Ladies and gentlemen, good day and welcome to the Galaxy Surfactants Limited Q3 and nine-month FY 2025 earnings conference call. As a reminder, all participant lines 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 this conference, please signal an operator by pressing star and 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 of Galaxy Surfactants Limited. Thank you, and over to you, sir.
Thank you. A very good morning, ladies and gentlemen. It gives me immense pleasure to welcome you all to our Q3 and YTD December FY 2025 conference call. At the outset, this has been a relatively weak quarter, but despite the weakness, we are clear there are several one-offs that caused this. I will now be taking you through the factors that adversely impacted this quarter. Most of these factors are short-term by nature and structure, and let me assure you, we do not see any change in our growth trajectory. Let me start with the demand side. India makes up 40% of our business. Weaker-than-expected festive season, excess channel inventory, lower-than-projected government spending, which spurs the rural economy, and unusually weak urban spending adversely impacted our volumes, registering low single-digit decline for this quarter.
This also was exacerbated by the fact that it started deteriorating from close to middle of November, beginning of November. While this is not encouraging, a lot of these cyclical blips are against any structural address. Various measures such as reduction in grammage, slower scale-up of new launches, and slower-than-projected growth of the beauty and personal care segments also contributed towards this decline. While we see this continuing for one more quarter, we are clear that from Q1 2025/ 2026 onwards, things should start picking up as both rural and urban spending will drive the mass and masstige segment for the performance of items. Improvement in systemic liquidity combined with the tax incentives provided by the government in the recent budget to incentivize consumption has laid the foundation for it.
We have also seen lower funding for various D2C brands has contributed towards a broader slowdown of the Indian beauty and personal care market. AMET, while continues to remain flat, the Q1 improvement in volumes combined with the easing of supply chain-led volatility are major positives going into FY 2025/2026. Macro stability along with stability in demand will ensure more launches and better pickup going ahead. Rest of the world has been the highlight for this year. While pickup in premium specialty still continues to be below expectations, we strongly believe the platform has been laid for a strong recovery for our premium specialties. While for this quarter we registered a 9% volume growth, the YTD volume growth stands at 20%, driven by the mass tige specialties.
On the supply side, while easing freight costs, availability of containers, and port congestion overall contributed towards reduced supply side volatility, the 40% rise in fatty alcohol prices during the quarter impacted sentiment and demand pickup adversely. From our experience, we can share that such phenomena does happen once in two to three years, given the inherent volatility in the palm and coconut oil value chain. The adverse impact on demand is usually felt for two quarters before the normalcy in price returns. We believe that this time too, it shouldn't be no different. Apart from the one-offs, I will now share the groundwork that has been done by us to ensure the growth momentum sustains going ahead.
While cyclical slowdowns and sudden rise in feedstock prices are part of the game and not in our control, enhancing our customer as well as product basket to ensure consistency in growth and profitability are some of the controllables that are well within our hands. Our new product, Galseer DermaGreen, has been getting very good response across developed markets. We strongly believe this will be game changer as far as our oils end-use segment is concerned, and these positive effects will be felt in the coming years. Mild surfactants as a category, though, did face headwinds due to the inflationary pressures in the developed markets and some reformulations. Traction and acceptance are now making a strong comeback. Given the range we possess, we are leaving no stone unturned to ensure faster approvals, enhance presence across multiple applications and customers. Preservation remains a key focus area for us.
Our upcoming launches in the field of sustainable and non-toxic preservation will lay the foundation for our next leg of growth in this category. To conclude, rough weather has always been part of sailing, while no one can ever predict the roughness. Sailing despite these challenges continues to be our key imperative. The same is the story in Galaxy, where cyclical slowdown has been part of our business. The extent always remains difficult to predict. Having said that, at Galaxy, we have always focused on the controllables so as to ensure when the weather turns, we are ready to sail ahead. We remain confident of our growth, and despite the challenges seen in this quarter, I assure you the success story remains intact. Thank you, ladies and gentlemen, and over now for the Q&A session.
Thank you very much. We will now begin 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 withdraw yourself from the question queue you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Yeah. Thank you, sir, for the opportunity. Sir, my first question is, sir, can you share the volumes growth for nine months? I believe, sir, you have mentioned that it is single digit, but-
Yeah.
Is it going into the mid single digit or low single digit?
It's 4%.
4%. Okay.
Yes.
And sir, you have talked about new product, so Galseer DermaGreen. Sir, can you share some data, like what is the market size of this product, and is it more of a specialty product? Comparing with our current basket, are the margins premium in this product or is it more or less in line with other products?
This is a premium product because this goes into shower oils, which is a big product that consumers use in the developed markets of the U.S. and Europe. This is a green oil-soluble shower oil ingredient, which ensures that this will deliver significantly superior performance of moisturization with ingredients that are green. This obviously will be a high margin product, and we are building up a very good pipeline because this was launched in cosmetic exhibition in April 2024. Since then, we have been having a very good response from our customers, and a very healthy pipeline is being built. Many of the customers are sampling it, and they are making a formulation and testing it. Some of them are also doing consumer testing. We see based on these early signals that this has the potential to become a significantly big product in our portfolio.
Okay. Sir, onto the margin side, that is clearly visible. Because of the higher raw material prices, we are witnessing some pressure on EBITDA spreads per kilo. As you have mentioned in your last quarter, you were confident that second half would be better as compared to first half on spread side and all, but it seems like the number is coming onto the lower side, and next quarter also, the commentary is not that good. Any ideas on how things will shape up on EBITDA, like guidance what you have given of 20.5%- 21.5%? Is there a downward revision, and what is the outlook on the lauryl alcohol pricing?
See, the thing that really caught us off guard was the volumes started to get significantly lower, say from beyond November. Because I think many customers were looking at the Diwali season giving them a good demand comeback. But I think when that didn't happen, they took actions in terms of reducing the pipeline inventory pretty swiftly. Because with the increasing feedstock prices, they also didn't want to have more stock in the pipeline because everyone has started increasing prices of the end products because they are no longer able to absorb it. They wanted to do grammage reduction. They wanted to reduce the schemes that they've already introduced to incentivize consumption. That was something that caught us off guard. The reason why, and obviously, that also led to lower operating leverage, impacting, because India is a significant market, and that really hits your bottom line.
The other thing that led to that was the slower-than-expected conversion with some of our customers in the specialty ingredient segment. Although they're progressing well, we had expected certain conversions to happen faster, but they didn't happen because I think there were a lot of, some of the customers do talk of some sort of uncertainties given the current tariff wars and the geopolitical situation. Some of them said they want to wait and watch. So there were some mixed signals, but the good thing is the work in terms of those conversion pipeline, they're getting it ready to launch and all that is pretty good. But I think there's been some hesitation in terms of going into the next phase of using and launching it. So that's where we are today.
Sir, is this slow uptick also because of the higher prices or because of the higher inflationary environment? Higher RM also is leading to the higher prices per kilo of the finished products. Is that also impacting the overall volumes, or is it only related to, you can say, what you are mentioning that from the customer side, because of the lower grammage, so that is the only reason?
No. One of the thing is that the demand environment, if you see even the commentary from all our customers, they've been finding that the urban consumption has been impacted, rural also has not kept pace. And obviously, the high inflation of feedstocks makes all our customers not to take too much amount of positions in terms of maintaining very high inventory. Because when the demand is really not being robust, they don't want to build the inventory with a high-priced feedstock. Because they want to ensure that even if the price corrects, they don't want to be saddled with high-priced inventory with that. So they've been cautious. If you look at it, this has been more with our tier two and tier three customers because their ability to have any hit based on certain feedstock inventory corrections is just pretty low.
That did impact the demand sentiment from our customers as well, which we have seen. And the lauryl alcohol prices have been continuously raising. In fact, November, December, it has gone up, like we talked about, 40% compared to last quarter, and most of it has happened in November and December.
Got it. So the rise in raw material prices, complete pain has been taken in our numbers, or there will be spillover in the next quarter also?
See, the only thing is this, when the price increase has to be done, they are done with a lag. This is a typical risk thing. We manage the risk pretty well. But then you are not able to pass on the price increases immediately, because your prices run for a quarter, your prices run for a month. Whenever the next cycle comes, then you end up taking the new price and getting. But as you are doing it, you have one more increase coming in. We are ensuring that we are managing it judiciously. We do not see a challenge in terms of prices being passed on. But the collateral issue based on that is that the demand scenario gets more problematic because customers are also increasing prices of their formulations in the market. That is the issue that we need to be really concerned about.
Our ability to pass on prices obviously is pretty much there, but it happens with a lag, which always is the case. Nothing new now.
Got it. One last question onto the guidance on EBITDA, if you can just possibly share. And what is the volume guidance? Are we maintaining 6%-8% band for the next two years, or there is a downward revision there? And what will be the outlook for the exports market? That would be my last question.
Our listing is we see this as a temporary issue. Structurally, everything is in place, so I have no reason to change anything with regard to my volume guidance of 6%-8% for the next two years or the EBITDA guidance. We do not see that this is something, the structure that has changed. So it does not warrant any change in the guidance for the next two years. Although for this year, full year, we will probably end at 4% volume growth and EBITDA per metric ton in the region of between INR 19,500- INR 20,000 per metric ton. But in the event that we do see there are some reasons for us to revise, we will do at the appropriate time. But as of now, I see no reason as to why the guidance needs to be changed.
Got it. Thank you, sir.
Yeah. Thanks.
Thank you. The next question is from the line of Rohit Nagraj from B&K Securities. Please go ahead.
Yeah. Thanks for the opportunity. Sir, you had mentioned about the nine-month volume growth. Can you let us know about the third quarter volume growth on a YoY basis for all the three regions?
That is growth. It was third quarter, I think we were about - 7% in India. We were about - 1.5% in AMET. Rest of the world was about 9.5%.
Right. Overall volumes were about 1 % lower?
Yes. - 1%. Correct. In the quarter three.
Sir, second question is in terms of the ex-India market. What are the levers in terms of incremental growth? Any which is ROW, I think since last January, we have been seeing there has been a continuous growth. AMET, it grew earlier, then it had its own sort of challenges, and now again, it is back on track. What would be the stable levers for individual geographies from growth perspective? Probably if you can also elaborate on the two segments that we are catering to, Performance Surfactants and Specialty Care, across these two geographies. Thank you.
Yeah. The lever is, if you look at India, essentially the government also seized of the issue, and that is how they have realized that the consumption needs to be now incentivized, and that is why the budget focused on that. This is something that will be very critical because this now has to start reflecting in the consumers loosening their purse strings. Then the government also is doing things that will suddenly make this possible. That is one thing. Otherwise, India has been doing pretty well for us. This probably is the first financial year where we have seen it after probably growing pretty well for almost close to last four years. This, we see that this consumption story has to kick in again, and things will come back. That is the key stuff.
With regard to all the other levers on our customer intimacy, on our capacity, everything is well on track. With regards to the other geographies like rest of the world, the levers are essentially to ensure that we hold on to all the new customer developments that we have done and the new business that we have created and that we are very much in control of. With AMET, the entire thing that was supply led, things have improved. We do not see any headwinds on demand side. We would expect this momentum to continue. The only thing, we should not have the geopolitical situation getting worse, and this is more from Africa, Middle East, Turkey perspective. As of now, we do not see any indications of that. We only see things getting better based on what we read in the media.
We would like the steady state as it is now to continue. In India, the consumption to get back to its original robust state.
Right. Thank you. Just one last question on the U.S. So the recent tariffs that have been imposed, any positives or negatives for us as far as U.S. geography concerned or any other geographies are concerned? Thank you.
Clearly, tariffs in U.S. as of now, see what has been imposed on China, because the only thing that is effective is the additional 10% that has been imposed on all imports from China. That is something, we don't see anything significant in terms of uptick. We may see some customers looking at for some products they are sourcing, whether it is too critical for them that they can absorb this 10%, they may look at some sourcing partners, which our U.S. team is working with the customers. But as of now, it's too early to comment. The duties on China, on Mexico and Canada has been kept on hold now for at least a month.
If there is going to be duty that will come in, we'll have to see whether there can be some customers in Canada and Mexico can start looking at getting it from Egypt or India, which we will see, I think. But as of now, we need to wait and watch. That's that. Our prime minister is there now, and then the whole thing is to ensure that for imports from India into U.S., the duties are not introduced. Let's wait for that meeting also to happen. That's, I think probably tomorrow, and thereafter, I guess.
Sure. Thanks a lot. All the best. I'll come back in the queue.
Thank you.
Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, good afternoon, Natarajan. Thank you. A couple of questions. First, from the profit perspective, if I look at last five years, we have been hovering around INR 300 crore of PAT. How should we see this growth because the five year hasn't been that great from the growth perspective, from the profitability. And again, adjacent to it is that if I look at the return ratios, which used to be around 18%-20%, now has dropped to almost 14.5% on an ROCE basis and 13% in ROE basis. A significant deterioration. This also has to do with the profit hasn't been growing overall. How should we see this business shaping up? Because the last five year is something which isn't the trend, what we have seen earlier for the company.
Sanjesh, you are right. This is something that we, as I said, are seeing that has happened more so in the last about 18 months. We can give a lot of reasons which we have been giving every quarter. But one thing I can assure is in terms of the actions that we are putting in place is going to start yielding results. We only want the external environment to be conducive. But as a group, we are fully prepared, and we have clear actions in pipeline to ensure that we come back to the growth trajectory that we are known for.
No, but return ratios, are they structurally down for us, or how should we look at the return ratios for the company?
Return ratios because there are some investments that we did over the last two years, which obviously need to start picking up in terms of capacity utilization, which will happen. This is more to do with in terms of timing of these investments, so that we do not see as a concern. It is temporary.
It is temporary. From the capital allocation perspective, now that we are sitting on a lot of capacity, that is what the ROCE numbers at least tell. How should we see CapEx from here on that should materially reduce now that we are sitting on a lot of empty capacities?
No, lot of we are at 70% capacity utilization, so there will be certain products in which we may have to do capacity additions or debottleneck, which we will do. But then we'd only do when we reach about 80% capacity utilization in a product. So which will continue to happen, but as is the case, we'll always be frugal. We'll only go for debottlenecking. If not, we will go for a brownfield. That's where we are. With regards to the CapExes, it'll be more in terms of what we'll be doing in terms of getting ourselves equipped for the future, in terms of our IoT core initiatives to make ourselves more capable, efficient, how we're going to be looking at distribution in a way that can prepare us to handle the business of the future.
Those will be something that will come in which we'll do because they'll have their own returns in terms of making us operationally much better and giving us better ability to access newer revenue streams.
We used to run probably at largely 70%- 75% utilization if I look at so many years.
Right.
Then the CapEx is not underutilized, that sense, because then ROCE is fairly reflective. Then what will drive the ROCE improvement?
ROCE improvement will be driven. One is obvious. Second is in terms of how our specialty ingredients business picks up, and that has been something that has been lagging. As I said, we expected things to get better from H2, which everything on the premium specialties. We do see a lot of projects in pipeline getting built, but they need to start converting, and team is aggressively working to ensure we convert it. Once that happens, things then start falling in place.
I thought we were at 17%- 18% with the mix when we started, and then we were thinking of return ratios going better from there.
Right.
With the mix improvement, right?
Yeah.
We are now struggling even to reach the past level with all the mix probably not very different from the historical trend. What are we missing in this reconciliation?
No, essentially, see, we also had certain, like in those years when we did, we also had certain one-offs in terms of better realization even on Performance Surfactants products, given the ability to get in the, like you talked about the COVID years. There were certain one-offs at that time also. If you adjust for all that, we are still getting better in terms of the way that we are delivering on the weighted average, on the EBITDA metric term. The only issue is our Specialty Care volumes need to pick up significantly, so we come back there. That's what we are saying.
One last question on this topic. How do we look at capital allocation from here? We have negligible debt on the balance sheet. How should we look at capital allocation between the CapEx dividend payout?
Yeah. We will follow the current dividend policy. We have certain business agendas and business initiatives which will require some cash. We will be clearer as we move forward. But yes, our objective is to ensure that how do we use the cash judiciously and ensure that we return back to the shareholders at the appropriate time, which we will work on.
Got it. Couple of questions for this quarter financial . It appears there is a stark difference between the performance of the parent entity and the subsidiary entity, that is consol minus standalone.
Correct.
Consol minus standalone has been pretty much stable, right? In fact, EBITDA margin have only gone up. What has changed in the parent entity business? Such a stark difference between the performance of two entities.
Yeah. That is because one is the parent entity has been where the major volume issue has happened in the India business. That is one. Second is where some of the special ingredients, where the pipeline was being worked on, that has not flowered the way it needs to flower. So these are the two things. Major impact has been on the India degrowth of 7% that has impacted the India business.
But we have offset that through a much better growth in the ROW, right? And ROW generally is a better-
My Specialty Care volumes have also degrown in the last quarter by 5%. ROW also, the growth has been majorly driven by Performance Surfactants, and that is-
ROW-
Majorly, some of it has happened from our Egypt subsidiary.
Got it. When should we see all this fructifying? Will FY 2026 be a year where we will go back to that INR 20- INR 21 kind of EBITDA per kg and an 8%- 9% kind of a volume growth? Are you confident about that?
Yes. Yes, Sanjesh. Pretty confident.
Got it. One last question on the cost. Though volume growth is not there, but if I look at our overall cost, particularly other expenses, that has been quite sharp for last two quarters. Even the freight costs have settled down. What is driving a 21%- 22% of the other expenses increase while volume has declined 1%?
There have been some of the one-off situations that we had, like a good amount of detention demurrage that happened in, say, our Egypt facilities because of all the issues on the supply chain getting impacted. Even in India, we had because the incoming supply chain, it started getting better, but you had shipments coming all at the same time. That has actually gone up. Otherwise, there has been nothing else to explain that increase. It has been those one-off in terms of this detention demurrage going up significantly.
This INR 150 crore run rate, we should again go back to that INR 120 crore run rate, say, next quarter, right?
Which one?
The other expenses.
Yes, we should look at that. Okay. There will be certain one-offs continuing in terms of some, I think, in Egypt, but it will be much lower than what it was in this quarter. Correct.
Got it. Thanks, Natarajan sir, for patiently answering all the questions.
Yeah.
Best of luck for the coming quarters.
Thank you.
Thank you. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Good afternoon. Thanks for the opportunity. Sir, you said, again, little bit coming back to the volume growth, so - 1% YoY for the quarter. Is this similar for Performance and Specialty, or there is a difference in the performance between these two categories?
Actually, Specialty, degrew by about 4.5%. Performance grew by about 0.5%.
Okay.
Yeah.
But rest of the world did very well, but despite that, Specialty degrew.
Rest of the world, it was majorly supported by certain Performance Surfactants that was the business that we did from our Egypt facilities.
Which means that on a sequential basis, we are roughly around 7%-8% is the decline in the volumes?
Yes, correct.
How much of this 7%-8% decline is, you will attribute to the seasonal from when you move from September to December quarter, and how much is because customers are rationalizing? Can you give a broad indication?
There is actually no seasonality. Actually, October, November, December is a good quarter, typically, if you look at it. The whole thing has been in terms of in India, whereas all the customers have started pulling back in terms of reducing their inventory in the pipeline. That is what has led to this steep dip in this quarter in India.
Okay.
Yeah.
Sir, just if I look at it in another way, our volumes have declined by around 8% sequentially, and our absolute gross margin has also kind of declined by around 7%, 8%. Is it right to understand that gross margin per kg should be more or less stable in this last two, three quarters?
Yeah, correct.
Okay. The large difference in the EBITDA per kg is because of the other expenses, and which you are saying will if the one-off is not exactly kind of one-off. It will keep recurring in the next two to three quarters also.
Yeah. One is where the gross margins also need to start improving with the mix improving. That's what I said in answer to certain earlier questions. In terms of cost, how do we ensure that we are able to keep the one-offs as real one-offs, and then intermittent something happen, we need to manage because it's more to do with external scenarios that we're talking about.
Okay. Sir, secondly is on the fatty alcohol prices. You have mentioned in the presentation that it's around $2.5 per kg. I see that it's still even in January and February, it's hovering around $2.3- $2.4 per kg. Unless and until we pass some of these prices, fair to assume that this kind of margins will continue to reflect in our numbers?
No, we are passing on as usual, albeit with a lag, because if you see the prices have been going up month on month, it has stabilized, say, probably for the last two months. The problem is not passing on the increases. The problem is in terms of the impact it's having on reviving the demand, which is already pretty low, at least as far as India is concerned. So that is the biggest challenge. The expectation is, and our customers are extremely averse to building their pipeline with these high stocks because they're also passing on the price increases. Now, what will be the implication of this price increase on the demand side? We have to wait and watch because that is another thing that the market is grappling with. The best that can happen is where the prices start correcting, which we expect should happen.
If that happens, then it's going to be good in terms of giving a good impetus to the volume growth in India.
Okay. Sir, I will put it in another way. At what point of time you will say, "Okay, forget about the demand. We need to protect our margins, and I will pass on." Is there some kind of a framework for this?
No. Even otherwise, we ensure that we pass on. It's not that we do not pass on. It's only with a lag. All increases are passed on. It's not that we decide to keep volume by not passing on the increase. That we never do.
Okay.
It's only the timing difference. That's all. But then, this situation will not happen if it increase and stabilizes. But if it keeps increasing every month, then you may have some impact because it goes with a lag. That's all.
What is the average lag period, sir? Are we following M - 1 pricing or Q - 1 pricing?
There are some contracts that are Q -1 . There are some contracts that are M- 1. Okay. It depends on what the context will. There are some customers who buy monthly, some customers who buy quarterly. Okay. We ensure that we are able to have those things covered, but there still be inventory that will be able to support that even if there's a lag.
Okay. Understood. Sir, to answer the previous participant's question, you said you are working on certain actions to improve structural profitability of the business. Can you give us what is the kind of actions that you are taking and which of those actions will give yield in the near term and which will take some time to reflect in our numbers?
It's two things. How do we build a strong revenue pipeline with regards to our specialty ingredients? That's something a lot of actions have been taken, and we're building good amount of projects in pipeline, and that is something that's going to start yielding results as the quarters progress. That's very clear. The other thing is in terms of how do we prepare ourselves well in terms of the organization to be able to partake in this sort of extent growth opportunities that we see as far as this market is concerned. These are the two critical things. Then how do you start getting your organization structure to keep it focused on all the critical initiatives, be it digitalization, be it the building our certain country-specific portfolios on specialty ingredients. That will be the key initiatives that we will do.
The other stuff that are pretty much more internal.
Right. All right, sir. Thank you very much for answering all the questions. All the best.
Thank you.
Thank you. We have the next question from the line of Archit Joshi from Nuvama Institutional Equities. Please go ahead.
Thank you, sir, for the opportunity.
Sorry to interrupt you, Archit, but you are not clearly audible.
Yeah.
Is this better? Little bit.
No, your voice is breaking.
Hello? Is this any better?
A little better, sir. Please go ahead.
Sir, my question was to understand our India business a bit better. I was looking at the customer profiling that we continue to report in our investor presentation. The mix that we generally maintain, especially the MNC customers, largely 50%-55%, and then there is regional and some other players that we continue to report. So that mix has largely been similar for the last few quarters, is what I was observing. Given the guidance of kind of maintaining our volume growth to the extent of 6%-8%, has there been any strategy to kind of deviate or rather have a makeshift arrangement to kind of get into the smaller players? There are extensive amount of new brands that have come in the personal care category. Do we also have any propensity to shift that mix?
Or we believe that this 6%-8% volume growth will be a function of the existing customer mix that we have?
No. See, if you look at it in India, when you look at the tier one, tier two, tier three, as we call it-
Yeah.
There's no way that we can decide that I want to focus only on tier three or tier two, even temporarily, because it's important that we focus on all the customers and their requirements in terms of serving their needs are very different. Example, we in India, deal with all the D2C brands. But the issue that has been there is that most of them have been not able to scale up as they wanted to, given that there is a cost push, plus there is a demand contract that has happened in the urban market. All of them are talking about, many of them wanted to go from online to offline. They have held it back. They were waiting for probably the right time to be doing that.
We don't choose between the customer segments, because our objective is to ensure that we grow the business in the market, retaining our significant share, and we need to be engaged with all of them equally well. The need to be served is very different, which the team is aware of, and we serve them very differently. But we need to keep the focus on all of them. We can't decide to prioritize one over the other.
Sir, what I was trying to understand a bit better is, for example, this quarter, you said that the festive demand was not as good as even the customers had anticipated. But since the tier two, tier three, even tier four, the products that are being introduced in the market, the-- Hello?
Yeah?
Yeah. I was saying, the bottom of the tier or maybe tier two, tier three kind of customers who are also getting into the market, they have faced a similar phenomena. Or is it that there are certain pockets where we can still have some room to gain more wallet share?
See, if you see, we have gained wallet share even when we lost volumes in India, but with some customers. Because that's a continuing expense. But that is not enough to mitigate the sort of de-growth you have from your large customers. It is not that you don't grow. Individually, if you look at when we review internally, there are customers, tier three, tier four customers, we did grow our volumes with them. But those are on a small base, correct? And it cannot offset the entire de-growth that happens from the tier one customers, correct?
Correct.
Yeah.
Got it. Thanks for the clarification. Thanks, and all the best.
Thank you. The next question is from the line of Shalini Gupta from East India Securities. Please go ahead.
Yeah. Sir, I just wanted to check, what is your view on where you think fatty alcohol prices will be in the next year and the next quarter?
Yeah, next quarter should be probably flattish at the current levels of $2,300 and $2,400. I don't have a crystal ball in front of me, but my only wish is that it should settle down much lower, probably around $1,500 to ensure that your demand robustness, it gets back in with the customers, because that's important. Otherwise, the consumers end up paying them, and they start taking their own actions in terms of reducing consumption, which is not good. I have no idea as to where it will settle. But next quarter, I can, based on my understanding, it probably will be stable at these levels. But yes, it should come down. For it to be beneficial for a growth momentum, it should come to a $1,500 level.
Sir, what in your opinion led to this sudden price hike?
That was more driven by the prices going up for your palm oil and palm kernel oil. If you see, the entire edible oil complex has gone up, okay? And this essentially has moved up in sympathy with this majorly with regard to your palm oil going up. If today your palm kernel oil from which fatty alcohol is made is about $1,700 FOB Indonesia or Malaysia. That is what. And the same time last year, it was at around $900 - $950. That explains.
You're expecting palm oil prices to come down?
Yes. Based on the high season months commencing. That is what is said.
Okay. And sir, my other thing was that earlier you were facing some supply side issue challenges. Have those eased now?
Yeah, they have eased. It can be better, but certainly, it is not as acute as what it was in the first two quarters.
Okay. And sir, my last question. Sir, you had said that you are expecting, yeah, guidance at INR 20,000 per metric ton to INR 21,000 per metric ton. Are you saying that for the next two, three years you maintain?
Yes. As of now, I do not see any reason to revise that guidance.
Okay. And sir, I just want to confirm, EBITDA per kg in this quarter has been INR 15.7?
No. It has been. Yeah, sorry. It has been-
INR 17,500.
INR 17,500.
INR 17,500. Okay, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Rohit Nagraj from B&K Securities. Please go ahead.
Yeah, thanks for the follow-up. A few clarifications and a couple of questions. One, in terms of fatty alcohol prices, historically, whenever such sharp surges happen, you said it lasted for a couple of quarters, which in current parlance can include 3Q and 4Q, probably from 1Q onwards, the fatty alcohol prices should normalize. Is that the right assumption?
Yeah, absolutely. Because if you see, the high season months in Malaysia, Indonesia for harvest of palm fruits and palm kernels is typically beginning of May. That leads to inventory being higher. Then you have the palm and palm kernel oil prices coming down and affecting our alcohol prices. So that's the expectation. As of now, that's what the market expects, that things should start settling now, because everyone does say that it is currently positioned at a very high level, there's reasons to sufficient indication it should come down, and we expect that the same lines.
Right. Our FY 2025 EBITDA per metric ton guidance of INR 20,500 - INR 21,500 is now postponed by one year to FY 2026. Thereafter, historically, we've been saying that it should be growing by about maybe 4%-5% annually. Is that the right assumption to work with?
Yeah. This year, so I said I don't want to change the guidance because I see this as a short-term blip. This year, we will not be achieving that. It will probably be a 4% growth and close to around 19,000 tons of EBITDA per metric ton. But then, we do see that we'll come back to the guided range in the next year as the quarters progress. If there's anything that we see structurally different, we'll come back and say whether we need to revise, but we don't see any reason to do that as of now.
Sure. My other question is on the CapEx front. Given that this year there has been muted volume growth, and we probably have capacities to place the volumes even next year, would the CapEx guidance of say INR 150 ± crore be lower for next year or year after that, or we would stick to the same guidance?
No, I would want to be with it because there are some things that we're already planning. We see no reason as to why we need to cut back on CapEx, because we are always pretty deliberate and very frugal about both the timing of our capacity additions and also in terms of the cost at which we add the capacities. Whatever we see in terms of is required to keep us prepared to serve our customers, we'll do that. We'll be pretty deliberate about investing, but I don't see that we'll end up having significantly lower CapExes next year. We don't see that.
Sure. One last question. We've been scouting for maybe any inorganic initiatives, given that there is good amount of cash on the books. However, we have not been successful. Is the hindrance coming from any material technologies pickup in our line of business, or there is any other factor that, traditionally, whatever surfactants we've been using, the same have been modified to an extent and being used now? Only thing is that moving to some green chemistries, but there are no such players who are working on any better technologies or substantially better or other sustainable products, and that's why we are not able to get any leads. Just your thoughts on this.
No, so there are. We are engaging with customers and certain partners where we are able to get into some sort of a partnership to get that done. Many times you don't have to just make an investment. We will end up making investments or doing some pure inorganic acquisitions only when we see that there's a need to do that to ensure that we are able to be secure. We've been evaluating a lot of such options, but we don't find them in terms of the optimal situation which we would want to be going ahead. But this will be a good part of our strategy to grow forward because we have an aggressive growth agenda ahead of us. We are constantly on the look out, but just because we have cash, we're not going to get into any acquisition. That we are very clear.
It has to be at the right value and for the right strategic purpose.
Sure. Thank you, and all the best.
Thank you. The next question is 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 largely when we look at a span of four years, so last four years, so cumulatively around INR 700 crore has been invested in CapEx. Although on the EBITDA front, the number hasn't been that impressive because of higher other expense as you mentioned. But on gross side also, the conversion has been lower despite your mix remaining the same between the Performance Surfactants and Specialty Care. That has not been deteriorated. So what explains this distort?
No, okay. The capacities that we set up have been for the premium specialties. That is what we have been saying, where the sort of deceleration happened when you had in Europe and U.S., a lot of projects got held up or they were suspended because of the restocking and inflation there. It started picking up in terms of the projects which have been getting built only in the last about six to nine months. Okay. The capacities we have set up are for premium Specialty, so that needs to gain traction, and then that would set everything back in place. That is what I said even when I answered some question on similar lines previously.
Okay. And sir, this INR 700 crore which we have invested, any idea where we have invested, particularly into the Specialty debottlenecking and what was the amount, if you can just-
That we do not share, but then I will say that out of INR 700 crore, major was towards the Specialty ingredients.
Okay. So there the capacity has been expanded, you mean to say?
Yes, correct.
Okay. And sir, further guidance onto the CapEx, I mean
We probably will stick to that same INR 150 crore that we do, but then we will see when is the guidance. But then we end up investing only when we see there's a real reason for us to be kicking off. That will continue.
Okay, got it. Thank you.
Thank you. We have no further questions, ladies and gentlemen. I would now like to hand the conference over to Mr. K. Natarajan for closing comments. Over to you, sir.
Thank you, ladies and gentlemen. Thank you for coming to this Q3 analyst call. I look forward to talking to all of you again and with much better numbers. Thank you.
Thank you.
Thank you. On behalf of Galaxy Surfactants Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.