Ladies and gentlemen, good day and welcome to Galaxy Surfactants Limited Q3 and nine-month FY 2026 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectation of the company as on date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant line will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. K. Natarajan, Managing Director from Galaxy Surfactants Limited. Thank you, and over to you, sir.
Thank you. A very good afternoon, ladies and gentlemen. Thank you for joining our third quarter earnings call of financial year 2025-2026. If the first half was about resilience, our Q3 has been a quarter where multiple headwinds converged, testing our agility, execution, and resolve. Before delving into the specifics, it is essential for us to understand the broader context and the developments over the quarter and the year-to-date period. The major factors that have shaped our performance since last two quarters can be enumerated as below. First, reformulation pressures arising from reformulation of a key ingredient by one of our key tier one account in India within our Performance Surfactant segment due to persistently high feedstock prices. This continues to weigh on volumes and contributions since last two quarters.
Second, in India, the GST rate rationalization, while a long-term positive for the fast-moving consumer goods value chain, it caused a temporary demand disruption from end of September and spilled into October month due to deferment of purchases and inventory adjustments, the aftereffects of which were seen into the festive period in the upstream value chain. Third, the reciprocal tariffs imposed by the U.S. on Indian exports, as we alerted in Q2, continued to impact the contribution of our Specialty segment originating from India and affected the pace of conversion in some pipeline projects from Q3 onwards. Fourth, the dynamics of fatty alcohol pricing, which have stayed buoyant at a very high level since last year. Amid this, it is important to highlight a significant positive development on the tariff front.
Following the recent bilateral update between India and the United States, the reciprocal tariff on Indian exports have been reduced from 50% to 18%. While we await the fine print of the announcement, Galaxy strongly welcomes this state development. As global supply chains continue to evolve, this tariff normalization restores competitiveness and creates a more level playing field for us in the U.S. market. Lower landed costs and improved pricing flexibility will not only help us rebuild traction in the near term, but will also strategically strengthen our long-term position in North America. We also believe this move will support the reinstatement of our existing customer pipelines, accelerate penetration in higher-value specialty opportunities, and unlock new avenues for growth. While the past two quarters reflected temporary hiccups due to the tariff-led disruptions, this development is a major structural positive for us going forward.
While oleochemical feedstocks saw a brief softening driven by sharp drop in November on account of record palm oil production and stock builds, the easing was short-lived. Market participants expected further declines, and therefore stayed cautious, resulting in an average basket correction of about 8% for Q3 in our India business. Unfortunately, the unusually wide and prolonged spread between fatty alcohols and crude petroleum, as communicated earlier, also a phenomenon rare over the last three decades, has kept reformulation this elevated and this played out adversely for us in India again this quarter. Coming to the numbers in specific. For Q3, consolidated volumes were stable on year-on-year basis. The Performance Surfactants portfolio experienced a high single-digit decline. However, this was offset by high single-digit volume growth within the Specialty segment.
The Specialty segment's resilience delivered growth despite tariff-induced uncertainties, and this was primarily supported by continued momentum in our non-U.S. markets in the rest of the world bucket. Our Q3 FY 2025-2026 EBITDA, before exceptional items, increased by 13% year-on-year to INR 124 crore, versus INR 110 crore in the similar quarter last financial year. Consequently, EBITDA per metric ton improved to INR 20,156 per metric ton compared to INR 17,527 per metric ton the previous year. This uplift was driven by strong volume growth from our non-tier one customer accounts, improved contribution realization from the Specialty segment in India, and Prestige Specialty products in rest of the world. Incremental service income from our ongoing EPC projects, lower logistics costs, and the successful execution of multiple cost efficiency initiatives across the group.
Our YTD nine-month financial year 2025-2026 EBITDA, before exceptional items, remained flat year-on-year at INR 376 crore versus INR 375 crore in the YTD nine months FY 2025. Consequently, our YTD nine-month FY 2026 EBITDA for metric ton before exceptional items stood at INR 19,126 per metric ton versus the last year YTD nine- months number of INR 19,272 per metric ton. During the quarter, we also recognized exceptional items related to the new Labour Codes to the extent of INR 11.9 crore towards the enhanced impact due to revised calculations of the gratuity and leave encashment. These are though one-time adjustments and do not reflect underlying operating trends. They are, however, necessary, and hence, prudent provisions have been made aligned to the new statutory regime. Moving on to the regions. First, India, our domestic growth engine. The volumes grew by mid-single digit year-on-year for Q3 FY 2026.
Within this, the Performance Surfactant segment grew by roughly 4% year-on-year, largely reflecting the continued reformulation in few tier one accounts, whereas our Specialty business delivered more than 35% volume growth year-on-year basis. The GST reset led to inventory adjustment by all our customers in October month, which created a temporary blip in the uptake. The U.S. tariff overhang continued to weigh on our Specialty business volumes exported out of India. That said, the broadening of our franchise with non-tier one customers cushion the impact and helped sustain overall momentum. As shared last year, we have already undertaken capacity enhancements and developed alternate surfactant systems aligned to the new reformulations by some of our customers. Approvals are underway and we expect commercialization to start in Q4 FY 2026.
With the normalization of GST- related adjustments, continuous specialty strength, and the planned commercialization of alternatives, we remain confident of a gradual improvement in our India growth trajectory. Coming to AMET. The market conditions remained challenging during Q3 FY 2026. The region recorded a double-digit year-on-year decline in high teens, driven largely by market share losses in key tier one accounts amid heightened competitive intensity, including pressure from backward integrated and local players. However, we have an update based on some recent developments. We have recorded significant volume traction in Q4 2025-2026 from most of our customers, which will get reflected in the upcoming quarter's performance. Our teams remain deeply engaged with customers, strengthening our value proposition and actively working to rebuild our position across both tier one and non-tier one segments in the region. Coming to the rest of the world. It performed well and helped balance the portfolio.
On a year-on-year basis, rest of the world volumes grew mid-single digit, with Latin America and Europe posting growth and sustaining healthy demand across both Performance Surfactants and Specialty segments. These gains partially offset the tariff-induced softness linked to the North American Specialty export from India and they underline our strategy of geographic diversification and disciplined market development. TRI-K, our super specialty business segment, catering to high-end prestige products, delivered a strong performance enhancing the EBITDA profile of the group. Coming to innovation. As for the Strategy 2030 that we announced in Capital Market Day in June 2025, we are pleased to inform that we have launched five new products in GALSORB SunBliss range in Sun Care, Leave-on segment in November month in In-Cosmetics, Bangkok.
These second-generation molecules are designed to offer high photostability, strong efficacy at low dosage, broad spectrum UV protection, including blue light defense, and improved sensory performance while meeting evolving safety and environmental standards. We have received very favorable response in this regard, and these products will be commercialized from Q4 FY 2026 onwards. An update on our rebranding initiative, which most of you would have seen. In January 2026, Galaxy refreshed its brand identity after 45 years as part of its ongoing strategic evolution. Guided by the purpose, "Chemistry Creates Care," the new brand identity reinforces the company's focus on long-term partnerships, responsible innovation and sustainable value creation. Alongside this, Galaxy is expanding its portfolio beyond home and personal care into beauty, derma, and wellness segments. While the visual identity has evolved, Galaxy's core strengths, that is quality, reliability and technical expertise, remain unchanged.
The refreshed identity clearly positions Galaxy as a trusted, future-ready partner for customers and all external stakeholders. Coming to outlook. On the cost and supply side, we saw a few moving pieces. Freight offered some relief, but operational frictions like port conditions persisted. In raw materials, despite a brief softening of oleochemical inputs, the quarter's average price correction was not significant, and as we entered January, the fatty alcohol prices began to firm again, consistent with seasonal patterns and festival-linked demand. While new fatty alcohol plants that are coming up should improve availability, palm kernel oil remains a factor that we need to be looking at and planning with what we expect as the way the market would move forward.
On demand side, India performance volumes are expected to increase incrementally in both tier one and non-tier one accounts, and we do see a double-digit volume growth on the Specialty segment to continue. AMET recovery of volumes seems positive from Q4 onwards and be a high priority. For rest of the world, Performance Surfactants growth will continue to be driven by the momentum as was evident in Q3. As regards the Specialty segment, our existing customer growth pipeline projects are expected to get good push as regards our North America business, thanks to the tariff reduction, and will start reflecting from late Q4 and start of Q1 next year. In conclusion, I'd like to say that we are confident that the worst is behind us.
With the India growth story improving, AMET volumes gradually recovering, incremental profitability expected from the recent U.S.-India tariff reduction announcement, and a sustained improvement in our premium specialty product mix, we are confident of regaining our growth momentum in the coming quarters. Thank you for your continued trust. I now open the floor to questions. Thank you.
Thank you so much, sir. Ladies and gentlemen, we will now begin with the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Our first question comes from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Thanks for the opportunity. I've got two sets of questions.
Yeah.
First, on the regional performance. On the AMET, we said that there is a competitive intensity which has increased in Q3, but in the same breath, we said that Q4, we are looking at the volumes to come back. What has changed just in a matter of a quarter, which is giving us the confidence? In AMET, we are already down 35% from our peak quarterly volumes now. How much of that we can recover, say, in next one year, 1.5 years? That is on the AMET. On India, we were supposed to adopt the new changes in the formulation with new product introduction. Where are we in that process, and when should we see volume from that segment coming?
On the rest of the world, you sounded quite optimistic on U.S. trade deal, and you did mention that you expect Specialty volumes to grow at double digit. Is it more like FY 2027, or do you expect for next few years the Specialty should grow in double digits? These are the demand question side of things. Thank you.
On the AMET side, what has changed between Q3 and what will happen in Q4 is in terms of certain of the businesses that were in pipeline, and we are discussing with certain new geographies there. We have been able to complete that towards the end of last quarter. Although the competitive intensity is there, we do have to keep rejigging in what pockets we need to be catering to within AMET. I think that we did a good job in quarter three, but we expect those volumes to start flowing in only from Q4. That is as far as AMET is concerned. With regard to—
We are 35% down from the peak now. Where do you expect that to reach? Do you expect to reach that peak in next one year, 1.5 years, or will it take more time?
No, we do not expect it to reach the peak because we very clearly have told that we have had a new reality where you have a person who is backward integrated and who has also taken share from the tier one customers there. With all that has happened over the last two years as far as the currency availability and the depreciation is concerned in the key market of Egypt. That is something that will not come back.
Okay.
Yeah.
But we will get back to the growth? Say, of mid—
Yes. What we are essentially doing is that we are trying to see with the new normal, how are we able to look at other markets in AMET, the way that we are able to balance it out with the credit risk. That is what the team is working on because we cannot say that what has gone, we will not recompense it. That is why the team is working. But to compensate within the existing scheme of things is not going to be possible. That is why it is taking time. But in next 1.5 y ears, if you ask me today, I do not see that we will be able to come back to those peak volumes.
Very clear. On India?
On India, with regards to the new listing, I said we are ready. But then what also happened was last this thing, our customers, the key customer who reformulated was very busy with battling the GST rationalization and indemnity adjustments. We are in the process. We expect the approval to happen anytime, and business should start anytime now. But the major impact of that will be felt only in the next year.
Got it. We will be back to a double-digit growth in India, with that product coming in?
We should be, but we also had said last time in terms of reformulation, there have been also the active adjustments that have happened. It all depends on what's going to be the way that they're going to look at in terms of continuing with that or trying to alter it further. We don't have any idea. But if the current situation continues, we need to see the growth momentum coming back. Because the double-digit growth can happen only if the market is growing. India market, even today, if you see all of them are reporting 2%-4% volume growth, underlying volume growth. That really needs to come back. Everyone, all our customers are saying that the GST rationalization should bring that up to that level, and they are working towards making that happen.
But it has to get reflected in the actual numbers that they're going to be selling.
Got it.
Yeah.
On the U.S.?
Yeah. On the U.S., obviously. If you see, the tariff actually created an issue for us in terms of the way that we are running the customer projects there, where the customers were essentially very, very apprehensive in terms of whether they want to continue working on the projects in pipeline. Now with the way that things have settled down, it is not only in terms of the tariff, but also the way that India and U.S. have warmed up. Customers do feel that this would be a stable situation to move forward. We are seeing that based on the last two weeks of discussion with our customers, there is a positive momentum in restarting evaluation of various projects in pipeline that were suspended.
That gives us the confidence in terms of it is starting to show a certain uptick in demand for those products that got impacted due to tariff from end of this year, and more it will be seen in the next year.
We should be growing for double-digit volume growth in Specialty based on that—
We should be seeing this. Yes. It's all a question of how the customers are going, because it's also a situation where we do not know what contracts customers have done for the products already when those contracts expire, because everything went into a limbo. Now the team is, with all the customers, we are trying to understand them, but initial thing indicates that it looks positive. To what extremely positive, we will get to know probably in the next call, I would be able to give more clarity.
Very clear. My second set of question, more like bookkeeping. Natarajan, you said that the margins were also boosted because of EPC segment. Can you give more detail on that? And the second question—
No, I can only tell you, Sanjesh, that if you look at it on a YTD basis, it is not significant. Since it is with a single customer and bound with confidentiality arrangement with them, we are not able to reveal the actual number. But I can say that it has not been significant.
Got it.
Yeah.
And just one bookkeeping question. There is a significant jump in the other comprehensive income for last two quarters from a line item where we need to recognize it into P&L in a later date. What exactly is that?
No, those are basically coming from your exchange rate movements, coming from subsidiary adjustments. So...
So why should it get recognized later in the P&L in that sense?
These are the items that can only come to P&L once you sell your investments in subsidiaries, or get back that money into subsidiary, back to India. These are all foreign currency translation reserve sort of.
Okay. Got it.
Yeah.
That is it from my side. Thanks, Natarajan, sir, for all those updates, and best of luck for coming quarters.
Thank you so much.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and one. Our next question comes from the line of Arun Prasath from Avendus Spark. Please go ahead.
Thank you for the opportunity. Good morning, Natarajan.
Good morning.
First question is on this tariff related to U.S. Have we shared any tariff with the customer during this intervening period? If so, with this update on the trade, should we see some kind of gains coming back in terms of margins?
No, I did not understand. When you say shared with customers means?
A lot of companies have indicated their tariff burden is shared equally between—
That is what we said. What we had done was that to respond to that, there are certain businesses that we would actually cater to f rom Egypt, we moved it to Egypt. What we could not move, we had to take either some of it, at 50%, it did not make any sense to do the business at all, because you can't be cash negative. We did not do those businesses i n which products where we could absorb some portion of it, we took that call to keep the volumes going. As we move forward, what we will see is that the major outlook for us or the major outcome that will be good for us is where we are able to build the volumes, okay, in terms of all those products which we can only do from India. That is what we are focusing on.
To the extent that we have taken some calls on some products where we took a margin call, to the extent that the duties have come down from 50% to 18%, once my current contract gets over, we can start reinstating.
You are confident that rest of the world should grow in double digits. It is more backed by the return of the volumes from those geographies which we could not deliver because of the tariff. Is that the right understanding?
No. See, right now, even without U.S., we are doing well in rest of the world because we started pivoting to other locations like in the rest of the world. Now, that momentum we want to maintain. We also want U.S. now to come back after the customers start warming up with the new reality on tariffs and the way that India and U.S. are warming up. That is going to be a plus for us. But the product categories are very different. It is not that whatever volumes I can place in U.S., we could place elsewhere in rest of the world because there is also a mix that has changed. Now, all this will get reset the moment we move into the next year. Hello?
Okay. Okay, sir. Second on this EPC revenue and earnings, will it be similar to what we are seeing in this year going forward also, where there are small amounts will be kept booked each quarter, or will we see some kind of a bulk or a major significant revenue and earnings to come in, say, FY 2027?
No, no. It will spread out because we are expected to be completing this by Q4 of next financial year. It will get recognized in small pockets, not that there will be anything that is significant that will come in one quarter.
Because when we initially announced, what I remember is, there will be some significant amount which will come at one go. That's not going to be the case in any quarter going forward?
It is a question of what we receive and what we recognize. Recognition happens based on the way the accounting standards mandate, correct? We are recognizing income based on what the accounting standards mandate, and that will be evenly spread out linked to the percentage of completion of the project. Correct?
Right.
Yeah. That's the way we recognize it.
If this entire process is not giving us, say, a meaningful earnings even in any single year, what is the benefit that we are actually going to get? I understand that we'll be improving our relationship with the customer, and at some point of time, that may result as a better volume, but what is the tangible benefits we are going to see in the same in terms of this?
First is we are with our customer as part of their strategic intent to backward integrate. That was not the only reason. It is also in terms of we getting access to volumes for our Performance Surfactants, in the biggest market for Home and Personal Care, that is the U.S., North America. That is the prime move that we are doing. It is not that it is not significant. It is not that it is something that is going to change because based on what EBITDA we have, it is not something significant from that context. From this project as it will be, we need to understand the context in which we are saying this. We are not doing this because we want to get into the business of EPC. No.
We did this because it is going to give us a link to our strategic market of North America.
Have we already started getting some benefit because of this in terms of volumes or margins or mix?
No.
At least we are not able to see this in the numbers.
No. You cannot see that because this is in the Performance Surfactant segment, and the project will be commissioned only in Q4 of next financial year. It is not yet commissioned. Where will the volumes come?
Okay. Understood, sir. But anyway, that plant will be operated by the customer, right? We will not be reporting in our numbers.
No, no, we will not be. We will only report numbers which are in terms of what volumes we are going to be off-taking for our requirement in North America.
Okay. Understood. One more question on the gross margin discourse. If you see in the first half, on a per kg basis, we are clocking close to around INR 49 per kg. In Q3, suddenly we are looking at INR 53, INR 53.5 per kg. I am looking at the reported EBITDA per kg translated into gross margin per kg. So this first half of INR 49, to Q3 INR 53, INR 53.5. Again, is it dramatic shift in the mix or our pricing effect? How should we look?
No. As I said in my opening remarks, one is our TRI-K, which is into Prestige Specialties did very well. That is one of the reasons. The other one is also what we sell from India, there is a mix impact. But as we said, our TRI-K business, which is into Prestige Specialties , had a role to play in terms of this being better than what it was in first half.
From last year's, say, FY 2022, cumulatively, we had close to around INR 52.5 per kg of gross margin. From there, the first-half reduction to INR 48, INR 49 t hat was primarily driven by our mix. But again, from the—
I'll tell you what happened was the major reason in first half was when the tariff were announced for the U.S., some of the businesses just got stalled. We had to also take time to be rejigging business from India into whatever we can do. The mix also had to undergo a change because certain products we couldn't sell out of India. Then we had to be seeking other markets like in rest of the world, where we had to face it in a sense of urgency. It's not that we could get time to be able to get the pricing we want. It was all about how do we rejig our portfolio in terms of our locations and geographies based on what the tariff situation presented. That's what explains that.
Right, sir. This gross margin per kg—
Sorry to interrupt you, sir, but you may please rejoin the queue for more questions. Thank you.
Can I answer this one, I think last question that he had, so that we do not lose continuity.
Sir, this is a sustainable gross margin, unless and until before we see some kind of?
I will have clarity because my U.S. thing has to sustain because I am also seeing that the U.S. market, based on all that my customers, when one of our key customers who has a big presence in beauty and wellbeing in U.S., has flagged concerns in terms of demand issues in U.S. That means we need to see how TRI-K shapes up, but I do not see that as a big concern the way that the TRI-K business is performing. But I need to make clear, sir, only when I go into the next quarter, our call. The other thing is, with our tariffs getting releasing, we also see that if all my customer projects that were put on hold and business that we actually have suspended, once they start coming in, it is going to save the margin profile. I would urge you to—
Understood.
—wait till May, when we will have our call for the full year. I can give better clarity.
Understood, sir. I will just rejoin the queue and—
Yeah, no problem.
—raise this for you.
Thank you. Thank you, Arun.
Thank you. Next question come from the line of Archit Joshi from Nuvama Wealth Management Limited. Please go ahead.
Hi. A very good afternoon, sir. Thanks for the opportunity. I have a few. First one, we have been hearing from you about the reformulation strategies adopted by our customers. Sir, my question was whether have we seen this happen in the past? Is that like a permanent reset to a particular surfactant being used in a lower quantity, bases their cost structure, of course? Should that reverse sometime in the future, what have been our experiences when such a shift happens at the customer's side?
I will tell you. It is not that it happened for the first time. It happened earlier, but then the tenure for it, the price delta between fatty alcohol and crude petroleum derivatives have been not this prolonged. That is one change that has happened. Second is, any reformulation in terms of activity adjustments or your alternatives being used, typically are something that is not our customers would do in their normal course. They are doing it because they are forced. I can tell you that once price start getting corrected to some reasonable levels, we would see that they would revert to what their original formulation was. These are all temporary adjustments that they are making. That is what even our dialogue with the customers tells us. We are hopeful that the fatty alcohol prices should start getting corrected, say, from May onwards.
Because we do see that structurally with the high season months coming in of palm and palm kernel, it should start reflecting. But yes, we do not have a crystal ball in front of us, but this is what is expectation based on what we have seen in the earlier years. We need to wait for that.
Understood. Sir, if I understand correctly, long story short is that there is a chance that the actives used in any formulation can go back to the same levels that earlier—
Yes.
—they used to use? Yeah. Of course, timelines notwithstanding.
Yeah. When it will happen, it's all a lot of imponderables around that, but yes.
Got it. Sir, secondly, I remember speaking to you on the mix that we have amongst our customers, and we are definitely seeing some shift of some local niche kind of players who have gone up in the total salience of our total revenue mix. So in this quarter, as I can see from the presentation, 40% is going to 47%, and on a nine-month basis also, we have jumped from 39% to 44%.
How should we read this, sir? Is it that because of these reformulation things, the MNC customers have dropped significantly in volume? And because of this, there's an optically higher number seen in the mix of these local and niche players, or we have actually seen local niche players grow significantly in volumes?
For this percentage, obviously, you also know that denominator has an impact. If the denominator comes down, the percentage goes up. But that's one sort of explanation. More importantly, which we have been constantly saying, is that we are very deeply entrenched, okay, and a huge amount of engagement with all our tier two, tier three, and D2C customers. It is what enables us to ensure that we were able to mitigate a good portion of the impact because of the reformulation by our tier one customer with what we could do with the tier two, tier three, and the direct-to-consumer brands. Okay? That particular intensity to grow that segment is not something that we're doing now. It has been a stated strategic agenda for us, and we'll continue to maintain and build on that momentum. That we are very clear.
We also know that the way the markets are looking at it, you'll have D2C brands are here to stay. It's all important as to how we have a business model that enables us to address it very effectively and sustain whatever growth that we achieve with the business with them.
Understood. Would that be fair to assume, sir, there'll be a gradual pivot towards these local niche regional kind of players, and that should... Any number as a percentage of mix that you would be targeting over there?
See, one thing that I'd say percentage is derivative. It is not that we are deliberately pivoting towards tier two, tier three, and deprioritizing tier one. That is not the way that we will do business. If the churn happens at the end market, we are well ready because the way that we engage with all tiers of customers. Okay? That's the way this we understood. Our strategy is not to deprioritize. Okay? We'll have to have the ability to serve all the segments and in a way that they would want it, the way that the market configuration happens. That we've been doing for the last quarter, we'll continue to do the same thing.
Got it, sir. One last, small one on this extremely welcome development with regards to commercialization of five new products under the leave-on category. Hearty congratulations on that. Since we are hoping to ramp up production sales and commercialization from next quarter onwards, would you, sir, like to give us some more understanding with regards to its potential from an export perspective, or whether it will be domestic or any particular customers, would they be MNC or regional players? Anything on that account that would be helpful. Thank you.
Yes. It will be essentially, we launched it in November. We are able to see a good amount of response, and that is very heartening. It will be in India and out of India, both, because it is in the Leave-on segment, it is in Sun Care. Okay. Obviously, we don't have any specific focus on. We say that it's not that we want to focus only on tier one or tier two, tier three customers. This is a product we have got interest across all tiers of customers, and our objective is to see how we are able to progress well and convert all the positive inquiries into business. That's what we are working on.
Understood, sir. Sir, this would have a significantly higher EBITDA per ton, right? Compared to our existing or blended number that we are reporting close to INR 18,000, INR 20,000 per metric tons.
Yes, it should have. Correct.
I understand, sir. Thank you, sir. Thanks a lot and all the very best.
Thank you so much.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participant, we request you to kindly limit your question to two questions per participant. If you have a follow-up question, please rejoin the queue. Our next question comes from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Yeah. Thank you, sir, for the opportunity. Just a couple of questions. Sir, when we say, we are pivoting to other regions for growth in export market. Compared to U.S. market, also whatever benefits which we had got in U.S., are the other markets similar in terms of the remunerative prices, or they are below or they are higher? Whatever markets like we have explored during this tariff journey, how you see that journey to build upon or like, U.S. will come back to normal?
See, first of all, it's not that in the rest of the world or no specialties, we are focusing on all the markets, North America, Latin, and Europe. But then when the tariff situation presented to us in Europe, then we had to be looking at how do I start seeking more business from those segments? Obviously, we had to even do certain things which were because what option we had, either to take those huge margin hit in terms of continuing to sell that into the U.S. or look at other markets where the impact can be lesser than what margin impact we'll have in the U.S. with the tariffs incorporated. That will ensure that there is no question of saying that whether I plan to have what margin I need.
Now, whole thing was to ensure that we start pivoting because we never knew how long this U.S. situation will continue. Correct? Now this positive development has happened in terms of the tariffs getting reset, and we don't have any comparable disadvantage vis-à-vis others in the world. Almost everyone is at 18%, 19%. Okay. So this gives us the confidence to restart, okay, the strategic pipeline projects we had with the customers in U.S., which was what was originally intended. Okay. So we'll then start, once those things start diversifying, we'll start re-digging back into the U.S., those volumes.
Got it. And of this customer which you had mentioned, U.S. customer has stated, like demand is an issue. So how you see the uptick would be gradual or it would be very easy for us to take back the lost volumes and margins?
Now, for the first time, two of the biggest guys, one of them is the biggest in the U.S., the other one is very big as far as your beauty and wellbeing is concerned. They for the first time flagged concerns with regard to the demand side in the U.S. We haven't heard this till now. When we see the commentary of some of our competitors in the U.S. and Europe, they're all pointing towards huge concern on the robustness of demand. The first time when our customers are flagging this is when we say fine, if they're saying that they're probably much nearer to the consumer side of the business. We said, "Let us take this input and keep it into our mind." That's what I communicated.
When someone asked whether we expect the U.S. business to be continuing into double- digit growth, I said, "This aspect has to be factored in." Although if everything continues as normal, obvious things would be much better given that the tariff situation also has got resolved in a very positive way.
Got it. Sir, despite this slowing, what suppose if that issue persists on the demand side? We still like, sir, maintain our volume guidance of whatever for the next two years, is that maintained or like there is, would be again some cut?
See, volume guidance, we talk always about 6% - 8%. See, it's actually very dangerous to change guidance when things are in such a state of flux. That's the reason why I'm not courageous enough to do that because revising the guidance has to give more clarity. It's not confused. Correct? That's the reason I'm not doing it. There are too many things that are happening on the positive side in the geopolitical situation. If all that falls in place, we do see that things should start looking up and take us closer to the 6% - 8%.
Because what is very commendable as far as the performance is concerned is that despite so many challenges in India, which has been the biggest market for us, with the tariff in U.S. and with what is happening in Europe, we have been able to have a positive volume growth and also able to keep our profit numbers flattish by combination of how do we rejig our demand and also in terms of how we took care of cost. This essentially again is a very clear demonstration of the very, very robust business model that we have across customer size and across geographies and across product segments. Yeah.
Just one last question, sir, if I may. Sir, to the EPC business, any sort of a guidance like for the next one year or for the next two years, how much contribution we can see from this business? And how much EBITDA diversification will happen from base business to this? Any sort of a number considering next two to five years view?
First of all, as I said, if I can give for next two years, I would have given as to what we have recognized this year. That is why I said it is not significant. Then I was asked, if it is not significant, why did I do it? Which also explains. I can only tell you that in the coming years also, it will be there, but it will not be significant in terms of what we are doing with this customer. Since I am bound by confidentiality agreement with this customer, I am not able to disclose. Otherwise, you know that as an organization, we are very transparent. We would have disclosed.
Got it. Thank you, sir. That is it from my side.
Thank you. Our next question comes from the line of Dhruv Muchhal from HDFC AMC. Please go ahead.
Yeah, thank you so much. Sir, first question is it possible to share how much portion of your India business is getting influenced by this reformulation? To some degree, is it there in the Q3 numbers or more can happen?
As of today, whatever has happened is fully reflected in my Q3 numbers. If you look at the entire de-growth that has happened in India, if you compare it with last year to now, which we have been able to mitigate with some good business growth that we had with our tier two, tier three customers, has entirely been due to this reformulation. We don't see the base getting altered significantly if the current situation continues. But if you have the fatty alcohol prices and crude petroleum prices further diverging, then we cannot make any statement on. Because then we need to go back to a customer. But as of now, what has happened has happened, w e don't see that increasing further.
Sure. Sir, I'm asking why because there would be some products where the formulation can never happen. I'm assuming there could be some products where the reformulation can never happen. From that angle, I was trying to understand.
Yeah, correct. Whatever, I think most of what could have happened have happened. Customers also do give us advance intimation, but they will not tell us into every detail that they are planning. But based on whatever discussions we have had with their top leadership, I think most of what they had to do, they have done.
Got it. Sure. Sir, secondly that we are seeing this reformulation strategy of yours will start to play out from Q4, and gradually from Q4, and also the AMET growth we will start to see. At least the base is there now. We will start to see volume growth back. Just trying to understand, how is this business from a profitability perspective, both India and the new growth that we are seeing in AMET? Is it meaningfully different than what you were historically doing? Initially, there will be some learning curve and some market shares gain related push which will influence the margins or the EBITDAs versus what you typically used to do historically, or they are broadly similar as what was earlier?
Yeah. The first objective we have is to be meaningfully present into certain reformulations that have already happened to the extent that we need to. That is the first objective. Once we get there, we also know that because the pricing is what there is in the market, it is not a new product. It is something that is already existing, and then we obviously did not get into that because it is a petroleum-based feedstock. We said, let us first prepare ourselves to participate in this reformulation. Similarly, in AMET, in those new countries that we are looking at, we are very clear that we will not get into any country where we have significant credit risk. But we are also looking at taking appropriate margin calls to get the volumes. Because first objective is to get the volume traction back.
But it is not that we are taking calls that are going to be injuring us in terms of margins. But yes, these actions that we are taking are not going to be super margins that we will make. It is going to be something very normal.
All right. Sure. Last question, a quick one is, when I do a console minus standalone, I see these subsidiaries, which effectively I believe is Egypt and the U.S. and some other businesses, seems to be doing well. This is despite AMET not doing as well for the last few quarters and probably few years. Particularly this quarter seems to be strong. Is it primarily because of the U.S., because of the TRI-K, or there are other factors, probably mix in AMET is improving and all those? Just trying to understand what is—
I think the major here, if I can say, is that your U.S., I said, in terms of is a bit better. But the major impact in terms of standalone being low is because I said India has been significantly impacted due to the reformulation.
Yeah. Standalone low is understood, but the gap seems to be okay. That would mean the subsidiaries are doing well.
Yeah. That I think is also majorly what I've said in terms of what is happening in our TRI-K business where it is able to give us some good growth in terms of profitable growth, which is able to compensate.
Okay, got it. Sure. Great. Thank you so much, and all the best. Thank you.
Thank you so much. All the best. Yeah.
Thank you. The next question comes from the line of Umang Shah from Banyan Tree Advisors. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, just had a question on AMET. You mentioned in the preceding that there was a lot of local competition. Is this cost-based competition, and do you think it is sustainable?
You see, this competition is not coming now. In fact, it has happened, and Sanjesh also said the peak volumes that we had was all when Egypt was in a very steady state. Currency was ruling at something like EGP 15, EGP 16 to $1 . Today, it is at EGP 45. Okay. Inflation, they have passed through some 100% inflation. Today, they are at 40%. So now with all this, what has happened is that there have been some local players who have taken advantage of the situation and have come up with product formats and pricing that have been significantly cheaper, okay? They are also backward integrated. That is what has resulted, okay? Now, because when my customers there, my tier one customers lose share, it straightly reflects on us.
There is no way that I can gain back that share with others who have now taken the end market share because they are backward integrated. So that is something that is not something that has happened now. That has happened over the last three years.
Got it. Very useful, sir. Sir, second question is, after a long time, there has been a decline in raw material prices, fatty alcohol prices on a quarter-on-quarter basis. Do you see the price increases impacting or benefiting the EBITDA per metric ton?
No, actually, whenever prices decrease, they decrease briefly. But then we are also very cautious because when prices start decreasing, when alcohol was at $3,000 and it went to $2,500- $2,600, typically the problem is the risk we have to manage is very high intensity because customers then expect it to come down further, don't do deals. But we need to buy to continue our production. So we are very conscious now how we manage the risk. Now, after all of them were waiting that then they will do their deals once it comes down further, now it has started going up. So now customers again are coming to buy, okay, but again are doing deals which are short-term, because they say it has gone up, it will come down. This aspect of— It is not a question.
If it has been secular into a particular rising situation or a fall, I think it is very easy to manage the business. If it is a situation where it keeps fluctuating very frequently, the frequency is what is a problem today. The issue, it reflects in terms of the way customers are looking and doing deals because they are being very short-term. They are looking at deals for doing one month, two months, and three months. That means your risk profile increases because you have to manage the raw material risk in that frequent way in which customers are doing the deals.
Got it. Sir, but I had assumed that we had an automatic quarterly price increase that you are passing on to the customers in Performance segment?
No, that is for our contractual customers. But I think we have a good business happening with our non-contractual customers. That is tier two, tier three. I am talking about that.
Got it.
Yeah.
Got it. The tier two, tier three, they do not have any price increases. Basically, the negotiation is on a quarterly basis.
Correct.
How frequently would that be?
Quarterly. Some of it is monthly, some of them do six-month deals, depending on how they see the raw material situation. One is what we give them information as per what we know. Other is what they know. Finally, a decision happens. Some of them do a six-month deal. Even today, we have people who are doing a six-month deal because they expect prices to stay firm. There are some people who are going short, they are only doing it for two months. It is a combination.
Got it. Thank you so much, sir.
Thank you.
Thank you. Next question come from the line of Divyansh Gupta from Latent PMS. Please go ahead.
Hi, sir. Am I audible?
Yes, you were.
Yeah. Sir, regarding the alternate formulation that we have developed, some questions regarding that. Is my assumption correct that this is not a supply-constrained situation as in the tier one customer or other customers would have enough decent supply of players providing them with the reformulation? Therefore, the question is that, given that we have developed a technical formulation to serve the customer, what is going to be our edge to grab any market share? As you also mentioned that majority of reformulation has already happened.
Yes, there is no system grabbing market share. It is there that we lost volumes to the reformulation. My customers, obviously, they reformed because there is someone else who was making that supply. The reason why we are confident that we will be able to get a good portion of the volumes back is in terms of the strategic alignment we have with the customer and the volumes that went out from us will come back once we are ready with that particular alternate feedstock, alternate formulation. That is it. There is nothing of we trying to grab market share.
Sir, they might have just replaced whoever they were buying from?
Yeah, correct.
Got it. Understood. The EBITDA realization for this would be lower than our Performance Surfactants, or largely similar?
Should be largely similar.
Got it. Understood. Just last question. With the U.K. FTA and the EU FTA, does it benefit us in any w hich way with respect to pure cost competency?
No, sir. I don't know w ith U.K., there is nothing much that happens in U.K., the business. So probably, it's not that the duties are very high. U.K., as a market, most of it is to get done in the other parts of Europe and getting into U.K. So our team is now working with some customers in U.K. So the UK FTA is not something that's going to be of any great significance to us. But the EU FTA, yes, because what is important is that even earlier you had, again, GSP, your general system of preferences used to have duties of 4%-6%, but that is going to go to zero. It's not that the duty rates are very high.
Got it. So it's not going to make us materially any more competitive, a large competition edge is not there?
Yeah.
Got it. Understood. That's all. Thank you, and all the best.
Thank you. Our next question come from the line of Rohit Nagraj from 360 ONE Capital. Please go ahead.
Thanks for the opportunity. Sir, the first question is on the palm kernel oil prices or fatty alcohol prices. Given that in the last one year, 1.5 years, the prices have been hovering more than, say, $2,000 per ton. Is it a structural shift that has happened where earlier the prices used to be about, say, $1,500± per ton and now move consistently at $2,000 per ton?
No, I think whether it's a structural shift, we'll have to wait at least for the next six months to understand, because it has run through a cycle of close to 15 months. So we need to see it at least up to next October, okay? Because there have been too much amount of, what do you say, external stimuli that is causing prices to respond. Okay, so now with all that is happening in terms of the geopolitical situation, crude petroleum prices, because one thing we see is when the crude petroleum prices correct significantly, okay, there can be an implication for the farm value chain because we have always seen a positive correlation between crude petroleum prices and palm oil prices. Okay, so that is something that we need to keep a watch on. Okay?
We need to also keep a watch on in terms of the production numbers. Our initial discussions with the marketplace tells us that this year they expect the production to be good. Through the recent palm oil conference where my colleagues attended, I think it is pointing towards a good production scenario in this year, which can also be bearish for the market. But how much bearish we don't know. And whether if there is any other external stimuli that's negative, it can keep the prices high. But the way I look at it is that the probability of prices going up further from here is low as compared to prices coming down. To what extent they'll come down, we'll have to probably wait till May, June.
Sure. Got that. The second question, in terms of the Beauty and Personal Care, we have been more and more focused now on the leave-on category than the rinse-off. I just wanted to get a perspective, maybe five years back, where were we in terms of the proportion of rinse-off and leave-on, and where are we now? Because I think last year when we had incorporated the Vision 2030, we had categorically stated that this is the area which is going to be the area of growth for us over the next five years. Just to get a perspective, and then--
If you look at it, the entire HPC market, traditionally and for years to come, it will always be very highly skewed towards rinse-off applications. Because I think cleaning is what is the biggest part of the home and personal care market. You see, it's fabric cleaning, or it's your surface cleaning, or it is your dish cleaning, or it is your institutional cleaning. That will always be the case. Essentially our focus is going to be continuing to be very intense on the rinse-off segment. What we're doing is we are adding an additional listing on the Leave-on segment which is more focused on what we call as the beauty segment, which is more to skin creams, skin lotions and all that, coming up with ingredients for that. That is where we're moving.
Essentially, it's not that even moving forward in terms of volumes they can be significantly at a higher percentage. But we need to be very choosy about which product categories we want to get into as far as leave-on is concerned. That's why we see we launched what we call as the sun care ingredients, GALSORB Sun Bliss, that we launched in In-Cosmetics in November. We'll be very particular as to what sort of ingredients that we get into because it has to be ensuring that we are able to sustain the growth and the profitability.
Sure. Got that. Thanks a lot and all the best, sir.
Thank you.
Thank you.
[Would you?]
Our next question comes from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Yeah, thank you, sir, for the follow-up. Sir, my question was on to the fatty alcohol prices. Sir, considering the inventory, what would be the inventory position today of RM considering at $2,800 per ton versus $1,500 per ton prices? Is the inventory cycle shortened, and by how much days, if you can quantify that? Secondly, sir, adding on to that, so hypothetically assuming if RM prices decline by 20%, just hypothetically assuming it, how much hit to EBITDA we can attribute it to? Also, sir, third on to this, if you can also quantify the differential between fatty alcohol and the crude petroleum prices, like what is it today and roughly, so one year back?
You are asking actually a lot of questions that I ask my sourcing head, in terms of how he is planning. I cannot be answering in this detail, but I can tell you that we have a very robust risk management framework in place which ensures that even if the prices fall significantly, if they rise, there is no risk. If they fall significantly, our hit to the P&L will be minimal. That is how we have structured our risk management framework. That is one. The second is in terms of crude petroleum to this, I do not think as of now I have any specific response to give you, because these are all some data points that we need to get into. I do not have it readily available to respond on that.
Okay. And sir, just the trend like current, because for the last one month, two months, crude prices have went up. Most of the crude-related derivative, whether LABSA, that is to make surfactants, that might have also moved up. So differential ideally would have been shortened. Any trend, if you can also highlight the trend is shortening and that would benefit more towards fatty alcohol players. Any sense onto that?
No, I do not think I am able to see any trend. The LAB prices going up is all related to some shutdowns that are happening now. And LAB, entire complex is very differently structured, so there are more details. I do not think I will be able to explain that in detail. I think my sourcing head can have a conversation with you in more detail. But right now, I do not see any trends that we can relate to. They are all more short term in what is happening in LAB and what is happening in fatty alcohol is something that is there at least for the last 15 months. We need to wait till October to understand whether structurally something has changed.
Inventory cycle of RM, sir, if you can at least quantify that, how much would it be?
Inventory cycle is a derivative of how we want to manage risk. There is nothing specific like I will only run with 15 days inventory or three months inventory. We need to be having inventory to the level that we can continue our production uninterrupted. At the same time, not have significant impact on the P&L in case the prices correct all of a sudden and significantly. That is one of the differentiating this thing, the way we manage our Performance Surfactants business. It is suffice to say that we will not have any significant impact to our P&L even if the prices correct significantly, it starts coming down. We manage our risk very prudently.
Got it, sir. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would like to hand the conference over to the management for the closing comments. Thank you and over to you, team.
Thank you, ladies and gentlemen, and thank you for the huge interest that you have in terms of understanding our business and our performance. I look forward to seeing all of you and answering all your questions and giving an update on the full year performance three months from now. Thank you and all the best.
Thank you.
Thank you, sir. Ladies and gentlemen, on behalf of Galaxy Surfactants Limited, that conclude this conference. Thank you for joining us, and you may now disconnect your lines.