Motilal Oswal Financial Services has reiterated its BUY recommendation on Galaxy Surfactants Limited (GALSURF) with an upgraded target price of Rs 3,865, representing a 46% upside. GALSURF, a leader in specialty chemicals and surfactants, is poised to benefit from India's personal care market growth and recovering global demand. With an expected volume CAGR of 9% through FY24-27 and margin improvement driven by premiumization trends, the company is positioned for sustainable growth. Strategic investments in R&D, premium product segments, and strong operational execution reinforce the bullish outlook.

Q2FY25 Financial Highlights

Revenue and Volume Growth:

Total revenue stood at Rs 37,944 crore in FY24, with FY25E revenue expected to grow by 9.6%.
Strong volume recovery in ROW (Rest of the World) markets with 13% YoY growth in FY24.
Profitability and Margins:

EBITDA reached Rs 5,207 crore in FY25E, with margins expanding to 12.5%.
PAT is projected to grow 12.4% YoY in FY25E to Rs 3,388 crore, reflecting enhanced profitability from higher-margin specialty products.
Earnings Per Share (EPS):

EPS expected at Rs 95.6 for FY25E and Rs 118.3 for FY26E, reinforcing the earnings growth trajectory.

Strategic Market Positioning

Domestic Leadership:

India’s personal care market is experiencing an inflection point, driven by rising disposable incomes and premiumization trends.
Key categories such as dishwashing and liquid detergents remain underpenetrated, offering significant growth opportunities.
Global Presence:

GALSURF’s operations span across AMET (Africa, Middle East, Turkey), ROW, and developed markets, enabling geographical revenue diversification.
Specialty Products Focus:

Specialty care products account for 36% of total volumes, with a growing contribution projected over FY24-27.

Growth Drivers and Opportunities

Premiumization and Urbanization:

Rising demand for premium personal care and home care products supports long-term growth.
GALSURF is positioned to capitalize on the migration of consumers from mass to premium categories.
Geographical Recovery:

ROW volumes showed a robust recovery in FY24, while AMET volumes are expected to rebound in FY25 as inflation stabilizes.
India remains a high-growth market, with GDP expansion projected at 7% in FY25.
R&D and Innovation:

Annual R&D expenditure of Rs 400-500 crore fuels product innovation and sustainability initiatives, ensuring long-term competitiveness.

Key Operational Metrics

Performance Surfactants:
Performance surfactants contributed 64% of total volumes in FY24, maintaining steady growth.
Specialty Care Products:
Specialty products volume is projected to grow at a CAGR of 9% over FY24-27, supported by demand recovery in developed markets.
EBITDA per Kilogram:
EBITDA per kg is expected to rise from Rs 19 in FY24 to Rs 23 by FY27E, reflecting higher margins in premium segments.

Valuation and Target Price

Valuation Multiples:

GALSURF trades at ~22x FY26E EPS of Rs 118.3 and ~14x FY26E EV/EBITDA.
The revised target price of Rs 3,865 is based on 30x Sep’26E EPS, indicating significant upside potential.
Return Ratios:

ROE is projected to improve from 14.8% in FY24 to 16.9% in FY26.
ROCE is expected to rise from 14.1% in FY24 to 16.8% in FY27.

Risks to Watch

Macroeconomic Challenges:
Geopolitical tensions and slow recovery in advanced economies could impact demand.
Raw Material Prices:
Volatility in fatty alcohol prices and other raw materials may pressure margins.
Competitive Landscape:
Intensifying competition in specialty care products could pose risks to market share.

Bottomline for Short and Medium Term Investors

Galaxy Surfactants Ltd. stands out as a robust player in the specialty chemicals sector, with strong growth prospects driven by premiumization trends, market recovery, and innovation. With improving financial metrics, a diversified portfolio, and a strategic focus on high-growth regions, GALSURF remains a compelling investment. Motilal Oswal reiterates its BUY call with a target price of Rs 3,865, offering a 46% upside over the medium term.