Ladies and gentlemen, good day and welcome to the Galaxy Surfactants Limited Q2 and H1 FY 2025 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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 the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. K. Natarajan, Managing Director. Thank you, and over to you, sir.
Thank you, Rahul. Very good morning, ladies and gentlemen. Once again, welcome to our quarterly earnings call. At the outset, I take this opportunity to thank all Galaxites for ensuring a stable quarter despite the headwinds that we had. While compared to Q1, the company did clock sequential volume growth, it is important to understand the business environment influencing it. Let me start with the supply side. While supply-led volatility has continued to pose challenges with varying intensities across quarters, the sudden rise in fatty alcohol prices, combined with port conditions and unavailability of containers, did disturb momentum in this quarter. No improvement also was seen with regard to the elongated supply chain on account of the escalating geopolitical scenario. To summarize, while the supply side situation has significantly improved compared to 2022 or 2023, the inflationary effect of the same needs to be watched going ahead for H2 FY 2025.
Moving on to demand side, starting with India, the last two quarters, including current one, have seen flat volume growth. While supply-led challenges did disturb momentum, underlying demand has slowed. This is mainly due to slowing demand for premium home and personal care and slower than expected rural recovery. The sudden and significant rise in fatty alcohol prices has added to the uncertainty. We see this slowdown continuing for the next two quarters. While this is not a structural slowdown, for volume momentum to pick up in FY 2026, household as well as government spendings needs to improve. Moving on to the other big markets for us, Africa, Middle East, and Turkey. While demand has shown signs of revival, the supply-led challenges have prevented us from fully capitalizing on the same.
Steps have been taken in this quarter to ensure H2 FY 2025 sees us moving back to the 6%-8% band in our Africa, Middle East, Turkey volumes. Rest of the world has been a bright spot for us for the past four quarters. While this quarter too saw a strong double-digit growth, signs of revival in premium Specialty Care was the biggest positive. With inflation easing, household spending improving and economies, especially E.U. stabilizing, H2 FY 2025 should see further momentum. While volume growth may taper off due to the base effect, as communicated in our previous calls, pick up in premium Specialty Care should aid EBITDA per metric ton in H2. Coming to specific numbers for H1, volume growth stood at 6.3%. While we retain our volume growth guidance of 6%-8% and are also working towards ensuring we end in the upper band.
EBITDA per metric ton stood at INR 20,097 per metric ton. While it is below our guided band, we retain our guidance of INR 20,500- INR 21,500 per metric ton, and uptick in premium specialties should enable improvement in H2, as we have been communicating in our earlier calls as well. India and AMET have been flat, mainly on account of slowdown in underlying demand. As far as India is concerned, and supply-led delays in AMET. While for India, we believe growth should be around 1%-2% for the full year. In case of AMET, H2 should see reasonable growth, with full year growth being around 4%-5%. Rest of the world has seen 26% growth for H1, driven by Specialty Care. While H2 should see some moderation in volume growth with pick up in premium specialties and base effect coming in.
Overall, we see rest of the world ending in mid-teens volume growth for the year. While the performance segment registered volume growth of 5.8%, specialty on the back of the strong growth registered in the matrix segment, saw volume growth of 7.2%. To conclude, while demand and supply-led uncertainties continues to pose challenges at different points, we strongly believe unless inflation makes a strong comeback, gradually we see a structural pickup in demand. It may not happen across regions simultaneously, but there are visible signs of strong demand revival. This bodes well for us in the medium term.
The performance in the last two quarters also underscores the robustness of our business model and our geographical spread, because if some of the regions do see some headwinds, we have other regions where we are able to capitalize on the momentum that we have and achieve our numbers in the guided range. But like always, we are leaving nothing to chance and remain fully committed to capitalize on the same. Thank you, ladies and gentlemen.
Sir, should we open the floor for questions?
Please.
Thank you very much. We will now begin the question and answer session. Participant present on the audio bridge who wish to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Requesting all the participants to restrict their questions to two per participant. If you have any follow-up questions, you may rejoin the queue. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Yeah. Thank you, sir, for the opportunity. Sir, my first question is on to the Indian market. Sir, I believe six months back, we were quite confident that Indian market would continue to grow, and I understand, sir, with the recent commentary by the FMCG players, there seems to be some structural impact on the demand side, especially onto the urban side. Any sort of color, sir, you can give for how much time this market would remain impacted, and are there any signs of uptick you are witnessing for second half?
If you see here, India market actually sequentially improved quarter- on- quarter. Compared to last quarter, Q1, Q2 volumes improved by about 3%. It does tell us that typically your Q2 of the financial year is always a good quarter as far as India is concerned because of the festive demand. This time it has been higher, but not as high as what it was in the previous year. When we talk to our customers and the commentary that we read of our various customers after the Q2 results, all of them are pointing towards that rural demand is reviving, but not to the extent that it would compensate for the sort of demand challenges they're seeing in the urban side. And all of them have indicated that it will take about two to three quarters for things to improve.
They're working towards ensuring that they take the right price calls. Because one of the things that they've also said in the calls is that the inflation coming back in terms of commodity prices is actually posing a new challenge, and they really need to see how they're able to take calibrated price increases without impinging on the very nascent demand revival that is happening. We need to wait and watch and then see as to how things are panning out as far as the customers are concerned.
Sir, my second question is on to the AMET market. Sir, earlier we were guiding that this market has touched the near bottom and there would be some double-digit growth inside. Sir, for the first half, I think the volume has been almost flattish, but the Rest of World market has grown by roughly around 20% volume growth. Sir, which are these markets which are growing in this speed, and why the AMET market is not performing?
See, AMET market, as I said, AMET market, the unfortunate situation has been the demand suddenly was coming back after all the economies went through their own issues, grappling with inflation and currency devaluation. But then as the demand was coming back, the supply side got significantly impacted because of the Red Sea blockade that happened. So in fact, supply chain into Egypt got disrupted to almost 30 days, resulting in actually panic mode orders. Now things have started improving only from probably 15 days into the current quarter. So I think that this quarter should show some better numbers for AMET, and we should see a positive impact of the growth that is coming there. But yes, we do not want to have any further escalation in the supply chain challenges because of any escalation that may happen in geopolitical scenarios.
And sir, which are these other markets which are performing in 20s, 20 volume growth, mid-20s?
Yeah. It is coming across America, North America. You also have Europe getting better and Latin America as well. These are the three major regions to talk.
Okay. Sir, just one more question, if I can squeeze in. Sir, on to the raw material prices of lauryl alcohol. Sir, we are standing at almost a two-year high in terms of the lauryl alcohol prices. I think these sort of prices were last seen in 2022.
Correct.
Somewhere around $1,900. Sir, how confident are you with this steep rise in raw material prices we can maintain our EBITDA per ton, considering the demand is faltering into the Indian market and AMET is also not performing well? Is there any risk to that EBITDA per ton guidance, which we had given earlier?
No, we don't see any risk in EBITDA per ton guidance because we did say that the product mix that we have and the opportunities that we have actually gives me the confidence in terms of retaining the guidance. The risk to these numbers can only be any huge escalation in the geopolitical situation leading to a significantly problematic supply chain situation. The prices going up is fine, but then you don't want to see a situation where it becomes so volatile that your price moving up and down, up and down, because that's more of a risk. We do see that the price that has gone up also needs to be sustained and settling at a stable level rather than you having significant price movements at short frequencies. That can be a big problem.
This particular way that the prices have gone up is also something that no one in the commodity market even anticipated. We're still trying to understand what are the reasons. We only pray that you don't have this getting corrected significantly in a very short time. That can pose challenges in terms of the way our customers then would get little bit jittery in terms of the way that they need to tie up their volumes.
But we can comfortably pass on these higher raw material prices with the quarter, right?
Obviously, because everyone knows it is not that we are only person impacted. Everyone is impacted with these increasing commodity prices and feedstock prices. So there is no issue in terms of passing on. That is not an issue at all.
Got it. Thank you, sir. Thank you. That is it.
Thank you. Reminder to all the participants, if you wish to register for a question, please press star and one on your touch tone phone. The next question comes from Rohit Nagraj from Centrum Broking. Please go ahead.
Thanks for the opportunity. Sir, first question, again, delving into the EBITDA per metric ton. First half, we have done closer to 20,000 and we still stick to the guidance of 20,500 to 21,000.
Yes.
Given that on a lower side, we will have to do average of, say, 21,000 for the next couple of quarters. Again, the raw material price inflation is also there. So what gives us confidence that we will be able to have better EBITDA per metric ton in second half than what we had reported in first half? Thank you.
If you had to only be guided by what is happening externally, then everything can look very pessimistic. But what gives us the confidence is in terms of the way that we are able to see our team preparing itself, how we are managing the risk positions as far as raw materials are concerned, and how well the team is geared and committed to make a difference and see as to how we are able to end the year within the guided range with regard to both volume and EBITDA per metric ton. That is very important. Because if you look at everything seems to be externally with lot of challenges, but it is also important that the quality of the team that I have gives me the confidence that we should be able to end this year on a positive note.
Sure. That is helpful. Sir, for Q2, if you can just give YoY volume growth across the three geographies and on Performance and Specialty Care products for Q2 on a year-on-year basis.
One minute.
Sure.
You said you want to have the year-on-year, correct?
Correct. For the quarter.
Our total volumes grew by about 5%, and out of that, our Performance Surfactants grew by about 6%, and Specialty Care grew by about 2.5%.
Okay, and similar number for India, AMET, and ROW?
India was flat. AMET was -5%, and ROW was +27%.
This is for the quarter?
Yes.
Fair enough. Just squeezing in last one. In terms of the supply chain challenges, are those challenges now have become stable and those incremental costs, have we completely embedded while we are giving the pricing to our customers? Or will that come in coming quarter and probably that will also give some kind of boost to the EBITDA per metric ton?
No, the supply chain challenges, as I did say during my opening remarks, is that they are still continuing. We expected that things were improving. The good part is that they are not regressing as compared to what it was. They are probably the same state what it was in the Q1, but the intensity seems to be reducing. The freight rates are correcting lower, but nothing significant. That also, we have to wait for this quarter in terms of seeing as to how the freight rates are going to pan out in terms of it getting back to the earlier levels in 2022. We now need to be there, but we don't see any significant challenge in terms of passing on the freight rate increases or whatever.
The team is prepared in terms of handling what current challenges we have and into the next two quarters. But if the challenges get intensified or the new challenges coming up because of any issues on the geopolitical side, then, yes, that's a different subject that we may have to talk later. But if this current situation continues, the team is fully geared.
Sure. That's helpful. All the best, sir. Thank you.
Thank you.
Thank you. Participants, if you wish to register for questions, please press star and one on your touch tone phone. The next question comes from Shalini Gupta from East India Securities. Please go ahead.
No, my question is answered. Thank you.
Thank you.
Thank you. Participants, you may press star and one to ask a question. The next question comes from Prashant Poddar from ADIA. Please go ahead.
Good morning, [Natarajan] .
[inaudible].
Sir, just one question. Can you speak a little bit about the market development efforts in terms of new markets as well as any new products that you want to share which would be, let's say, big volume driver or value driver in the next two, three years.
What we see is that in terms of our things is Europe and Americas, including Latin America, will be something that we are preparing ourselves to have a good amount of focus and growth there. That is the reason why we have actually incorporated subsidiaries in Europe and in Mexico. That is essentially to prepare ourselves in terms of the business development agenda that we have for these locations, because we have not been present in a very significant way. We've been more in terms of trying to manage those through distributors and through suppliers from Egypt and India. That is going to be something which is going to be a focus market for us in the coming years, and we're preparing for it. With our new products, we said in term of premium specialties-
One more.
Sorry, yeah.
No, sir, just a follow-up on that. When you say Latin America and Europe, can you help us understand the potential of these markets vis-a-vis, let's say, an AMET market presence that you have?
Sure. Potentially, because we are just scratching the surface there. In AMET, if you see, we are a local player there, and the sort of product categories that we work on there is essentially what we need to be looking to the local suppliers. Whereas if we look at what product categories we are focusing on for Egypt or for Latin America and Europe, it is more in terms of how we focus on Specialty Care. There will also be some Performance Surfactants, but it will be majorly led by our specialty ingredients portfolio.
Okay. The market will also be selling the Performance Surfactants.
What it is in AMET. Yeah.
Okay. Specialty as well as Performance.
Majorly, the focus will be Specialty Care. But yes, we'll also have the Performance Surfactants as part of the basket. But our product focus will be specialty ingredients.
Sure. On the products, sir?
On the products, yeah. It will be essentially on any new products that we are looking at. We have had our biosurfactants, non-toxic preservatives, and there are some emollients and esters that we are working on in the pipeline, which we will be launching shortly, which will enable us to participate more in the Tier 1 skincare range. So that is something that the team is preparing well. So we will be launching those products in the coming quarters.
Okay. Sir, I mean, with the ESG now not at the forefront of things that are being spoken, have you seen any softening of efforts from your, let's say, FMCG partners in terms of introducing more sophisticated, more environment-friendly products?
See, one is where that particular environmental products, green, natural, okay, those continue, and they continue to be niched. I think if the external environment was conducive, probably the rate of growth would have been much better. But the focus continues, okay, by our customers. But yes, they are probably waiting and watching whether they need to introduce more categories, more SKUs into that, okay, since given that the demand scenario is a little bit tepid. But the focus continues. The projects continue to be run by our customers. So the intensity hasn't reduced. But then, yes, to the amount of efforts that are being put in, the growth could have been much better, but for the way the external situation is panning out.
Okay. I have one more question on the India market. You traditionally discussed that the new companies give you a lot of value as well, while the volumes might be relatively smaller. The larger companies, they give you volumes. The midsize companies are the ones which are tracking behind both of these companies. Multinationals were doing fine, new startups were doing much, much better, and the guys which are between them were generally getting squeezed, is what we understood in the last five years of discussing with you and some other companies as well. Can you help us understand the market environment today? While you've spoken about India being soft in general, and there was a question earlier about the demand conditions, and I understand you come to know the derivative of the demand that your customers see.
But anything that you can share, any insights you can share.
Yeah. If you see, generally, all the categories of segment of our customers, be it global multinationals and specifically on India, or you look at the Indian regional majors or the Tier 3 customers, all of them have been not seeing a good volume growth. If you see the commentaries of all of them, this has been very typical of what has happened in the last two quarters. The direct to consumer segment, which we have a lot of players coming in and launching of new products, I think that also we have seen that they are also having to bear the brunt of this demand environment getting weaker. You do find that they are also looking at inventory in the pipeline. We also see that they are launching schemes to get inventory flushed out. We are able to see this across segments.
It is not that any segment has been spared of this demand environment being tepid.
Okay. Just one more extension. You talked about AMET as well. Can you give us some insights into your relative competitiveness versus the local players? As you said, you are as good as the local player there. But there was some competition in between where you had lost to lower value competition.
That what we had said was that our customers, because Egypt is a majorly home care market, Africa, Middle East, Turkey. In Egypt, one of the major customers, the global multinationals lost share to local players, okay, because of the high inflationary situation. That situation, because even today, Egypt, after having a 100% deposition interest rates of 28%-30%, is still settling down.
Okay. The currency now has been made free floating. The foreign currency availability has improved. But yes, the inflationary situation continues. That situation hasn't changed significantly for the better.
Okay. But it's growing, it's tracking in line now.
It is growing. Because typically we have seen whenever the situation happens, it takes about a year to 18 months for things to come back on track. And we are seeing a momentum towards things improving. Yes.
Fantastic. Thank you so much, sir.
Thank you, Prashant.
Thank you. The next question comes from Prasad Vadnere from HDFC Securities. Please go ahead.
Hi, sir. Thank you for giving me a chance to speak. Sir, you have mentioned in a previous comment that the EBITDA per kg will be primarily driven by Specialty Care going ahead in H2. You also mentioned that the ROW volume was primarily driven by the mastery Specialty Care. So anything you could guide upon premium Specialty Care, the regions which will be primary driver going ahead?
The premium specialties are driven majorly by Europe and North America. The reason why we are saying, because we are seeing that the products in pipeline are getting built and customers are engaging pretty well. So that gives us the confidence that things will start panning out better. At the same time, last year, I said that premium specialties actually got impacted because Europe and Americas were grappling with significant inflation and increased interest rates. I am saying that now interest rates being reduced and inflation getting better, we are seeing that there is a good improvement in the way the products in pipeline are getting built for the premium specialties. Majorly in Europe and Americas.
Okay, sir. Thank you.
Thank you. The next question comes from Nirav from Anvil Corporation. Please go ahead.
Yeah. Thanks for the opportunity. I have two questions. One on the Rest of World market. If you can just help us understand this sort of volume growth, what we have clocked in H1. If you can just bifurcate in terms of the contribution of this volume growth coming from new products, new customers, newer applications, or the existing customers taking higher volumes from us and because of which we have clocked that sort of volume growth.
I can answer everything in the sort of granularity that you want.
Yeah.
Suffice to say that, as I said, Europe, Americas and Latin America have been the major growth drivers as far as Rest of World is concerned. And essentially in Europe and Americas, it has been majorly through your Specialty Care and whereas if you look at Latin America, it has been majorly driven by Performance Surfactants.
Got it. Let's say currently, if we see in terms of our overall volumes in the Rest of World market, how much would be the share of Specialty Care in the overall volume mix?
Rest of the World if you look at it, you can say that I'm just trying to make it, I don't have this number with me but
Just want a ballpark number, if you can just help, because I just wanted to understand what was the base last year in terms of the overall volume for Specialty Care and how much it is currently, because now what we have been hearing is that our
It will be upwards of 50%.
Got it. And similar was the figure last year also?
Yeah. I do not have it with me. But yeah, I do not see any reason why it would not be in the similar zone.
Got it. And sir, secondly, you mentioned that we have been opening offices in Europe and in Mexico.
Not offices, subsidiaries.
Subsidiaries, sorry. My apologies. What I wanted to understand is the main logic for us is to compete based on the freight cost which probably the domestic players would have had advantage there, and because of which we have been now setting up the subsidiaries and most probably the warehouses and the storage facilities there. This would help us to compete with the local players despite the fact that the volumes may not be going up in the same proportion what we have seen in India. India has been a growing market, but those markets are mostly saturated. So probably we may be taking the market share from the existing players in order to grow our volumes by setting up the subsidiaries there.
It is like this, okay. The subsidiary that is being set up is to only underscore the strategic importance that locations have in our strategy for the future. Okay. The business strategy that we have. I mean, if you really need to be looking at those locations significantly in terms of business growth, because it is a given fact that we are not a big player in these geographies as far as our volumes are concerned. We did a good job, but not good enough in terms of being significant there. Setting up a subsidiary is only as part of our go-to-market strategy. How do we give confidence to our customers that I am looking at this region in a big way and enabling them to look at me for bigger projects, correct?
This is the reason why we are doing it, and that is why anyone could do it, not only me.
Yeah.
This is the rationale.
Okay. Got it. Sir, second question is, a few months back, there was an article about Hindustan Unilever Limited cutting the consumption of palm oil to an extent of 25% to be used in the soaps. So would it affect it in any way in terms of our volumes to HUL? Or if you can say that how much of our product goes into HUL in terms of their soap usage. Some understanding on the same would be helpful.
Normally, palm oil derivatives are used into normal, regular soaps. We have no participation in terms of our ingredients getting into regular soaps. We are only into the premium soap category where palm oil is not the major usage there. So it's not going to have any impact.
Got it, sir. Thank you so much, and wish you all the best.
Thank you.
Thank you. The next question comes from Rohit Nagraj from Centrum Broking. Please go ahead.
Yeah. Thanks for the follow-up. Sir, fatty alcohol prices during the quarter have jumped significantly. You also mentioned, if I'm not wrong, that they're likely to remain high for the next couple of quarters. What has changed in terms of the dynamics and why such sudden spurt in the prices? If you can just give a broader perspective. Thank you.
Yeah. First, let me correct. I didn't say that it will remain high for the next two quarters. I only hope that even if the prices rise, it remains stable. We do not want volatility prices going up and down with very increased frequency, because that impacts customer confidence in terms of doing buy-ups. That is first. Secondly, I don't have a crystal ball in front of me in terms of what's going to be the future. With regard to fast forward and what are the reasons that it is causing this, we have spoken to multiple players in the oleochemical segment. I think it is being attributed to lower production, lower inventory, yield being lower. Not everything fits in. The only fact remains that the prices have gone up.
The way these prices have gone up, it has not gone up in a very gradual way. It has gone up in spurts, which essentially is not a good thing to happen. The reasons are essentially more on the supply side. The demand side is not what is causing the price going up. I think it's more in terms of the supply side not being as conducive. That's what the players in the segment tell us.
Sure. That is helpful. Second, in terms of the Specialty Care products, I mean, generally, if you can give us the idea how the contribution from the new set of products, including the mild surfactants, has changed over the last maybe two or three years. Just to get a perspective, if there is a continuous rise in EBITDA per metric ton, this also could be one of the factors to add to it.
What we say is that, I think the thing in terms of the way that we are approaching the business development of these categories in a very focused way, very clear in terms of what product, what priority markets, and the way we are resourcing the specialty ingredients organization. I can tell you that obviously the reason we are doing all this because we see a huge potential and we also see a good amount of growth happening. That will continue. I would not be able to share the sort of numbers specifically that you are asking. That is not something that we reveal.
Just directionally, the contribution is growing every single year, right? I mean, from a new product development perspective or the focus on mild surfactants-
Yes
More sustainable products.
Yes. Obviously it is growing. With the sort of efforts we are putting in, we are very clear that given the opportunity available in the market, it should be something that grows in a very significant and superior way in the coming years.
That is all from my side. Thank you.
Thank you. The next question comes from Nilesh Ghuge from HDFC Securities. Please go ahead.
Sir, if I look at the lauryl alcohol prices, they have gone up by about 36% YoY. Are you able to pass on the entire jump in raw material, or will there be pass on in the third quarter of FY 2025?
Hold on. The question is, you very rightly said, the entire jump. The way it jumps, your ability to jump in terms of price increases is not something that you can do. But then I'll only say that our ability to pass on, given the way it has significantly gone up, is certainly much better. It is no way that we can absorb these sort of increases into our risk taking. There can be timing differences, but that may not be significant.
Okay.
Yeah.
If prices remain elevated, in a subsequent quarter, you will pass on.
Yeah. The bigger risk, not only for me, for even my co-players, is that if we have significant corrections happening downwards for the prices, then you have an exposure. That is where our risk management framework gives us the confidence that even if the prices correct significantly downwards, we have the ability to manage it.
Yeah. And sir, if I look at your revenue contribution coming from the local and niche player, if I compare first half FY 2025 with the FY 2024, it has gone up to 39% compared to 34% in FY 2024. Is company taking focus or shifting focus to local and niche player, or is it just happening because of the maybe spurt in demand coming from the local and niche player? Is there a structural change or the focus of the management to supply more to local industry.
It's not that. It essentially, again, underscores the superiority of the way the business model that we have in terms of how we are well-entrenched with all segments of customers. What you may see today in the market is you do see that you have more D2C brands coming, more quick commerce channels getting better in terms of the way that a good amount of volumes are flowing to them, although the base is small. What happens is that you have some of the smaller customers coming in with niche players who are able to push certain things through your quick commerce or e-commerce channels. The way that we are integrated with all of them, it gives us the opportunity to be able to participate with them in the growth that they are having.
Okay.
There is no structural change that is happening. One thing that even you know is that people are trying to access more through the quick commerce channels. But for us, that really doesn't matter because what we do is we serve all the customers, and if there is some amount of increase change that happens in terms of the material going more to the quick commerce channel, it's good for us because we are well-entrenched with all the category of customers.
Okay. How easy or difficult it is to pass on raw material cost to local and niche player compared to MNCs? Because earlier in our conversation, you always mentioned that for MNCs it takes some time, but for a local or niche player, you can, because there is a spot buying also, so you can pass on easily to local and niche players. Any comment on that?
No, it's not a question of easily passing on or difficult to pass on. It's a question of when you are going to be having such steep increases in prices, of 30% and 40% in one quarter. The issue is not in terms of going to the customer and saying, "I need a price increase of 30%.
Okay.
The important thing is how well you are able to keep them informed, how well you inform them about what do you see as the things in the coming months, give them a good rationale as to why this has gone up. What do you see in terms of this sustaining? Because how do you enable them to take a decision to buy? The smaller aspect, you say that you need to give a price increase of 30%. Okay, but if you approach it that way, then your customer is going to lose confidence and ability to be able to look at things in terms of aiding their business growth. Finally, we need to make the customer win in the marketplace, correct?
Correct.
How well we are able to give a rationale, support them with information, okay, as to why things are happening, what do we see in the coming three months, whether they should go long or go short. Okay, so if you look at it, that's a difficult job. Just sending a price increase communication or saying the price has gone up 30% is an easy job. But we always take the difficult path, and that ensures that we are able to, in a very effective and elegant way, pass on a very fair increase of what we need to pass on as per the raw material cost increase concerned.
Okay. Yeah. Thanks a lot.
Thank you. The next question comes from Aejas Lakhani from Unifi Capital. Please go ahead.
Yeah, hi. Mr. Natarajan, could you just talk about the mix in the India business across the three channels? Or say, if I were to break it up in traditional FMCG, modern trade and online aggregators, the Big Baskets and the DMarts, and the Reliances of the world, and the D2C brands which are doing well. Could you-
Hello?
Cohort mix. Hello, are you able to hear me?
I think the line dropped again. Can you repeat your question?
Yeah, just a second. Hello, is this better?
Yeah, better.
Sir, I wanted to understand that in the India revenue, could you just quantify the percentage broadly of the traditional FMCG channel, the modern trade and online aggregators as one cohort, the likes of the DMart, Reliances, the Big Baskets, and the D2C brand, the newer age D2C brands. What is the approximate revenue breakup of these three segments, and which is the segment that is growing the fastest for you?
See, one thing is, Aejas, because we look at customers. With the customer, then their mix in terms of how much to modern trade, how much through your quick commerce or what we do in D2C, that I will not be able to quantify that. What we do is that we know that we have a Tier 1 with the global multinationals, Tier 2 is your regional majors, and Tier 3 are all the local players, okay? So basically, if you see, this thing is like overall, if you look at H1, we are about 50% was the Tier 1 customers, about the balance was Tier 2 and Tier 3 customers.
Got it. So let me rephrase my question with a slightly more nuanced approach. Could you tell me that your percentage of India sales that was going to D2C brands, irrespective of where they sold, how has that been trending?
Oh, yeah. Correct. That I can tell you. That is something that it grew well, and I did say as part of the response to the earlier question, that even they are now finding in the last two quarters certain challenges in terms of the way their pipeline is not moving well. All of them are looking at how do they now start adjusting to the new normal, and they are coming up with some schemes and all that to get the inventory out of the system. They also are now grappling with the increased prices that are happening. They are all redefining things as to what they need to do. But the sort of intensity that we see in terms of newer and new brands coming, newer and new DTC players coming in, they are launching a new product.
We do see that is pretty healthy, and our innovation team is doing a good job in terms of engaging with them. We see that it is all temporary stuff, but this particular focus of the direct-to-consumer brands increasing is going to be there.
Okay. Is it possible to quantify that, say, two years back, what was the percentage revenue of these brands to India sales versus the same for, if I say, 2025, your estimate?
If you say the percentage is small, that may not give you any great because finally, even today, all the DTC brands are a very small fraction of the overall market. But if you look at last two to three years, if you have to look at two, three years back where we were in terms of the business with them and where we are today, I think I said it has delivered run up by about 30%-50%. What we sell, what is the volumes we do with them. This tells you in terms of the intensity of what work we do and what is the sort of action that is happening as well, that is the DTC brands consumption.
Got it. So basically, you are saying wallet share with them has significantly improved and increased.
Yes. Correct.
Got it. Okay. And sir, secondly, I have heard you through the call, I am just trying to contextualize this better, that there is a situation where the RM has increased, where inherently freight cost is higher, and it is hurting us and is reflected in the OpEx number. There is demand slowdown in India. Demand is hopefully receding a little bit, coming back in the AMET region. ROW is doing at least from the destocking era, it is in the phase of restocking. If I were to sort of look at all these plays in aggregate, how do we get the sense that we will be able to improve our EBITDA per kg in the second half?
That is what I said. Raw material prices going up is not a factor that we look at in terms of, because it is not that your ability to pass on is not there. You will pass on. So that is not an issue. The confidence comes from we expect demand situation to at least get better. Better means I am not looking at it getting. It at least should start improving from what was the first two quarters. Secondly, the premium specialties, okay, getting into a better traction in the second half, which I had even told in my call for the first quarter, that we do expect this to happen when we revise the guidance for EBITDA to higher range of INR 20,500, INR 21,500. So I still remain optimistic on that front in terms of what work my team is doing.
The external situation obviously has to be cooperating, and we do not see any reason as to why if that happens, the sort of work that we are internally doing is not going to yield results.
Got it, sir. All the best.
Thank you.
Thank you. The next question comes from Aditya Khetan from SMIFS Institutional Equities. Please go ahead.
Yeah, thank you, sir, for the follow-up. My first question is on to the Indian market volumes. In the presentation, we have mentioned that the volumes have remained flattish, largely because of the slowdown into the premium consumption, and a lower than expected recovery into the rural areas. But I believe, sir, the Indian market contribution from the premium side is very lower. So majority of the portion is only the Performance Surfactants side only. The recovery into the rural market, I believe, the urban market was weak, and you had also mentioned that the rural recovery was good, but the urban markets were weak. So there is some disconnect into the presentation what we have mentioned and-
There is no disconnect. The urban market, if you see, the urban market is weak when you say the premium categories in terms of, say, your personal care and beauty and wellness has got impacted. Correct? When we look at that, it is the premium positioning of my customers. It is not my premium ingredients. Are you getting me? It is the way my customers have mass-tier, and prestige. So they have certain premium categories that they want, which is more majorly contained in the urban market. So when you look at the commentaries of many of our customers, they say that they do see that the demand has got impact in the urban area in terms of the higher-end brands that they are catering. Correct?
Rural didn't pick up because rural still is majorly at the mass segment, and that didn't pick up significant enough for them to have a good volume growth.
Okay. Is it possible to quantify what would be the premium and the Performance Surfactants split into the Indian volumes only? Just a broad idea.
I don't think we have that, and neither would we want to do that. We don't have it right now. Yeah.
Okay. My second question is on to the other expenses. Sir, there is a steep jump into the other expenses. I believe largely this is led by the freight only. Sir, on an average, when we look at the freight cost that is, that remains at around 4%-4.5% of sales generally for the last four to five years. Any numbers, sir, which you can quantify how much this number has jumped from the 4% to 4.5%, which is why we are seeing this higher expense?
What is the percentage now? What we need to understand is that any increase in the freight rate also reflects in my revenue. What happens is that the revenue has a higher freight rate in terms of the selling price, and then you have the higher freight rate that gets booked in the expense. That is only one of the reason. I don't see freight rate, because the freight rate as a percentage will go up if you have, depending on what sort of material I send, what is the countries to I send to. That also determines the mix of the geographies and the product mix that I send. That also will implicate your freight rate. But one thing is very clear is there is nothing that is significantly impacting us because we're not able to pass on the higher freight rates. Okay?
It happens with a lag, but we pass on. It is not that you are going to have a negative in terms of your freight rates going up. Hello? Hello?
Sir, the line for the participant has been dropped from the queue.
Okay.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Yeah. Thank you, ladies and gentlemen. Thank you for patiently listening to my opening remarks and the very interesting Q&A that we had. Look forward to talking to all of you for the Q3 results call. Thank you so much. Wishing you all a good day. Bye-bye. Bye-bye. Thank you.
Thank you.
Thank you. Bye.
On behalf of Galaxy Surfactants Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.