In an interaction with K Ganesh Kamath, Executive Director - Finance and Chief Financial Officer, Galaxy Surfactants Ltd

With enhancement in digitalisation being one of its primary growth goals, Galaxy Surfactants is also investing in technology to address macro consumer and community trends, says Executive Director (Finance) and Chief Financial Officer K Ganesh Kamath in this interview

What is your outlook on the Indian specialty chemicals sector? What are the key emerging macro trends you are witnessing in the post-pandemic world?

The outlook of the Indian specialty chemical sector continues to remain positive. According to a study by McKinsey and Company, India’s specialty chemicals market is expected to grow to USD 40 billion by 2025 from USD 28 billion in 2018. The factors that augur this growth are:

• Accelerated capital expenditure to enhance existing capacities, as well as develop new product capabilities.
• Increased investments in research and development to cater to the ever-changing demands of the market.
• China losing its competitive edge due to environmental concerns and rising labour costs. Further, the pandemic-driven disruptions have forced customers to diversify their supplier base. This opens the opportunity for Indian specialty chemical companies.
• India’s relatively low cost of production.
• Rising trend for sustainable consumption.

Some of the key trends that are emerging in the specialty chemicals space include:

1. Increased need for sustainable consumption. Consumers have become more conscious about their physical as well as mental wellbeing during the pandemic. In addition to the continued focus on personal hygiene, consumer preference in the home and personal care space is seen shifting towards the consumption of products that are free of toxins and milder on their skin. Consumers these days scrutinize the labels to seek the ones that are safe, milder, biodegradable, or environment-friendly and are even ready to pay a premium for these products.
2. In the era of digitalisation, companies are making use of technology in the areas of research and development, manufacturing, sourcing, internal operations, supply chains, demand planning and pricing strategies to optimise various costs and increase efficiencies.

For Q4FY22, Galaxy Surfactants’ revenue and net profit demonstrated strong YoY growth of 34 per cent and 25 per cent. The company reported its highest quarterly profit despite the prevailing global uncertainties and challenging environment. Which factors are accountable for your robust outperformance?

As we are a B2B company, our revenue is a function of the price of our key raw material Lauryl Alcohol which has been highly volatile over the last year. The growth in our revenue was largely driven by the rise in the Lauryl Alcohol prices. Therefore, to get a clear picture of our performance, we measure our growth in terms of volume and margins in EBITDA | MT. This quarter we achieved an exceptionally high EBITDA | MT of Rs 25,410 on the back of multiple factors that worked in our favour. The other reasons were:

• Moderating supply-side constraints, particularly in terms of freight risks and container availability.
• Stabilising feedstock prices (both major and minor) although at elevated levels enabled better recoveries.
• Improvement in product mix and introduction of new-age products resulted in better realisations.
• Re-pricing on contract renewals.

What measures are you implementing to safeguard profit margins from the pervasive inflationary scenario and supply chain volatility i.e. perpetual rise in freight costs and container unavailability?    

Our robust pricing mechanisms enable us to protect our margins bypassing on the price increase in raw materials to our customers. Therefore, despite the supply chain constraints and extreme volatility in feedstock prices our EBITDA | MT stood at Rs 17,641 in FY22. In the case of strategic customers with whom we have a contractual business, the prices get reset every quarter based on the price discovery mechanisms. While we are very well-equipped to pass on the increase, a sudden, frequent, and sharp spike in freight and feedstock prices can constrain our ability to renegotiate with our customers, which we experienced in Q2 and Q3. However, from Q4FY22 we see the supply chain situation in terms of freight rates and container availability improving along with feedstock prices stabilising. Barring any demand cutbacks or down-trading due to persistent inflationary pressure that consumers are experiencing, our EBITDA | MT should remain in the upper end of the stated band of Rs 16,000 – 18,000.

Can you shed some light on the company’s capex plans? Also, how is the company focusing on research and development and product innovation as a part of its ‘Consumer to Chemistry Approach’?   

Our expansions are planned by timely investing in capacities to effectively service the emerging demand. Once we reach a particular threshold level of capacity utilisation as per the demand forecasts, we initiate investments in new capacities. This enables us to timely put into operation the new capacities and service the customers for growth without any disruptions. We have multiple production lines for multiple ingredients, and we continuously evaluate the need for either fresh investments or debottlenecking. Every year we invest about USD 15-30 million per annum in new capacities.

Before the pandemic, we made capital expansions at two of our manufacturing sites – Jhagadia and Tarapur. While the capex at Jhagadia got completely into operation in Q4FY22, the capex at Tarapur will get into operation by Q1FY23. This will contribute to the growth of the specialty care portfolio in FY22-23.  Our ‘Consumer to Chemistry’ philosophy enables us to focus our innovation efforts on emerging macro consumer trends. This serves the customers’ interest by bringing new product offerings consistent with prevalent consumer trends. Two such areas where we have made significant advances are mild surfactants and non-toxic preservatives.

Further during the year, we made the below launches:

• Galsoft® SLL: A versatile value-adding specialty additive, which improves the attributes of personal care products and their applications.  This COSMOS-certified product is environmentally friendly and is 100 per cent derived from natural ingredients.
• Galaxy Hearth™ Mix Pods: A ready-mix concentrate for the preparation of laundry pods or capsules. Powered by plant-based surfactants, the concoction prepared is carefully crafted to deliver adequate wetting, excellent cleansing and detergency of soiled fabrics.

What is your earnings outlook for FY23?   

With the launch of new-age products we are optimistic about improvement in product mix which is relative to the prevalent strength of the consumer trends at a given time. Full operations of the capital expansions at Jhagadia and Tarapur are a step in this direction. While we saw the supply chain situation and feedstock prices moderating in Q4, the escalated geopolitical tensions arising from Ukraine’s invasion and consequent inflationary pressure pose a downside risk to our margins. We are closely monitoring the developments and deftly responding to mitigate the impact of such risks. Despite the challenges, we continue to maintain our EBITDA | MT within the stated band of Rs 16,000 – 18,000 and with cautious optimism to improve towards the upper end of the band.

We aim to grow at a rate higher than the organic growth rates of the end consumer markets catered by our ingredients. To achieve this, our focus remains on cross-selling to geographies, cross-selling ingredients, the launch of new products in line with the consumer and community trends of safety and sustainability, acquisition of new customers, emerging trends in indigenous brands, and premiumisation that is being experienced in the markets. We are exclusively focused on the HPC industry ingredients and fully integrated into its value chain which distinguishes us from our competitors.

Galaxy Surfactants recently completed more than four years since listing on the bourses in early February 2018. Can you highlight the key milestones achieved by the company during this tenure? 

The inherent strength of our business and finance model is reflected by the fact that we could navigate major events like demonetisation, GST implementation, pandemic lockdowns and supply chain disruptions and emerging geopolitical tensions from the Ukraine invasion, posting growth in business and profits. Resilience on the demand side, mature risk management practices, the geographical spread of markets, continual reinvestment of cash accruals for growth, innovation to address consumer trends by new product launches and addressing community needs on sustainability | ESG goals (net water positive) have been some of the apparent key accomplishment factors testifying inherent organisational resilience to meet diverse and significant challenges thrown by the business or operating environment during the last four years post the listing.

Sustainability is the bedrock of our business and therefore our focus has always remained on growing sustainably. Considering the sustainable trends that will emerge in the future, we began investing a decade ago in building a milder, safer, and non-toxic product portfolio. We have made remarkable developments in our mild surfactant and non-toxic preservative portfolio since we got listed. Some significant achievements and launches made by us during the last four years are:

1. GLI 21: Our unique patented green mild amino acid-based surfactant (mildest of all) finds application in the baby care, facial care, premium beauty care and men’s grooming categories.
2. Galguard Trident and NT: Our range of Paraben, Chlorine and Formaldehyde-free non-toxic preservatives.
3. LLDC: Eco-friendly liquid laundry detergent formulation for the home care segment.
4. Galguard LIPOG: A versatile and multi-functional ingredient for beauty and personal care products. It is a non-toxic, bio-degradable, nature-derived, and safe ingredient for consumers and the planet. In FY21-22, we bagged the ICC Acharya P C Ray Award for Development of Indigenous Technology, 2020 for indigenously developing Galguard Lipo G.
5. GalEcoSafe: This range of surfactants are specially designed fatty Alcohol Ether Sulphates with ultra-low 1,4-Dioxane levels. The low Dioxane levels help to formulate Sodium Lauryl Ether Sulfate-based products to comply with stringent and upcoming NY S4389B regulations and are therefore safe with low ecological toxicity.
6. Galsoft® SLL: A versatile value-adding specialty additive, which improves the attributes of personal care products and their applications.  This product is environmentally friendly and is 100 per cent derived from natural ingredients and is COSMOS-certified.
7. Galaxy Hearth Mix® Pods: This is a ready-mix concentrate for the preparation of laundry pods or capsules. Powered by plant-based surfactants, the concoction prepared is carefully crafted to deliver adequate wetting, excellent cleansing and detergency of soiled fabrics.

Galaxy Surfactants, with the principles of water stewardship, has directed its operations to ensure the usage of water, is socially and culturally equitable, environmentally sustainable, and economically beneficial. With this, during FY21-22 Galaxy Surfactants emerged as among the few Indian companies to achieve water positive certification and become 1.4 times water positive.

Currently, what are your top three strategic priorities?

The three strategic priorities are:

• Enhancement in digitalisation and cyber security to meet growth-resultant scale.
• Invest in technology to address macro consumer and community trends.
• Enhance and sustain robustness of the supply chains to address the uncertain geopolitical landscape.