan from SMIFS Institutional enquired about the percentage split of the 1.5 lakh tonnes of capacity added over the last 7 years between performance and specialty. K. Natarajan COO answered that majorly it will be performance products.
- [00:25:43] Aditya at Securities Investment asked about the reason for increase in EBITDA per tonne. K. Natarajan COO answered that favorable product mix and better management of costs led to higher EBITDA per metric tonne last year.
- [00:32:22] Rohan Gupta from Nuvama asked about the plans for the surplus cash after capex spending in 2024. K. Natarajan COO replied that the company has a clear dividend policy and has paid out a good dividend this year. The company also has a clear plan for using its cash, including investing in capacity additions and infrastructure.
- [00:35:03] Vipraw Srivastava from InCred Capital asked that despite the high PMI and inflation data, what are the signs that the AMET division is expected to improve in the coming quarters. K. Natarajan COO said the currency devaluation in 2016 took 6-9 months to stabilize. The current devaluation is similar and has been stable for 2 months. GALAXYSURF is hopeful that the devaluation will stabilize in the coming quarter.
- [00:38:03] Vipraw Srivastava from InCred Capital enquired if there is any signs that a potential recession in the U.S. might impact consumer spending in the U.S. K. Natarajan COO said the main concern in the U.S. is the debt ceiling that needs to be resolved. The company’s customers indicate that if a recession happens, it may be for a shorter time and at a lower level. The resolution of the debt ceiling issue is a bigger issue that needs to be grappled within the U.S.
- [00:44:54] Shalini Gupta from East India asked what factors contributed to the 12% growth in performance surfactant volume for the quarter. K. Natarajan COO answered that the 12% growth in performance surfactants for the quarter was largely driven by growth in domestic India.
- [00:47:47] Shalini Gupta from East India enquired if the USA and Europe stabilize in the first or second quarter of FY24, what kind of volume growth should be expected in specialty care volumes. K. Natarajan COO replied that when the recovery happens, the de-growth has to stop first. It is too premature to comment on the extent of the recovery and the company hopes to get into the 12-15% zone but will wait and watch.