Galaxy Surfactants IPO

IPO Rating - 40 (Avoid)*

About the Issue 

The issue of Galaxy Surfactants Ltd. will remain open for subscription from January 29-31, 2018. The company’s offer consists of an offer for sale (OFS) consisting of 63,31,674 equity shares with face value of Rs 10 aggregating up to Rs 937.09 crore. The issue price will be in the range of Rs 1470-1480 per share. The minimum lot size for subscription is 10 shares. Post allotment, the company will get listed on both BSE and NSE. 

Purpose of the issue
 
The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges and the sale of equity shares by the selling shareholders. The company expects that listing of the equity shares will enhance its visibility and brand image and provide liquidity to its existing shareholders. The company will not directly receive any proceeds of the offer and all the proceeds of the offer will go to the selling shareholders. 

Company Background 

Galaxy Surfactants is one of India’s leading manufacturers of surfactants and other speciality ingredients for the personal care and home care industries. The company’s products have various applications across consumer-centric personal care and home care products, including skin care, oral care, hair care, cosmetics, toiletries and detergent products. Currently, its product portfolio comprises of over 200 product grades, which are marketed to more than 1,700 customers in over 70 countries. These products can be categorised under two groups namely –

- Performance Surfactants: This comprises over 45 product grades and includes anionic surfactants and non-ionic surfactants. In FY17, 65.02% of the total revenue was generated from this group.

- Speciality Care Products: This comprises over 155 product grades and includes amphoteric surfactants, cationic surfactants, UV filters, preservatives, preservative blends and surfactant blends, speciality ingredients such as mild surfactants, syndet and transparent bathing bars and proteins, fatty alkanolamides and fatty acid esters, and other care products. In FY17, this segment contributed 32.67% of the total revenue.

Over the years, the company has become a global supplier to FMCG companies across major geographies, such as Africa Middle East Turkey (AMET), Asia Pacific (APAC), Americas (North and South) and Europe. It has a diversified customer base comprising of companies like Cavinkare Pvt. Ltd, Colgate-Palmolive (India) Ltd, Dabur India Ltd, Henkel, Himalaya, L’ORÉAL, Procter & Gamble, Reckitt Benckiser and Unilever. In FY17, 52%, 8% and 40% of the company's total revenues from operations were derived from multinational customers, regional customers and local customers, respectively. 

Through its step-down subsidiaries, coupled with manufacturing facilities in Suez, Egypt, and New Hampshire, USA, the company caters to the international demand for its products. It has sales offices in India, Egypt and the US, and representative offices in the Netherlands and Turkey. Currently, 10 patents in USA, and two patents each in China, the European Union, India, Japan and Russia, are being maintained by the company. The company has applied for an aggregate of 38 patents globally, of which 21 applications have been made in India, and an aggregate of 17 applications have been made for the registration of patents in Brazil, China, the European Union, Russia and USA, and under the Patent Cooperation Treaty. 

Note – Galaxy Surfactants had launched its maiden IPO in 2011 worth Rs 120 crore. However, due to its aggressive pricing policy the company received a low response and had withdrawn the issue from the market. 

Financial Performance 



The company’s EBITDA and PAT have grown at a CAGR of 8.15% and 24.4%, respectively, over FY14-17. Its PAT margin for FY15, FY16 and FY17 was 3.6%, 5.6% and 6.7%, respectively. In FY14 and FY15, the company paid 40% dividend, while in FY16 and FY17, it paid 60% dividend, i.e. Rs 6 per share to its shareholders. 

Valuation 
On the upper price band of Rs 1,480 with EPS of Rs 41.27 for FY17, the company’s P/E works out at 35.86x. Its RoNW for FY15, FY16 and FY17 stood at 19.27%, 24.88% and 28.68%, respectively. The company has no listed peers in the market. As compared to industry’s average P/E, the company's IPO seems to be over-valued. 

Our View  
The company’s maiden IPO in 2011 was withdrawn as response was poor due to higher pricing of the issue. Considering the current IPO's issue price which is offered, valuations look stretched. The company is not offering any fresh issue and, through the OFS, it wants to achieve only the benefits of listing. On the financial front, the growth in revenue has not been consistent. Profits are increasing but the PAT margin level is not so attractive. Investors are not expected to get much returns and thus subscription to this IPO can be avoided.


*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment 

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