| Galaxy Surfactants Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities of Galaxy Surfactants Ltd (Galaxy; a part of the GSL group).
GSL group registered 32% year-on-year growth in revenue during nine months ended December 31, 2022, supported by increased realization. Volume growth, however, came in marginally lower at 1.73 lakh (9MFY22: 1.77 lakh) at the back of the economic headwinds in the AMET region (Africa, Middle East and Turkey). At the back of easing supply issues, sourcing efficiencies and better product mix, GSL saw operating margins improve to 12.5% with EBIDTA per ton increasing from over Rs 15,000 in 9MFY22 to over Rs 25,000 as on 9MFY23. Topline grew by 33% in fiscal 2022, driven by increase in realisations. However, the operating margin declined to 10.9% (from 16.2% in fiscal 2021) as the group faced challenges on the supply chain front, timely unavailability of raw material, shipment delays, rising freight cost and incremental raw material prices. The margin is projected at 11.5-12.5% over the medium term.
Financial risk profile continues to remain healthy with strong debt protection metrics. Gearing is expected to remain under 0.30 times while interest coverage is expected to remain over 16 times in the medium term. Steady cash accruals and prudent funding of capital expenditure (capex) are expected to keep debt levels under control and will continue to strengthen the financial risk profile of the group. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Galaxy and its subsidiaries, collectively referred to as the GSL group herein, having significant operational synergies and financial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established position in the HPC intermediates market: The GSL group has for over four decades been engaged in the manufacture and sale of surfactants and specialty chemicals used as intermediates by the HPC industry. The group is one of the leading players globally in the HPC intermediates industry, driven by long-standing customer relationships. It caters to a large clientele base of over 1,450+ customers across 80+ countries, consisting of reputed HPC FMCG multinationals and domestic customers. The group caters to three regions namely India (38% of revenue in fiscal 2022), Africa Middle East and Turkey (AMET: 31%) and rest of the world (ROW: 31%) which largely comprises of the US, Europe and Asia-Pacific. Wide geographic and customer diversification de-risks its exposure to a single geography. Its products find applications across mass, mid-price and prestige range of customers.
CRISIL Ratings believes that the GSL group will maintain its established market position in the HPC segments over the medium term, in view of its longstanding association with clients and strong research and development (R&D) capabilities; and expects the group’s revenues to grow at a steady rate over the medium term, in line with demand from the end-user segments.
Healthy operating capabilities: The group is integrated across the full value chain of the HPC industry. It has seven strategically located facilities at 3 locations in India with in-house project execution capabilities, one in Egypt, one in the US. The group has a strong R&D focused team which works at a dedicated R&D centre. As of December 2022, The group has 88 approved patents and has also applied for another 15, which will continue to support its growing product base (220+) over time. Through cost optimisation and focus on increasing the share of value-added products, the group was able to increase its EBITDA per tonne from Rs 15,000 levels in fiscal 2018 to over Rs 19,000 levels in fiscal 2021, however, fiscal 2022 saw the EBIDTA per tonne drop to 17,000 levels at the back of inflationary pressures and supply side constraints seen during the year. During the first nine months of fiscal 23, company reported EBITDA per ton of over Rs 25,000 (vs 9MFY22 of over Rs 15000) on account of strong demand from India coming in coupled with significant decline in freight rates, raw material prices and improved availability of raw material.
Healthy financial risk profile: GSL group’s financial risk profile is marked by healthy net worth, improving gearing and strong debt protection metrics. Steady cash accruals and prudent funding of capex has enabled the group to keep debt levels under control. As a result, gearing improved to 0.23 times as on March 31, 2022, from 0.49 time as on March 31, 2018, while the interest coverage ratio were over 31 times in fiscal 2022 from 9.4 times in fiscal 2018. The group is expected to incur capex of Rs 150 crore per annum over the medium term, which will be funded through a healthy mix of internal accruals and debt. With steady business performance, debt protection metrics will continue to remain strong over the medium term.
Weaknesses: Moderately working capital intensive operations: GSL group maintains inventory of 65-80 days, while its receivable cycle is around 60-65 days, translating to gross current days averaging around 120-140 days over the last three fiscals ending 2022. Around 40-50% of these current assets are funded by creditors which stands around 70-80 days, and the balance by working capital borrowings. CRISIL Ratings believes that while GSL group’s working capital requirement would increase on account of the increase in scale of operations, expectations of healthy cash generation would support the incremental working capital requirement needs. CRISIL Ratings also takes comfort from the strong credit profile of the customers which provides the group flexibility to discount debtors to generate liquidity if required
Partial susceptibility of operating profitability to volatility in raw material prices: GSL group has a high dependence on lauryl alcohol which contributes to a majority of its raw material costs. The group derives most of its revenue through cost plus model while for balance through non-cost-plus model whereby it derives its revenue on the basis of the prevailing market price. The operating profitability of the group therefore remains partially susceptible to volatility in the prices of key raw materials, such as fatty alcohol, fatty acids, ethylene oxide, phenol, and linear alkyl benzene, as witnessed in the current fiscal.
Liquidity: Strong While cash surpluses were modest around Rs 70 crore as of September 30, 2022, GSL group’s liquidity is strong, supported by moderate bank limit utilisation (average utilisation of 35% over last twelve months ending December 2022) and healthy cash accruals of over Rs 300 crore per annum. In contrast, long term debt obligations range between Rs 30-40 crore annually over the next three fiscals. CRISIL Ratings expects internal accruals, cash & cash equivalents, and unutilized bank lines to be sufficient to meet the repayment obligations. |
Outlook: Stable The GSL group will continue to benefit from its strong market position and established clientele in the domestic and global markets. Financial risk profile should remain healthy, aided by steady cash accrual. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group GSL group, set up in 1980, manufactures, sells, and distributes surfactants and specialty chemicals, which are used as intermediate raw materials in the Home Care and Personal Care (HPC) products. GSL has its facilities at 2 manufacturing locations in India at Tarapur and Taloja in Maharashtra, having an approximate installed capacity of around 1.91 lakh MTPA and a 1.33 lakh MTPA ethoxylation (intermediate process) plant at Jhagadia, Gujarat. Galaxy Chemicals (Egypt) SAE, a step-down subsidiary of GSL, set up a greenfield project in Suez, 140 km from Cairo in Egypt, where it operates a manufacturing plant with an installed capacity of around 1.18 lakh MTPA. Tri-K is based in the US and markets the group's products in that geography and manufactures proteins for the global cosmetic and personal care industry. As on March 31, 2023, promoters held ~71% stake in the company. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Rs 20 crores not availed #Rs 60 crores not availed $Rs 98 crores not availed |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 09-May-2023 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity
* - Rs 20 crores not availed
# - Rs 60 crores not availed
$ - Rs 98 crores not availed
Criteria Details
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