Galaxy Surfactants IPO – Should you Subscribe?

Galaxy Surfactants IPO Review - Should you invest-minGalaxy Surfactants IPO – Should you Subscribe?


Mumbai based Galaxy Surfactants IPO would open for subscription on 29th January, 2018. Galaxy Surfactants is one of India’s leading manufacturers of surfactants and other specialty ingredients for the personal care and home care industries. Its consolidated revenues grew at 17% CAGR in the last 5 years. It generated 6.7% margins in FY17. This company came up for IPO in 2011 and could get only 30% subscription. What are the positive factors in Galaxy Surfactants Ltd IPO? What are the hidden factors in Galaxy Surfactants IPO? Why Galaxy Surfactants IPO failed in 2011? In this article, I would Review Galaxy Surfactants IPO details.

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About Galaxy Surfactants Ltd


They are one of India’s leading manufacturers of surfactants and other specialty ingredients for the personal care and home care industries. Their products find application in a host of consumer-centric personal care and home care products, including, inter alia, skin care, oral care, hair care, cosmetics, toiletries and detergent products. Since Their incorporation in 1986, they have significantly expanded and diversified their product profile, client base and geographical footprint. Their customers include some of the leading multinational, regional and local players in the home and personal care industries. Currently, their product portfolio comprises over 200 product grades, which are marketed to more than 1,700 customers in over 70 countries.

Galaxy Surfactants IPO Issue details


IPO open date: 29-Jan-18

IPO close date: 31-Jan-18

Face Value: Rs 10 per share

Issue price band: Rs 1,470 to Rs 1,480 per share.

Issue size: Approx Rs  937 Crores on higher price band

Galaxy Surfactants IPO Lot size: 10 shares and 10 shares there-off

Minimum investment: Rs 14,700

Leading Managers: ICICI Securities, Edelweiss Financials and JM Financials

Listing: BSE / NSE

Download Galaxy Surfactants IPO RHP Prospectus at this link.

Objects of the Galaxy Surfactants Ltd IPO issue


Below are the objects of this IPO.

1) Offer for Sale: The Promoter Selling Shareholders propose to sell Equity Shares held by them. Company will not receive any proceeds from the Offer for Sale.

2) Offer Related Expenses

Company Financials (reinstated-consolidated)


1) The company generated revenue of Rs 1,582 Crores for the year ended Mar-13 and Rs 2,171 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 0.2 Crores for the year ended Mar-13 and profit of Rs 146.3 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 41.27 and 3 years average EPS is Rs 33.46.

Galaxy Surfactants Ltd IPO - Financials - Consolidated -FY2013-to FY2017-min

Company Financials (reinstated-standalone)


1) The company generated revenue of Rs 1,423 Crores for the year ended Mar-13 and Rs 1,516 Crores for the year ended Mar-17. 

2) The company posted a profit of Rs 34.2 Crores for the year ended Mar-13 and profit of Rs 103.8 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 29.29 and 3 years average EPS is Rs 28.73.

Galaxy Surfactants Ltd IPO - Financials - Standalone - FY2013 to FY2017-min

What are the key strengths of Galaxy Surfactants Limited?


Here are the key strengths of the company.

1) Established Global Supplier to Major FMCG Brands with Demonstrated Track Record

2) Robust Product Portfolio Addressing Diverse Customer Needs.

3) Proven R&D Capabilities with Dedicated Focus on Innovation.

4) Global Footprint Supporting Local Reach.

5) Strong Presence in High Growth Markets of India and AMET Region.

6) Professional and Experienced Management Team.

7) Track Record of Robust Financial Performance.

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What are the Strategies of Galaxy Surfactants Ltd?


Here are the key strategies of Galaxy Surfactants which it wants to focus.

1) Increasing the Share of Specialty Care Products in their Sales Mix.

2) Continue to Focus on R&D and Product Innovation as part of their ‘Consumer to Chemistry’ Approach.

3) Increase Wallet Share with Existing Customers and Continued Focus to Expand Customer Base.

4) Mutually Complimentary Two-pronged Strategy to Drive Growth in both Emerging and Mature Markets.

5) Continue Improving Financial Performance through Focus on Operational Efficiencies and Functional Excellence.

Reasons to invest in Galaxy Surfactants IPO


1) It has posted strong revenue (consolidated) growth of 17% CAGR in the last 5 years.

2) Its profits are on increasing mode. Its consolidated profits were at 4.5% in FY14 which were increased to 6.7% in FY17. Even its standalone profits were on increasing mode i.e. 5.9% in FY14 Vs. 6.8% in FY2017.

Risk Factors / Reasons not to invest in a Galaxy Surfactants IPO


1) Company and Directors are currently involved in certain legal proceedings and are subject to certain regulatory action. Further, there is an outstanding criminal proceeding against one of their Promoters. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect their business and results of operations.

2) Their business is dependent on their manufacturing facilities and they are subject to certain risks in their manufacturing process. Any slowdown or shutdown in their manufacturing operations or underutilization of their manufacturing facilities could have an adverse effect on their business, results of operations and financial condition.

3) They do not have long-term agreements with suppliers for their raw materials and an increase in the cost of, or a shortfall in the availability or quality of such raw materials could have an adverse effect on their business and results of operations.

4) Their inability to accurately forecast demand or price for their products and manage their inventory may have an adverse effect on their business, results of operations and financial condition.

5) Their operations are hazardous and could expose us to the risk of liabilities, loss of revenue and increased expenses.

6) They derive a significant portion of their revenue from a few major customers. They do not have long term contractual arrangements with most of such customers, and the loss of one or more of them or a reduction in their demand for their products could adversely affect their business, results of operations, financial condition and cash flows.

7) They are subject to extensive government regulation and if they fail to obtain, maintain or renew their statutory and regulatory licenses, permits and approvals required to operate their business, their business and results of operations may be adversely affected.

8) Their inability to implement their business strategy or effectively sustain and manage their growth could have an adverse effect on their business, results of operations and financial condition.

9) They have had negative cash flows in the past and may continue to have negative cash flows in the future.

10) Some of their Group Companies have incurred losses in the last preceding financial year and have negative net worth, based on the last audited financial statements available.

11) Company earlier came up with IPO in 2011 which was failed as only 30% subscriptions were received. After that company has not made any attempt to list its shares.

12) Other risk factors (Internal and external) can be viewed in the red hearing prospectus.

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Recommendation / Investment strategy – Galaxy Surfactants IPO


On the upper price band of Rs 1,480 and on consolidated restated FY17 EPS of Rs 41.27, P/E ratio works out to 35.8x. Even based on last 3 years restated consolidated EPS of Rs 33.46, P/E ratio works out to 44.2x. Similarly based on standalone restated FY17 EPS the P/E ratio works out to 50.5x and 3 years restated EPS, the P/E ratio works out to be 51.5x. Means, company is asking higher price band of Rs 1,480 in the P/E ratio of 35.8x to 51x. There are no listed peers to check whether the issue price is highly priced or underpriced.  However, the asking price at 35x to 51x is considered at fully priced.

Company consolidated revenues grew at 17% CAGR in the last 5 years. Its profits are on increasing mode. The asking price is fully priced. Considering all these factors, investors can invest in this IPO with 2-3 years’ time frame. Investors may or may not get listing gains.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, what is your view on this IPO? Do you still feel one would get listing gains?

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Suresh

Galaxy Surfactants IPO – Should you subscribe?

Suresh KP

10 comments

  1. Moreover, as per my analysis of FY 17 financials, look at inventory level. It looks Company has intentionally increased the inventory and corresponding increase in trade payables to manipulate the profits. Also the average realization period from debtors has increased substantially, which indicates some stocking near the year end to manage the turnover.

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