Ladies and gentlemen, good day and welcome to the Galaxy Surfactants Limited Q1 FY 2024 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 call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Unnathan Shekhar, promoter and managing director. Thank you, and over to you, sir.
Thank you very much. Ladies and gentlemen, a very good afternoon, and welcome to this first earnings call for the financial year 2023/2024. At the outset, before we delve on the quarterly performance, it is important to reflect on the long-term picture. Despite the volatility that we have witnessed in the past 40 months, our stakeholder relationships have not only strengthened but further firmed up our internal processes, capabilities, and competencies. I am sure the experience garnered will hold us in good stead going ahead. Continuing with the long-term picture, it is also important for us to understand the market picture as on date and how it will influence the numbers not only in the current year but perhaps for the next few quarters. India has emerged as the bright spot globally.
We believe the key drivers for sustained uptick in consumption are a stable macroeconomic environment, supported by innovation and technological developments, backed by a buoyant market filled with emerging new players and traditional majors. Today, with all the above-mentioned factors thriving, the stars are aligned for sustained double-digit growth going ahead. Galaxy is not only positioned to capitalize on this but also playing a significant role in enabling it. The last 40 months have seen global inflation clocking new highs, something that the developed markets have not witnessed for the past four decades. This has not only impacted the spending frequencies but also led to change in spending patterns. Combined with the ill effects of a war, bulk of the spending today is towards food, energy, and basic amenities.
While the picture was the same, even in the pre-COVID era, the percentage in absolute amounts have increased significantly, thus adversely impacting the disposable income available for luxuries and premium products. The combination of excess inventory, slowing demand due to changing spending patterns, along with the fears of recession and high inflation, have completely dented the buoyancy seen in 2021 in the other parts of the world. But like any other cycle, barring any macroeconomic shock, we do expect things to improve slowly but steadily going ahead. With inflation easing and countries in the European Union adapting to the new normal, we do believe the end is near, and consumption will make a comeback from 2024. A volatile global backdrop impacts imports-dependent developing countries the most. This time, it has been no different.
The sudden depreciation of the Turkish lira from 11 at the start of 2022 to 27 as of today, equivalent to a 243% in 18 months, and that of the Egyptian pound from 15 to 31 during the same period, dented consumption significantly in these markets. While this is something that had happened previously in Egypt, the difference this time was the fact that inflation was mainly food-driven. This impacted domestic consumption severely. Even with respect to Turkey, fears of an economic collapse resulted in significant cutbacks and migration, thus impacting overall consumption. While the situation continues to remain grim and volatile, adaptation is visible. Barring for any other macro shocks, we are seeing signs of recovery. With improvement in good supplies and stability in currency, growth should make a comeback in second half of 2023.
Focusing on this quarter, this has been a relatively stable quarter for us. Progressive improvement of supply-side factors, along with pickup in demand, ensured a healthy 7.4% volumes growth for this quarter. We are pleased to share that in Q1 FY 2024, volume growth stood at 7.4%. This has been possible due to the strong double-digit growth clocked by India. Barring any risks due to monsoon or crude, we see this momentum sustaining. Africa, Middle East and Turkey is slowly but steadily making a comeback. While volumes remain flat year-on-year, we do see signs of improvement going ahead, especially from H2 2023. This should further enable us to meet the guided volumes target of 6%-8%. Inventory destocking continues in North America. Like quarter four, this yet again has adversely impacted our specialty volumes.
Having said that, we are pleased to share that despite the decline in North America, quarter-on-quarter specialty as well as rest-of-the-world volumes have grown. This has been due to the slight recovery seen in Europe and growth clocked in Asia Pacific by our specialty care products. The slowdown in Africa, Middle East, Turkey, and North America has impacted our subsidiaries' performance, which, after two good years, are now witnessing headwinds on account of demand. While challenges persist, we do believe H2 FY 23/24 will be better than H1 FY 23/24. While we have refrained from giving out any EBITDA per metric ton guidance, going by the current trend in visibility we have, we believe EBITDA per metric ton should be in the zone of INR 20,000 to INR 22,750 per metric ton for FY 23/24. For now, volume growth remains the key prerogative.
To conclude, ladies and gentlemen, Stephen Covey once said, "Where you are headed is more important than how fast you are going." This is extremely important in the current context, as given the volatile and uncertain backdrop, moving ahead steadily holds the key. While growth may be slowing globally, the steadiness imparted by our India business is ensuring the volume momentum sustains. We remain confident that second half of FY 23/24 will be better than the first half and that the volatility seen in the last 40 months should give way to sustained consistency from 2024/2025. Thank you, ladies and gentlemen. We are now opening the floor to questions. Thank you.
Thank you very much. We will now begin the question and answer session. Any participants present on the audio bridge who wish to ask questions may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, good afternoon, sir. Thanks for taking my question. First, on this EBITDA per kg, what we look to achieve in FY 2024, which is close to INR 20 to INR 23 per kg. In this quarter, we are at close to INR 21 a kg, and in the second half, we expect AMET to pick up, which will be dilutive from the EBITDA per kg perspective. We expect it to recover. What will lead this? Are we expecting even better recovery in the specialty than what AMET can recover, and the mix can always work in our favor, is that? Or number two, are we looking a stronger off-take of specialty in India? Has that trend started in a way which is very visible and it's positively rubbing off us on the margin side?
Yes, Sanjesh. Natarajan, yeah. Good morning.
Hi, sir. Good morning.
Yeah, Sanjesh. First, as Shekhar said in his opening note, volume growth is the key prerogative. The guidance that we have given in terms of INR 20,000 to INR 22,750 is essentially with a very clear listing that the volume growth has to be in the zone of 6%-8%. We do expect that from second half, your Americas should pick up better. That means my specialty ingredients volume should have an uptick. That is one of the key assumption basis based on which we have given this particular guidance.
On the India side, even there the specialty is picking up any materially than what we have seen.
No, India is majorly driven by performance surfactants. That will not significantly drive the EBITDA per metric ton to the higher end of the band that we indicated. Rest of the world, more so North America, has to come back quite aggressively.
That said, Sanjesh, yes, there is also a premiumization at play in India, which we would desire that it continues and grows further. Yeah.
Got it. Second, on the AMET situation, Turkey and Egypt, you rightly said the situation remains very fragile. Last time we have seen a quicker comeback, but this time it appears will be difficult. How much time do you anticipate to reach an FY 2021 kind of a volume in this segment, from where we have almost fallen more than 20% now? Do you think it will take couple of year to again cross that volume line?
Very interesting question, Sanjesh. I think we did see certain green shoots emerging at the beginning of this quarter. But surprisingly, we have seen a resurgence of inflation again in the last week to 15 days. So it remains highly volatile, and as we said, the new resurgence is again on food inflation. We would expect the consumers to balance their wallet more in terms of the basic amenities, basic necessities. We would like to be optimistic and at the same time be on guard in terms of the ground situation, whatever is happening. We will get more clearer picture possibly maybe by the end of this quarter.
Per month. It's still to be taken up.
On the Egypt plant itself, are we looking now to diversify more aggressively out of Egypt and Turkey? Because if we see the history right from the day we started work there, it has been very volatile, very uncertain. Do we enter aggressively in the LATAM market, in the nearby European market and more Africa market and reduce the proportion of Egypt and Turkey, thereby keeping that geography at least stable?
No, you are right. I think we have certainly diversified our product portfolio there in Egypt in a very conscious way. Egypt is much more diversified in terms of its portfolio compared to what it was a couple of years back.
At what utilization rate are we running now, Egypt plant there?
Today we are approximately about 68%-70%, approximately.
Okay. For next few years, we do not need to do the CapEx there, right? It should be very—
Yes.
Stable in terms of free cash flow generation.
Yeah.
Second, on the specialty side, how are we seeing the offtake of the mild surfactant in the export market and the blended preservatives, which we are proprietarily making? How has been the trend on these two sides?
Yeah, so this has been impacted. We have seen that since the second quarter of last year because there has been a hit in terms of the premium segment and the festive segment in which these materials find use. That is why it is important that the current demand situation, the destocking in the U.S., turn around well, and then we do see that things should start picking up. That is obviously one of the reasons why you see that the specialty volumes have got impacted. If that had been very impacted, I think things would have been pretty different. That is what we want to turn around in terms of the market situation.
Of course, one thing that we have seen is that though there is a very small decline year-on-year but on quarter-on-quarter, there has been improvement with respect to the specialty products, which is an encouraging sign.
Got it. I thought it is more seasonality because even last year we saw the same trend. On a sequential basis, generally Q2 tends to be better because of the summers in the developed market. Is it more seasonal, or do you really see the underlying demand also improving?
No, we have to, as I said, see on the macro level, the discretionary products, which means the specialty ingredients, have been impacted. That is for a fact. So we have to see inflation moderating or going back to the pre-levels. That is one. So that particularly the majority of consumers are able to have certain discretionary income coming into their wallet. That is going to be a very important shift that has to happen in these developed markets.
Got it. Last two questions from my side. One on the CapEx INR 150 crore, which we intend to spend this year. Where will it go? What are we looking in terms of opportunity to invest? Number two, the food inflation has again started. Do you see risk to the fatty acid prices again there because of this food inflation?
First thing on the CapEx, it will be a combination of what we will be doing in India and Egypt and also will be on both the legs of performance surfactants and special ingredients. Some of them are already on, in progress in terms of implementation. So that has been the case even the previous years. As regards the food inflation, yes. Food inflation, certainly if it pushes up the vegetable oil prices, it can lead to an increase in your fatty alcohol and fatty acid prices. As of now, it seems to be a little bit tapered. But it is more supply-led, so in case your supply is getting impacted because of weather conditions, things can be significantly higher. Yes, we are keeping a close watch on the weather patterns now and the stocks of vegetable oils in Southeast Asia.
Let's hope that the supply remains not much impacted.
Got it. Thanks for answering all my questions, and best of luck for the coming quarters.
Thank you.
Thank you.
Thank you.
The next question is from the line of Nilesh Ghuge from HDFC Securities. Please go ahead.
Yeah, good afternoon, sir.
Good afternoon.
My question is on raw material, sir. Sir, if I look at the raw material prices, the fatty alcohol prices have fallen almost by more than 45% year-over-year and continuously going down quarter on quarter as well. Have you passed on the benefit of those to your long-term customers or still there something left with you?
No, it's been passed on, as is always the case.
So no further correction as far as the raw material prices is concerned, or pass on remain left?
No, there's always because it's not that you pass on everything within the same quarter. There will be some amount of spillover. That is always the case every year. A significant portion of it keeps getting passed on the same quarter. There's nothing different this time.
Okay. Based on the volume, I know that you stopped giving volumes, but based on the comments in the opening remark and the presentation, if I backcalculate the gross margin, gross margins for this quarter should be in the range of INR 51,000-INR 52,000 per kg. Do you think it will remain at this level for FY 2024?
No. The EBITDA per metric ton has been about close to INR 21,500 per metric ton this quarter. I did not get your number of 51 to 52. What was that? Gross margin. I think we need to focus on the EBITDA per metric ton. That is what we have also guided to INR 22,000 to INR 22,750, with a volume growth of 6%-8%. I think that should be the number that we should stick to.
Yeah. Okay. My second question is on the local and niche player share. That share is continuously going up. At the same time, your MNC share is coming down in revenue. You mentioned that there is a slowdown in your development. Do you think this year also, the share of a local and niche player will be more compared to your MNC customers?
No, it will be a category. It always moves within a range. I think in India, everyone seems to be doing well, so I don't see that as an issue. But yeah, there'll be minor share churn amongst them, okay? That's why it's given in a range. So I don't see that as a key determinant.
But just correct me if I'm wrong. If your share of this local and niche player increases, the margins will be better, right?
Yeah, it should be. But depending on what sort of product portfolio that we work with them. So yes. In a general way, it should be okay, but it differs between customer to customer.
Okay. Thanks, sir.
Thank you. The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.
Yeah. Hi, sir. Good morning, and thanks for the opportunity. Sir, first question is on closely looking at how we are guiding roughly now INR 20,000 to INR 22,750 kind of margins per ton, though probably not adequately available, the volume which you have stopped giving. But we have been guiding for last year roughly 6%-8% kind of revenue growth and expecting EBITDA growth higher than that and bottom-line growth even higher than that within the operating leverage. Now, when you are talking about roughly even at the high range of INR 22,750 kind of margins per ton, that leads to roughly close to 7%-8% decline compared to last year in terms of margins. So even if we achieve the highest number, probably the bottom line growth look like more like a flat-ish in the current environment.
Are we just being slightly conservative or the scenario actually has changed much faster or deteriorated much faster than what we have anticipated 10 months back?
Rohan, Natarajan here. We are not being conservative. We are being very realistic. We have explained as to how North America and Europe have been impacted significantly with the specialty volumes, okay? We also know that something needs to come around. As we are very clear that we need to grow our volumes at 6%-8%, that is a key priority, and we need to have absolute EBITDA to be growing higher than our volume growth. That is very clear. But this guidance is to only ensure that we are able to give some sort of a speak, because we have stopped giving the EBITDA per metric ton guidance for almost last two to three quarters. We wanted to get back to that so that the market gets some clearer picture as to how we are thinking as to where directionally things are going to be.
You are saying that there will still be growth at EBITDA level
Yes
And higher than the volume growth?
Yeah. From our this thing, firstly, we are very clear. That is what we work towards; that is what we aim at. But then we only want the external situation also to be equally cooperative. With that in mind, yeah, we should be growing our EBITDA absolute, okay, higher than our volume growth. That is very clear.
Right. Sir, last time when we were talking about that we have seen a significant destocking happening in markets right now, in U.S. market now, like Walmart and all, they are going more closely towards inventory destocking that has impacted the volume. However, downtrading was also taking place in some of the markets, like Europe, where the consumption or consumers have been facing the inflation. Do we see right now the volume decline which has happened? I assume that the inventory destocking situation will be probably over, so it is now the real consumption which is getting hit? Or do you see that the specialty volume, which are still weak in the current environment, is more weaker because of the destocking is still taking place?
No, see, the inventory destocking is something that started progressively coming down. We do expect, based on discussions with customers, that by September it should be fully through. The other aspect also is that what Shekhar said during his opening address, that there has been this thing where the consumers have started moving more towards mass and masstige products. So for them to come back to consuming in a very robust manner the prestige products, is something we do hope that it starts happening from the second half. So we are eagerly awaiting that. Probably we will have a better answer to this question when we meet next for our conference call for the next quarter results.
Right. Sir, just last question from my side. So we are seeing that the fatty alcohol prices have fallen to almost $1,240 level, which is almost pre-COVID or closer to that level. From here, we may see some slight recovery, but do we see that the impact of the falling raw material prices, which would have led to benefiting the end consumer in terms of the falling end product prices, it is helping only the Indian markets to grow or the Indian markets are overall growing irrespective of across the categories and in specialty also and in the surfactants industry market as well?
Rohan, we have been looking at the commentary of all our customers in India, the big customers. If you look at them, all of them are very clear that the lower commodity prices has enabled them to pass on the reduction. In fact, you have seen all of them have increased the grammage. There are more bigger packs that are now into the market. So that is aiding our customers to be able to start getting their demand higher, and they keep studying consumption by lowering prices, increasing grammage. Yes. But for anything very significantly impactful as far as surfactants is concerned, we do hope that the situation continues and keeps sustaining sort of growth momentum that has been there over the last three to four months in India.
Okay. That's it from my side. Thank you so much.
Thank you.
Thank you. We have the next question from the line of Rohit Nagraj from Centrum Broking Limited. Please go ahead.
Yeah, thanks for the opportunity. Just first, initially, clarification: any specific reasons for not providing the volume data for the quarter?
Yeah. We have decided to make a change from this time because what we wanted to be giving, given the context in which we are talking, the actual inputs are more important because the specific numbers can be a little bit not appropriate. We said we will stick to this as moving forward as the way that we will guide the market in terms of what we have grown in terms of volumes. We will report the overall volume growth specifically, but the individual numbers typically need to be given a directional rate so that we end up being consistent in the way we put it across.
Sure. No worries. First question is on India. We have seen consistently high growth over the last few quarters, and given that earlier the inflation was also higher, the growth did not subside. Is it related to some specific new product introductions that we have done? I mean, you just alluded that in terms of the customers, they have increased the grammage, et cetera. From our side, it is through some new product introductions, or is it based on the market share gain that we have had? Thank you.
It is a combination of all this that you have said. There have been some volume share gains that we have had. The other thing is in terms of the way there are some categories that we participate in, have grown pretty much well from a customer's point of view, which has enabled us to participate much more in their franchise. Okay. The other one is we have also seen some good traction in terms of the new product introductions that we have done in terms of specifically to the D2C brands and also in some new introductions that we did. It is a combination of all those because what is important that as much as we try on all these fronts, the market also has to be cooperative, and India has been really cooperative in terms of the demand side. That is good for us.
If this sustains, I think we will have the numbers getting sustained in terms of India volume growth.
Right. Got it. Just second clarification, again, slightly on the numbers. I mean, pardon me, I'm pressing again on this. Last year, we did about 568 crores of EBITDA for the entire year. First quarter, we have done INR 123 crores. If I just deduct INR 568 minus INR 123, it's close to about 450 odd crores, which signifies about 150 crores of absolute EBITDA in the next three quarters consistently. How confident are we that maybe, given that we have given the EBITDA per metric ton guidance, is there any possibility of the 6% to 8% volume growth probably getting higher, given that we have seen positive tractions across the geographies and India is continuously performing exceptionally well? Thank you.
Yeah. What I'm saying is that you're pretty much right in terms of what you have concluded. But yes, our aspirations are very confident. We do hope that the external scenario starts cooperating pretty well. We do have reasons to believe that the worst is behind us in terms of the developed markets. Let's keep our fingers crossed. That's important. But our internal mandate to our teams is very clear that we need to better our last year EBITDA numbers. We need, as we focus in terms of ensuring that we grow very aggressively on our volumes. That's very clear. The guidance that we have given is to ensure that we are able to give some clarity to the market participants. But that doesn't limit us in terms of what we need to do.
Correct. Thanks a lot for that, and best of luck, sir.
Thank you. The next question is from the line of Vipraw Srivastava from InCred Capital. Please go ahead.
Yeah. Good afternoon. Just one question I had. For this quarter, if you look at their EBITDA margins, it is around 13.1%, and that has been the trend for last two, three quarters, around 14% to 13%. As we have seen, the raw material prices have actually come down significantly for Galaxy . So, go ing ahead, if prices go upwards, do we expect that these margins might contract slightly to around 10%, 11%, which we have seen historically? Or do we expect these margins to hold for the next two quarters?
In fact, I don't think we need to hazard any guess there. That is the reason why we guide the market in terms of EBITDA per metric ton, because the margin percentages can vary depending upon how the raw material prices go up and down. That clearly is not indicative of the propensity of our business to deliver margins. Actually, EBITDA per metric ton is what needs to be looked at.
Okay. Makes sense. Okay, fine. Just one more question. Regarding the U.S. market, which you have told that you expect the numbers to improve from the second half of this FY. Is it based on some discussions with the end clients? Will they be taking more orders post this, in the second half, or is it just a qualitative analysis based on experience? I just want to understand the reason behind that.
It is a combination. The way some readings that we do of what is happening in the market, some commentary in terms of our customers in the U.S. market, some amount of face-to-face discussions and meetings with our key customers there. No one gives you these things very clearly. But this is what we surmise, our team over in the front surmises, and they relay it back to us. It is based on that, we have come to this particular expectation in the second half of this year.
Okay. Thank you.
Thank you. The next question is from the line of Krishan Parwani from JM Financial. Please go ahead.
Yeah. Hi. Thank you for the opportunity. Just one question from my side. Based on the qualitative commentary that you have given in the presentation about the volume growth, this is at the realization for your specialty products have jumped significantly in this quarter. What would be the reason for the same if you could answer that?
Can you repeat your question, please?
My question is, your specialty chem realization has jumped from INR 134 per kg in the last quarter to INR 193 per kg this quarter.
Okay
Roughly. Any particular reason? Because I think it had started normalizing from, let's say, INR 230 to almost like INR 134 in the last quarter.
No, it's a mixed impact. If you also see that the volumes are lower for specialty, then the mix with North America volumes being low, the realization per kg will look higher, right? Because there's a denominator, which is lower. Plus, there is also a mix that is also leading to that.
Okay. Fair enough. That's it. Thank you so much for the answer.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Bobby Jay from Falcon. Please go ahead.
Hi, gentlemen. Just wanted to clarify, what do you really mean by the consumer is not spending enough? Because all the data that is coming out from the U.S. at least shows that the economy is robust. That is the reason the Federal Reserve is not even stopping interest rate increases. Unemployment is at a very low level. People are spending. They are splurging on luxury products, actually, if you look at the sales of Louis Vuitton and all that. Your comments do not really reconcile with what is happening there.
Oh, yeah. You are right, Bobby. In fact, we have also been grappling with this. We have been trying to find, as we read our customers' commentary, we are also looking at our competitors' commentary there, and we are also looking at all the other chemical manufacturers there, and all of them seem to be reporting very low results. We are trying to establish a correlation. If the entire U.S. market is doing well, why is it only in our segment, we and our competitors there in the U.S., and all the other chemical players in the U.S. are simply performing very badly? So we are trying to get to some analysis there. We have not yet completed on this. We are also having the same question in our minds.
Okay. Could you give some actual examples of the products that use your chemicals? For example, I know there are sunscreens and other face creams, right? What are the brands specifically? Can you mention them?
Oh, it will be your high-end shower gels. It will be shower oils. It will be high-end.
No, what I mean is the actual brand, like Head & Shoulders. What is the brand you are talking about here, the high-end brand?
There are a lot of them. We do not want to be talking about that because there is some confidential that we get into with our customers, so we do not want to be revealing that.
Because when you say high-end brands in shampoos or sunscreens, I mean, it is hard to think of any. Most of the brands in the U.S., they are ultra-high-end.
I think I'll give you a suggestion, Bobby I think you should look out for sulfate-free formulations.
Sulfate, what was that again?
Sulfate-free.
Sulfate-free.
Sulfate-free.
You can look at preservative-free. You can look at anti-aging.
Right. Are your chemicals, they are used in sunscreens, correct? The specialty chemicals that you sell.
No. We don't have a big presence in sunscreen formulations.
Your presence is where? In anti-aging creams or just facial creams in general for women?
Into shower gels, into shampoos, into toothpaste, into home care formulations, both cleansing as well as rinsing fabric enhancers, all of that.
Okay. I understand. If you take shampoos, when you say high-end shampoos, how does that compare with Head & Shoulders from Procter & Gamble? Will it be what, 50% higher price? I am just trying to get a sense of what kind of products you are referring to when you say high-end.
Oh, yeah. If you look at sulfate-free, typically is a high-end shampoo. Anything that is sulfate-free is high-end. Compared to Head & Shoulders, you can look at any sulfate-free. I think you will find—
It will be at what price premium to Head & Shoulders?
There are a whole lot of niche players in U.S. who sell these shampoos at a much, much higher price compared to what you call as Head & Shoulders.
Okay. So you supply to those brands?
They are all small niche players.
Is that right?
There are a lot of small niche players around the U.S.
Are those the ones you are referring to when you say that your volumes are not picking up? Is that correct?
No. See, even all the major players also have their own premium high-end sulfate-free formulations. Even that has got impacted. All the players have their presence in high-end prestige formulations, whether it be a local niche brand or even bigger customers who have their own brands into that segment.
Right. So some brand like Dove or Head & Shoulders would be masstige for you, right? That would not be premium.
Yeah.
Yeah. They would come under the category of masstige.
Correct.
Okay. You're talking about like a 20%, 30% premium to these brands.
Are the ones where you're seeing slow uptake. Would that be correct?
Yeah. You would be surprised to know that there are certain brands in U.S. which sell for something like $16 a bottle.
$16 a bottle.
Yeah.
Oh, yeah. Okay. Well—
They may be—
This category—
They have a very, very small presence. Okay? This is why I am saying to just to give you an idea what we call extreme prestige or very high premium.
Well, yeah. I mean—
Sorry to interrupt, sir.
Our business model—
Please rejoin the queue for follow-up questions. Participants, if you wish to ask a question, you may please press star and one at this time. The next question is from the line of Karan Gupta from Varanium Capital. Please go ahead.
Yes.
Yeah. Hi. Just checking.
Oh.
Sir, you are audible. You may proceed with your question.
Yeah.
Hi. Thanks for the opportunity. Am I audible?
Yeah. You are audible.
Yeah. My first question is related to the raw material, fatty acid, and fatty alcohol. I said that is the most important raw material for us. So, any plan, any possibilities to backward integration of this raw material? Basically, this extracts from soybean, palm oil. So any backward integration you are planning or thinking about this? Because this is raw material fluctuating in price very much, more than 50% from Q1, I think.
That's not going to change even if you backward integrate. That's better managed by our strategic vendor partners. They're doing a pretty good job. And we really have vendor partners who really work for us, think for us, and support us well to ensure that we are able to manage this volatility better.
Okay. I think, see, I just did a small research on this thing. So, the extraction from palm oil or your soybean oil will get you this thing: fatty acid and fatty alcohol. So would you think—
For your information—
You can manufacture this in-house?
For your information, the fatty alcohols and fatty acids which are significant or relevant or important for the personal home care industry largely come from palm kernel oil and coconut oil, which are the main contributors in terms of what we call the lauric carbon chain. The palm oil and soybean oil also contribute to certain fatty acids. But the large constituents of the fatty alcohols in the personal home care industry are from the lauric chains. That gives you a picture of what specific oils are consumed significantly for the home and personal care industry.
Okay.
Soybean oil and palm oil do not have the lauric chain.
Okay. So it's better to rely on the vendor.
Yeah.
Okay. Second is something related to the maybe this question or the information may be confidential to you, but just on the broader view, if I take one bottle of shampoo, how much the contribution of our overall products or chemicals in that bottle? In any product, what is the contribution of I just wanted to understand the significance of our products.
Typically, for your information, a bottle of shampoo, the contents will contain almost 75% water. Okay? Our ingredients going into a shampoo bottle will constitute approximately anywhere from 18% to 22% or so. So 75% is constituted by water. Okay?
Okay. So 18%-28% is our product?
Yes.
Okay, great. In one product, let's say shampoo or your sunscreen or nail polish or any personal care or anything, we can include two, three chemicals or four, five chemicals just to improve the effectiveness of our product?
It can be anywhere from a simple shampoo could contain only four ingredients to a very complex formulation which could contain even as high as 15-20 ingredients.
15-20 ingredients.
Depending upon the claims, the benefits, et cetera.
Yes.
Yeah.
Okay. Adi, last one. Related to the specialty chemical, how is it going? We have major products in this range and contributing approximately less than our performance surfactants then. The growth trajectory of this specialty chemicals—can you just give the broader sense?
We didn't hear the question properly. I think there's some disturbance in your. Can you please repeat your question?
Yeah.
Make your statement. Make your statement. Please don't do it. I feel so. Kindly don't make too much.
Yeah, I am not in a speaker mode. It is just I think the environment of the office may be not allowing me to better communicate. The last question is related to the specialty chemicals. I can imagine performance surfactants as a product, but some of the specialty chemicals are not able to imagine. Just give the broader sense of the growth trajectory of this, because we have a major product range in this segment and contributing around 38%. Just trying to understand the growth trajectory of the specialty chemicals.
Yeah. We have said this earlier. Our strategy is to grow both legs of the market, both the performance surfactants and specialty ingredients. They will continue to be this particular proportion only, 60-40, 65-35. Because the way the ingredients get formulated, I think they typically have this proportion. The specialty ingredients portfolio growth will majorly be driven by the developed market because there are much more evolved consumers there, and they have got a clear demand with regard to these masstige products, in which our specialty ingredients go in a significant way. That is what it is going to be. Hello?
The current participant seems to have dropped from the queue. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Rohit Mehra from SK Securities. Please go ahead.
Yeah. Thanks for the opportunity. Just one question. What is the current capacity utilization? Secondly, what is our debt-to-equity ratio?
Today, the capacity utilization is 68%, and our debt-to-equity ratio is less than 0.15.
Okay. Thank you.
Thank you. As we have no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you very much. Thank you, ladies and gentlemen, and look forward to the next quarter. 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.