IPO Review: Galaxy Surfactants

SPECIALTY chemicals maker Galaxy Surfactants is coming out with an initial public offering to raise around 200 crore. The company will utilise the proceeds for capacity expansion. Its growth momentum is strong and it has healthy fundamentals. However, the IPO pricing appears somewhat expensive. Timely execution of its projects will be crucial for investors to make profits. Long-term investors can consider subscribing to the issue.

BUSINESS:

Galaxy Surfactants is a supplier of chemical ingredients to personal care and home care companies. Its clients include leading fast-moving consumer goods companies. Its products can be broadly classified into three categories — organic surface active agents, fatty alkanolamides and fatty acid esters, and other specialty chemicals. The company has three plants in Tarapur, two facilities in Taloja and one in the US. Its total installed capacity is 138,240 tonne per annum for OSAA, 9,000 TPA for FA/FAE, and 6,990 TPA for specialty chemicals. The company spends around 1% of its annual net sales on research and development. It has 18 patents in India and 10 in the US. The company earns 56% of its revenues from exports and rest from the domestic sales.

IPO OBJECTIVE:

The company will utilise the issue proceeds to build a greenfield facility in Egypt and a new manufacturing unit in Gujarat. It also plans to expand its existing capacities.

   Galaxy Surfactants plans to invest around 343 crore in its business by FY13. Business expansion will be partly funded by loans of 151.20 crore and rest from the IPO proceeds.

FINANCIALS:

Galaxy's revenues grew at a cumulative annualised growth rate of 24.3% during FY06-10. Its net profit increased at 58% during the period. The company maintained operating profit margins between 10.5% and 15.3%. With net sales of 648 crore and net profit of 42.8 crore during the first nine months of FY11, the company has surpassed its performance of FY10.

   The company has a history of positive operating cash flow. However, high investments resulted in increasing debt burden. As on December 31, 2010, the company's debt stood at 1.15 times equity. After the IPO, promoters' stake in the company will fall to 56.9% from 76%.

VALUATIONS:

The IPO price band represents a price-to-earnings multiple between 13.5 and 14.1 considering an annualised profit for ninemonth period ended December 2010 on post issue equity. The price range will be around two times its post-issue book value. Its valuation is a tad above other specialty chemical companies such as Vivimed Labs and Vinati Organics.

CONCERNS:

Timely execution of projects will remain one of the major concerns for Galaxy Surfactants.

 

 

IPO Details:
Company : Galaxy Surfactants
Issue Date: May 13-19, 2011
Issue Size: 192.7 - 201.6 crore
Price Band: 325 - 340