Galaxy Surfactants’ (GSL) Q3FY23 EBITDA/kg at Rs26.4 benefited from exports incentive in Egypt of Rs200mn; better product mix and sourcing efficiencies. GSL has done Rs25 EBITDA/kg in 9MFY23 vs historical Rs17-19, despite which it has maintained traditional framework of growing volumes at 6-8% pa and EBITDA higher than volumes.

This implies GSL anticipates rebasing of EBITDA/kg driven by better product mix and retention of some sourcing efficiencies. Volume growth was hurt by AMET situation (inflation in Egypt and Turkey) where GSL is hitting a favourable base, and had a strong QoQ growth which means volumes should pick-up in FY24. Sales volume in Europe and China is expected to bounce back.

Volumes up 0.6% YoY. GSL’s revenue rose 16.3% YoY to Rs11bn driven by 15.6% growth in realisation to Rs185/kg while volumes rose 0.6% to 58kte due to weak demand in AMET, Europe and China. AMET is fighting inflationary pressures due to local currency depreciation (Egypt and Turkey). Europe and China had headwinds in demand due to local factors. AMET and RoW volumes were down 6.4% / 8.9% YoY while India volumes rose 12.2%. Performance product volumes rose 5.9% YoY to 39kte, but specialty care volumes dipped 8.7% YoY to 19kte. AMET has shown 11% QoQ growth, and from Q4FY23, GSL will hit a favourable base. Europe and China are expected to bounce back with normalisation of inflation / covid situation. India is expected to remain strong with underlying demand being stable. Inventory situation has normalised across the region except for US. GSL expects volume growth to return to 6-8% FY24 onwards.

Gross profit per kg was Rs58.5, up 33% YoY (+4.6% QoQ). Gross profit was up 33.8% YoY to Rs3.4bn, and had gains from exports rebate of Rs200mn (Rs230mn for 9MFY23) in Egypt which is lumpy. Gross profit margin was 31.6% (up 470bps QoQ), and gross profit per kg was Rs58.5 vs to Rs56 in Q2FY23. However, it is much higher than the normal range of Rs45-50/kg due to better product mix (lower AMET mix), easing supply issues and sourcing efficiencies. EBITDA rose 101.6% YoY / 17% QoQ to Rs1.5bn.

EBITDA/kg was Rs26.4 (vs Rs13.2 in Q3FY22 and Rs22.2 in Q2FY23). Net profit grew to Rs1.1bn, up 132.7% YoY. Egypt and US subsidiaries have performed better with EBITDA margin at 16% vs standalone at 13.5%.

Commitment of volume < EBITDA < PAT on growth stays. Despite high EBITDA/kg of Rs25 for 9MFY23, company believes it will continue to deliver 6-8% volume growth. EBITDA growth is likely to be higher than volumes and PAT will grow the fastest. RoCE stands at 22%. Company believes it will be able to hold to EBITDA growth even as margins currently are at higher levels. This will come from efficient sourcing of key raw- materials, improving product mix and in-built strength of business model.