Galaxy Surfactants IPO is open for subscription. Should you invest?


The initial public offer of Galaxy Surfactants, India’s leading speciality ingredients manufacturer, opened for subscription on Monday. Its 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.
The company has set a price band of Rs 1,470 – Rs 1,480 for the issue and looks to raise up to Rs 937 crore. The issue will remain open till January 31, 2018. Bids can be made in minimum lot of 10 equity shares and in multiples of 10 shares thereafter. The promoters’ holding will fall by 6% post issue to 71% from 77% now.
Multiple brokerages recommend subscribing to the issue. Earlier in 2011, Galaxy Surfactants had entered the capital markets to raise over Rs 200 crore through an initial public offer (IPO). However, it withdrew from the IPO market due to tepid response from investors.
So, should you subscribe to the issue? Here’s what leading brokerages suggest:
Geojit Financial Services Rating – Subscribe
The company has demonstrated strong financial performance in the recent years. During FY15-17, Revenue, earnings before interest, tax, depreciation and amortisation (EBITDA) and profit after tax (PAT) grew at a CAGR of 7%, 19% and 35% respectively. Moreover, the company has managed to deleverage, reducing its Debt/Equity ratio from 1.2x in FY15 to 0.7x in FY17.

Additionally, it has been continuously delivering positive return ratios over the last five fiscals.
“At an upper price band of Rs 1,480, the stock is available at a P/E of 35x on H1FY18 annualised EPS. We recommend ‘Subscribe’ to the issue, with a medium-to-long term perspective,” the brokerage added.
Centrum Broking Rating: Listing Gains possible
Galaxy has decent set of financials (FY14-17 revenue and PAT CAGR of 8% and 24%, respectively, EBITDA margins of 12%, RoE of 25% and positive free cash flows). Given the decent financials and future growth prospects, the IPO could garner interest in the current market environment. Hence, we believe that despite fair valuations, the listing may still be at a premium to the offer price.
Nirmal Bang Rating: Subscribe
Galaxy Surfactants has shown consistent growth in sales as well as profitability. Personal care and home cleaning are matured markets, which explain the muted sales growth of 8% CAGR between FY13-17 however due to economies of scale. EBITDA grew by 22% over the same period. We believe the valuations are fair considering GSL’s strong financial strength in terms of healthy return ratios, free cash flow generation and sound asset turnover ratios.
Angel Broking Rating: Subscribe
We have a subscribe rating on the issue given the growth potential of the company. At the upper end of the price band, the P/E multiple works out be 36x (pre issue equity base) of FY17 EPS. The company has seen 25% CAGR in the last 3 years in earnings. We expect the company to maintain an over 20% growth trajectory in the coming years, considering growing personal care markets, its increasing product offerings and geographies.
HDFC Securities
Dependence on manufacturing facilities, and the risks associated with manufacturing process and operations; raw material price fluctuation; inability to accurately forecast demand or price for products, and manage inventory; dependence on key personnel, including directors and senior management; dependence on major customers, and a loss or significant decrease in business from them; ability to obtain, maintain or renew statutory and regulatory licenses, permits and approvals required to operate business and inability to implement business strategy or effectively sustain and manage growth are some of the key concerns /