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Ladies and gentlemen, good day, and welcome to Galaxy Surfactants Limited Q1 FY '23 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. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Unnathan Shekhar, Promoter and Managing Director of Galaxy Surfactants Limited.
Thank you, and over to you, sir.
Thank you. A very good afternoon, ladies and gentlemen. Welcome to this first quarterly earnings call for FY '23. And let me wish all of you and your family members are safe and healthy living. In financial year 2016, Galaxy's full year profit stood at INR 101 crores. At this moment, it's pleasure to share with you that despite numerous challenges, we have witnessed in the last 6 years, Galaxy's march has consistently continued.
As we see the world gradually moving back to normalcy, the year FY '23 began on a very positive note for your company as well. For the first time in history of Galaxy, we have crossed the INR 100 crore profit mark. Despite facing a setback in Q2 and Q3 of last year, we not only rebounded in Q4, but we were also able to sustain the momentum in Q1 of FY '23. Improving supply chain conditions, better mix, realizations, new age products leveraging on emerging opportunities have helped us achieve this growth.
As you would have noticed, our EBITDA per metric ton for the quarter stood at INR 26,418. While we had a good start, the strong persistent inflationary headwinds impacting both the developed and developing economies, though with varying intensity, remains a cause of concern for us. As stated previously, the FY '23 will be all about managing supply, as well as demand side risks. While supply-side factors did improve in this quarter, we are yet to revert to pre-pandemic levels. This inflationary scenario globally combined with deterioration of macro factors of a few countries, severely has impacted the mass categories, which in turn impacted our Performance Surfactant volumes. And this impact was particularly adverse in AMET. The AMET region declined by almost 21% year-on-year.
The energy crisis in Europe and the impending slowdown remains a cause of worry and risk for our specialty care products going ahead. This is reflected in our ROW performance, which declined 5.5% year-on-year. However, on the brighter side, demand in India continued to remain stable and showed signs of improvement, the quarter-on-quarter by growing 8.5%. With the upcoming festive seasons, we believe the demand will pick up momentum from Q2 onwards.
Recently, keeping in mind the needs for the future, Galaxy launched shampoo bar based Galaxy Tresscon. These are a solid bar for shampoos, prepared with surfactant system that finds best fit value as it enables multiple sustainable elements such as reducing the usage of fuel, space, utilities and water. The ingredients used are also sustainable and are derived from our patented amino acid-based green chemistry. This is in line with our overall sustainability initiatives.
The earlier planned capacities have got commissioned in this quarter and will help us grow in terms of volume. While Q1 FY '23 has been a good start, going ahead, a conducive environment will be helpful to ensure that the momentum continues. At Galaxy, we remain committed to enabling and ensuring the same.
Thank you, ladies and gentlemen.
[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.
A few from my side. This quarter looks like a performance in 2 half. India still struggling and stand-alone still struggling. Margins are dipping. While the consol minus stand-alone, which I think predominantly is our U.S. and retail, there the margin continues to improve significantly. Now we are there at 22%, 23% EBITDA margin, 48% gross profit margin. 2 parts in it. How is the U.S. doing? Number 2, is that specialty, which we are manufacturing now and supplying to the U.S. a significant percent of margin is captured in the U.S. subsidiary. And this is despite the weakness in Egypt, right? So Egypt, I think it still continue to struggle. So what is driving such a strong performance in the non-stand-alone entity? And what is the steady state margin should we look at there? That's my first question.
Sanjesh, yes, the U.S. has done well and has been today consistent in the last maybe 18 months to 24 months. And touchwood, we would expect it to continue. But we have to be candid enough to say that one does see some consumption even in the U.S. market. That said, the U.S. operations also sells products of Galaxy, because, as you know, it's important that we maintain the stocks of these products at the warehouses in U.S.A., so that we are enabled to -- we are enabled to serve our customers from our warehouses there. So a number of specialty products, which goes from India, it gets furnished through the U.S. subsidiary.
So Egypt has certainly declined. But when you talk about India, Indian volumes have grown certainly in the last quarter, we have grown ahead of the market. We have taken shares. But there are still a lot of what I would call, operational bottlenecks which comes -- which emerge because the supply chain situation has not come back to real normalcy. There are certain -- even today, there are certainly a significant amount of disruptions and that disturbance is continuing. And these are the level in terms of having a, what I would call, a rhythmic performance as far as India is concerned in terms of operations.
No, what is driving such a strong growth in U.S. can help us understand, protein, because I don't think we have expanded them materially...
As far as U.S. is concerned, as we said, the introduction of these new products certainly has given growth, one. Of course, also the innovation on proteins that we do has been driving our growth as far as the protein segment is concerned in U.S. Plus, this introduction of specialty products made at the Galaxy India. These are also sold very well in U.S.
No, no. That I got the point. I'm telling you what is incrementally driving this strong growth? Is a combination of all these products, it is mild surfactant, is it preservative portfolio, is it protein portfolio and how much of this margin is...
You could have seen -- Sanjesh, you would have seen that our concern will be the volume degrowth that we have seen at the overall level -- so we have, the strong performance has been because of the mix and the introduction of new products.
Okay. And as Egypt picks up, the mix will still move towards performance and margins will normalize, that is a fair understanding?
Yes, yes, yes.
Okay. Continuing with the margin, now we are at INR 26 a kg kind of EBITDA. Our guidance is INR 16,000 to INR 18,000. It looks like we have come a long way from INR 16,000 to INR 18,000. Do we still want to stick with INR 16,000 to INR 18,000 or do you think sustainably, we have moved to a...
Sanjesh, we have a particular mix of performance surfactants and specialty products in mind, okay? Now there may be temporary deviations with respect to this. And particularly in the last 1 year or 18 months, the deviations have been one to many. There have been a whole lot of disruptions, as well as volatilities, whether you talk about the geopolitical unrests or the various different markets behaving in different ways, at different points of time. So we need to see some element of what I would call a rhythm or a steady state, which has not been there for the last almost 18 months to 24 months.
One other reason, this is Natarajan here, Sanjesh is that we also need to factor in, given the severe inflationary scenario leading to recession, if you look at our Specialty portfolio, we have a good portfolio in terms of a new aged product, good pipeline of projects in place, good amount of commercials will happen, but given this scenario, we cannot rule out -- many -- some of the customers reformulating because they need to manage their cost structure, which will be temporary, but we need to be cautious of that as well. So that's one of the reasons why we don't want really getting -- changing the band beyond the INR 16,000 to INR 18,000. But we are sure that we will be at the higher end of this band of INR 16,000 to INR 18,000.
Nataraj sir, just to put in, to understand it financially…
Excuse me, Mr. Jain, sorry to interrupt you...
Follow-up, last one. A follow-up and a last one. Just to understand that, is this EBITDA of INR 150 crores we have done in this quarter, right? Forget about the EBITDA per KG and all, is this INR 150 crores is sustainable and can grow from here? Now considering this is on a lower volume, our volumes will come back. Do you think this INR 150 crore is a sustainable and this becomes a new base, and we will grow it from here?
We would aspire it to be there, yes, I think all of us would like it to be there, okay? So as we said, there are a whole lot of challenges which are possible. We don't want to be blind to that, okay? So we would certainly be careful and alert both to the opportunities as well as to the challenges that can emerge.
Yes. Okay. Fair, sir. I will come back in the queue for more questions. Thank you, and best of luck for the upcoming quarter.
[Operator Instructions] The next question is from the line of Rohan Gupta from Edelweiss.
Congratulations on such a strong set of numbers, despite we have seen the pressure on volumes. Sir, I have just -- extending from the previous conversation, definitely the performance from non-surfactant or the specialty business has been very solid and especially coming from the developed markets. You gave the reason for that is basically the new product launches, which has led to a strong profitability and higher margins. Once we come back to the previous level in terms of product mix with a higher revenue coming from the surfactants, then we are cautioned that the margins will go back to the previous levels of your guidance of INR 16,000 to INR 18,000 per tonne.
Sir, the products which we have launched are definitely new age and are clear indication that we have a ability and capability of launching new products with a very high margin and -- which are much higher than the current business, then only we are probably able to enjoy INR 25,000 to INR 26,000 EBITDA per tonne that we are enjoying right now. So the question which I had is that, are there any kind of issues we think that in our ability to keep on launching new get in next 1 years to 2 years that we keep on improving our production.
I'm not saying that we want to get into another basic surfactant business model. But I'm saying that the performance, which has been driven in the last 1.5 year and when we have commissioned our specialty chemical business in last year with the additional capacity, why we think or assume that the specialty part of the products are high value-added products will not keep on driving the revenue growth even in the next 1 years to 2 years also?
See, Rohan, thank you. See, we have seen the end-use market and particularly this year, because of the real hyperinflation, the stress on consumption, we have started experiencing across various markets. Customers, when there is an hyperinflation, like it happened about 3 years back, 4 years back, then to down trade, okay? And when that happens, the store brands start gaining traction for that particular period of time. Of course the customers serving consumers come back to the mass and the Mass-tige.
When we talk about specialty. As you know, the specialty products find use or find their place in Mass-tige and Prestige brands, okay? And they have to consistently grown, but which can be challenged during times of hyperinflation. So we know that we have talked about various trends, consumer trends on sustainability, going towards Prestige. But these premises get challenged during what is called typical times for a consumer and the difficult times can be when there is hyperinflation, which is what has happened now, okay?
Now once -- and once the things start regularizing and as you have seen, the commodity prices have started sharply coming down, okay? Now when that happens, I think the customer has certain flexibility and is valid to indulge in Prestige products also, okay? So we would apprehend a temporary challenge possibly to this specialty growth. However, what I want to say is that we have had a continuous stream of innovations over the last 10 years or so. Galaxy has built its specialty portfolio significantly over the last years and we'll continue to build. New products will keep coming up.
But at the same time, we have to ensure that we do not ignore the broad market in all the emerging economies, as well as the evolving economies, particularly the AMET region and the African regions. Because Galaxy would like to give preference across various consumer segments as a part of this strategy, both in emerging markets, as well as developed markets, yes.
Okay. Got it. So sir, I think you are expecting a hyper-inflation and we are fearing that. However, the raw material prices have already started coming down as you rightly mentioned, and is already down by almost 30%. I think that definitely we are not expecting the prices to go back to the previous levels. But yes, I think that even they are also not likely to remain on the [indiscernible] ahead of March. So now with the softening of the RM prices and assuming that it's a -- I mean, what are the current prices and assuming that 10% to 20% for the fall in prices, RM prices [indiscernible]. So what do you see and think that our percentage of EBITDA per tonne margins can sustain. I hear you that you are completely maintaining INR 16,000, INR 18,000 of upper end guidance. But do you see that if the RM prices sustains lower, will be 10% lower from there. Can we expect our EBITDA percentage margins what we are enjoying right now in terms of percentage trends are still like...
Yes, Rohan, let us wait for a few more quarters before we come to a secular trend, let us wait for a few more quarters.
Okay. Okay. Sir, just a question, and I'll come back in queue for the follow-up. Sir, we have seen that our specialty products capacities launched last year. And if you can give us some sense in kind of utilization we will bear and at what our utilization rate is right now and the CapEx plans for the current year and I think that our CapEx has be much lower than the free cash flow which we were generating. So what are the plans for our additional free cash flow this year?
Yes, Rohan, so -- Natarajan here. So our capacity utilization has been about 64%, and the capacity that we added were all under the Specialty Ingredients segment and which obviously has been -- we have started gaining on capacities in line with the way historically the customers are maturing. With regards to our development of the cash, we have set our fiscal CapEx outlook to be about INR 150 crores per annum, and we do have project that are being rolled out on both the Performance and Specialties Ingredients segment over the next 2 years. So per annum, we will be having about INR 150 crores of capital outlay on our expansions.
[Operator Instructions] The next question is from the line of Rohit Nagraj from Centrum Broking.
Congrats on a very strong set of numbers. Sir, first question, again, harping on the EBITDA per tonne [indiscernible]. So is this because there has been a lag in terms of the input cost inflation, which has been passed on. And prior to 2 quarters back, we had a struggled to keep the EBITDA per tonne at our [indiscernible] levels. And because of inflation, this impact has come in Q4 as well as Q1 and incrementally as the raw material prices upsell based on your commentary, it will normalize to our INR 16,000 to INR 18,000 tonnes per level. Is that the right understanding?
Yes, that's the right understanding. The only thing is what we need to when we -- Q2 and Q3 of last year when the performance was significantly impacted, we said the raw material prices have been increasing pretty -- the -- both the frequency and the intensity of the increase was pretty high. And by the time we're passing on one increase, the price will go up further. And from Q4 it stabilized although at a higher levels and that continued. So you're right in that understanding, because it enables us to then not have an impact because we've not been able to pass on. Because you pass on, say, with the lag of a quarter.
Right, right. Got it. Sir, the second question is, in the last couple of quarters, despite the lower volumes, we have not benefited because of the supply chain challenges probably faced by our competitors, and we have to supply this time across different geographies because of which we had been able to charge like premium instead of the normal pricing?
Can you repeat your question, Rohit? I couldn't hear it clearly.
Right. So in Q4 and Q1, because of maybe supply chain challenges faced by competitors, where we benefited in terms of pricing premium for our products because our products are available at different geographies.
Like I said, there were opportunities that were presented, we also had some challenges, but I think we -- the story of the last quarter has been where we managed the challenges well and leveraged on the opportunity that was presented. So, and also what is important is that, given this particular uncertainty in terms of various economies being in trouble. So we have also been choosy in terms of which customers we'll be selling to, because there is also a risk that we need to be wary about. Just in case the economies are not doing well, the customers based there. So how do we then recalibrate our customer portfolio. That's also been one way that we have been able to reaching our customer portfolio to aid the clear numbers.
Correct, so got it. Sir, just one last clarification.
Sorry to interrupt...
Yes, I'll come back in the queue.
[Operator Instructions] The next question is from the line of Anupam Tiwari from Axis Mutual Fund.
Hello, can you hear me?
Yes, Mr. Tiwari, we can hear you.
Okay. Sir, wanted to understand a little in detail, if possible, in terms of green surfactants, so I'm sure you guys also had green surfactants in your portfolio, but the way things are being defined now, so whether, let's say, a sulfate free surfactant can be classified as a pure green surfactant or it's a partial green surfactant. And is there any newer kind of product with a very different technologies are being accepted in market as green surfactant and where our product development stands in terms of this journey to reach before green surfactant. If you can help us understand that.
Yes. Anupam, I think Galaxy has been a significant player and leader as far as green surfactants are concerned. As you know, our amino acid surfactants, which has a world patent, an exclusive patent is totally based on green chemistry, which use this in a very exclusive edge, one. Again, our nontoxic preservatives are from green sources. We introduced a product called sodium lauroyl lactylate, which is totally green surfactant cum emulsifier in this particular year. So -- and as a matter of fact, a significant amount of growth that we have seen in the last 3 years with respect to specialty products have come from our green chemistry, green innovations. And this is an important priority as far as the organization is concerned.
And so sustainability is built-in in our developments. So a whole lot of our specialty products are based on green chemistry, where the effort is with respect to add-on efficiency, recycling very, very negligible or minimal environmental footprint, no wastage. So these are the various elements of green chemistry. As a matter of fact, our patent that we have fulfill all the 12 principles of green chemist. So -- and this has been very well acknowledged not only by industry bodies, our competitors, our customers. As you know, we received the P. C. Ray Award instituted by the Indian Chemical Council last year for our innovation with respect to amino acid surfactants.
And sir, how is the competitive situation over here blooming in terms of offering for green products?
See, Anupam, as far as the Personal and Home Care industry is concerned, there are a whole lot of products. There are a huge number of customers, and huge number of players also. So when you talk about edge yes, one does have an edge when you play in the same market. But different players have different education, different missions, okay? That is the reality as far as the Personal Care market is concerned, because there is a place for a large number of people directly, yes.
And in terms of customer acceptance, what I'm talking about is in customer acceptance, not your clients for green products. I'm sure they would be expensive. So in terms of cost acceptance, how it is panning out globally?
No, no, no. For peer, it is only -- it is one-off, let us say, what you're creating and responding to the various emerging consumer needs and the emerging -- even the consumer needs are certainly distinctly towards sustainability and green nontoxic and less amount of, what I would call, so-called ingredients. People want as least number of ingredients as possible. So that is what consumers want and this consumer is on -- is primarily at a very significant level in the U.S. and the Europe markets and India is again catching up. So we do see a consistent growth of specialty products even in India. Though albeit it is not as comparable as what is in the U.S. So this is a significant and a definitive trend, which is happening.
And sir, in terms of regulatory requirements on the surfactant side, are you seeing any change in the next couple of years?
Yes, yes, yes, particularly in U.S., there is a very many major change happening on products, both Personal and Home Care products are expected to have dioxane less than 1 PPM, okay? This is a New York directive which has come, which will go live by the end of this year. That is starting 1st January 2023. This is a very, very major change. And Galaxy is already ready. As a matter of fact, one of the major innovations for this year in the introduction is a product called GalEcoSafe, which is the Sodium Lauryl Ether Sulfate where we have been not only present but a significant player globally. And touching our dioxane content of less than 5 and 10 ppm, which ensures or enables the final consumer products to have dioxane less than 1 PPM. So these are regulatory challenges, which have come as opportunities. We have responded to them. We are ready with the product. And we have already made foray into certain markets such as in both Europe, as well as U.S.
And sir, just to...
Mr. Tiwari, I'm sorry to interrupt, sir. We request you to kindly get back in the queue for further questions.
Okay, okay.
[Operator Instructions] The next question is from the line of [ Bobby Jay ] from Falcon Investment.
And the question is EBITDA per tonne, 40% above the lower end of your range.
We can't hear you, Bobby, can you please repeat it?
Yes. Talking about the EBITDA per tonne, where for the past 2 quarters, you have been around 40% higher than your normal range of 16,000 to 18,000. So if you're actually saying that you'll revert to the 16,000 to 18,000 and your volumes don't grow up drastically, that would have a big impact on your profits.
See, as we've said, there are a couple of parameters which were at play in the last 2 years. One was, of course, the supply chain, geopolitical disturbances and the supply chain disturbances, which impacted your rhythm of operations, okay? Both the predictability of operations, the planning of operations, the rhythm of operations and the output of operations. Apart from that, the challenges with respect to outgoing cargo also put a spoke in terms of your dispatches and delivery. So there is a huge supply chain elongation, which, one, the world experienced, including us.
The second is, of course, the because of this geopolitical uncertainties, there was hyperinflation, which impacted consumption. And the impact or the stress on consumption, we are seeing it in a more pronounced way in the last quarter and possibly in the existing quarter, that is the quarter 2 of the financial year, that is July to maybe September, which we expect we would see a stress on consumption in this quarter.
The third is a number of economies, particularly have been -- gone into weakening as a result of which we have been very, very choosy about customers, because we want to protect ourselves against default. So that has also been where we have withdrawn our souls with respect to certain economies and certain markets, as a very conscious decision, which you will get back to once things come back to normalcy. So it is important that the world come back to normalcy, howsoever, hopeless or hopeful it will see, who wouldn't like the world to come back to normalcy so that there is predictability.
Tens of times there will be an element of opportunism which is inherent. And there is -- there will also be these deviations that we have seen. But in a secular assumption, because the entire EBITDA guidance that we have given is based on a particular secular assumption. So, for the next maybe, let's say, 3 or 4 quarters is concerned. And that's why we have -- we said that let us wait for a couple of quarters. But for the next 3 or 4 quarters is concerned, we would like to say that we would be at possibly the higher end of our EBITDA guidance that we have given.
Mr. Shekhar, I perfectly understand all that you have described and we are well aware of it. I guess my specific question is, are you saying that when your EBITDA per tonne reverts like to the original state, your volumes would go up drastically?
Yes, yes, yes.
Yes, that's what I'm trying to understand because we want to -- what we are concerned about as investors is, your absolute profit, right. If EBITDA per tonne goes down and the volumes don't go up, your absolute profits will come down. It's just mathematically, right? So if I understand you correctly, what you're saying is, as the consumption picks up, your volumes will climb up and because there will be more Performance Surfactants, your EBITDA per tonne might edge lower. But the total would be -- but the absolute numbers trend should continue. Is that -- is my understanding correct?
Yes, yes, you are understanding is right.
Okay. So the other question was, there was a drastic fall in fatty alcohol prices this quarter. So did you have -- but your presentation doesn't mention any inventory losses or MTM losses or any such thing? So how did you manage that?
We have explained this thing, we have a very good risk management mechanism to ensure that the impacts are minimum. I mean, it's not that we will be totally immune to any impact, but the impact was pretty minimum and so that has been the case. So we have not had any significant impact because of this.
Would you have to pass the lower prices on to your...
Mr. Jay, I'm sorry to interrupt, sir.
It's just part of the question, just let me complete please. It's just part of the same question.
Sure.
Would the lower prices be passed on to your customers?
Obviously, the competitive market or the competitive scenario ensures that ultimately the benefit of lower prices on feedstock will go to ultimately the consumers.
The next question is from the line of Krishan Parwani from JM Financial.
Congrats on a good set of numbers. Sir, just 2 questions from my side. So the first is, I just wanted to check, has there been any addition of value-added products in your Performance Products portfolio over the last couple of quarters?
We did mention, as far as Performance Products is concerned, our new -- the innovation that we worked on, on GalEcoSafe, the SLES having very, very low dioxane, which would help our customers to meet the New York regulations with respect to dioxane. So both -- we have already launched this in Europe, as well as U.S. And we have already done a significant amount of business or some businesses on this thing with our customers in Europe and U.S.
Yes. Sir, just on a follow-up on that. So what will the contribution of this in the current Performance Surfactants, like maybe a ballpark number should do, not an exact number, but...
Not a very, very big number. It will gradually climb because the regulation will kick in only from 1st of January, okay? Whatever we have done or whatever customers have brought in, is in the form of preparation for themselves, okay? The regulation starts kicking in only from 1st of January, 2023.
Understood. So -- and the second question is that, so basically whatever price jump that we are witnessing in the Performance Surfactants is mainly driven by the higher input cost. Is that correct? Because you mentioned that value-added product addition is only limited.
Yes, yes, you're right, you're right. See, in Performance Surfactants there is a very clear correlation in the market at the market level between your feedstock prices, as well as the final selling price.
Thank you. The next question is from the line of Pujan Shah from Congruence Advisers.
Actually, I just wanted to have a broad outlook on Performance and Specialty. So we have a revenue segregation on like Performance and Specialty. And so on a moving trajectory like 4 to 5 years, are we be on the same line or will specialty will contribute to, let's say, 50-50 or so. So can you just give some trajectory towards that?
Yes. See, we have always said that the split between performance and specialty will be 65-35. But this ratio will certainly go towards maybe to 60-40 or even maybe 55 to 45, but not overnight or immediate, but over a horizon of, let us say, 5 to 10 years or so.
Okay. Okay. And so my broad understanding would be -- so majority of our -- like our sales, you can say would be on performance, but the margins would be contributing from the specialty. So more of the margin performance improvement will be from the specialty and the sales performance could be majority from the performance, right? That is my understanding correct?
Yes, yes, yes.
Okay. And my second question would be, can you just give us some -- like I was seeing the presentation in that like -- can you just gives us the top 10 contribution products, like how much contribution to the revenue [ these would ] give us to, like its top 10 or top 20?
We wouldn't be able to talk on that. We wouldn't be able to talk on that.
The next question is from the line of Sanjesh Jain from ICICI Securities.
A few more on the volume side, more. I wanted to understand how are we trending on month-on-month basis for the AMET. I know for the quarter, we have declined by [ 21% ], last quarter, it was 29%. Just wanted to understand the progression? Is it on the improving side? Are we seeing this pressure coming down? That's one. Number 2, on the rest of the world side where we had declined 5.5% in the volume terms. Last quarter, it was positive. And now that given that we have commissioned the plant that should give us a momentum in the new product as well, how should one think about the volume progression from here? And this is on the premise that India will continue to do good, because now we are approaching festive season, the pressure on raw material side is coming down. So that will give some new push on the volume. Just wanted to understand how are we thinking of volume progression from here to, say, for next 4, 5 quarters.
Yes. So Sanjesh, so as far as the AMET volumes are concerned, I think we'll have to wait for the Egypt and Turkey market to really start coming back once they adjust to the significant inflation that they are having. So that's going to be very critical. And to your question, whether we are seeing some green shoots and we see improving trend, I would say that directionally improving, but we'll not be able to make any comment whether they'll be sustained because we've also had Id, which was there in the month of July. So we will not be able to make -- so probably we'll be able to make a clear statement on the direction by end of this quarter. That's one.
Second, with regard to the rest of the world, it is driven majorly by specialty ingredients. And the only thing that we would want in terms of a quantitative environment is that we have the inflationary situation correcting, the recession not prolonging and that would enable us to be able to continue and leverage on the various projects that have [ matured ] on specialty ingredients with many of our customers.
Just to continue there on the volume front, are we seeing any destocking because of the falling prices? And this commentary has come from multiple chemical companies. The customer tend to destock because they fear that they will continue to fall. And when to -- so they keep destocking and they buy only just in time kind of a requirement, so in that phenomenon, is it also adding to the volume thing?
So that's also one of the reason. But then if you look at, say, U.S., there is good amount of destocking that is happening, which is what many of our big customers who have been talking about this being one of the reasons why their volumes have been lower because one is the pantry stocking that was done by the households also has come down, which is then passed on into the chain wherein you have all the big stores like the Walmart and all of them also destocking. That is one of the reasons why it's happening. Second is with the reducing prices, yes, they would want to be on the lower set of the inventory in the pipeline so that the impact in terms of a significant correction is limited in terms of the financial impact. So there are multiple reasons, but one major reason why all this is happening is the consumer demand, it still is correcting from the highs that we have seen earlier because of the inflationary scenario. So we -- only thing that can correct all of this is the consumer demand because destocking and all this is only a response by our customers to take it up the situation. But the moot point is how do we ensure -- how does the consumer demand come back, okay, to the robust levels that it was, say, last year.
If I hear you properly, we are giving a very cautious statement on the volume growth, particularly Europe, U.S. where we are seeing stress. Are we seeing demand really slowing down or it's just a transitory phase or people are really facing the pain now? Because I think from the peak of the inflation, now we are only coming down in a road where the inflation will be lower than what it was earlier. So probably what sits behind on the inflation? And our performance even during the inflation was a very incredible performance. Why are we turning so cautious where we can [indiscernible] probably more [indiscernible] that the inflation will only ease off?
If you see the demand construction is happening, it started only beginning of last quarter. And the commodity price also started correcting only towards middle of the last quarter. So for things to settle down, come back and regain their robustness, okay, is something that we need to wait and watch. The other stuff also is in terms of Europe, the energy crisis is going to have its own implications. So we need to wait and watch. So it's a combination of factors. Although we would want things to pan out the way that you have been articulating, that's what is going to be good for us, and that's what is the conducive environment that we would want it to be there for us to be able to churn out good volume numbers. But yes, we are not able to make any clear statement because of the headwinds that we're already seeing in the market by the kind of commentary that our customers are giving.
No, I think Europe being in trouble probably is good news for us because they will try to more outsource and the production cost of the local surfactants [indiscernible] is sold at a very thin margin. For them to complete will be very different -- very difficult, right? So for AMET market, we become even more efficient due to the fact in the Europe, doesn't it make us even more efficient to export from AMET to Europe and that market will [ sit ] up very well for us?
Yes, so that's what -- what I said was, as we do see, because of the various geopolitical situation and the energy prices, we'll have challenges that we need to be very properly managing and it also presents us with opportunities that we as a team are well geared to leverage on. So you're right, if this particular hypothesis that you have is something that's really good. And if it pans out that way, we certainly would be well positioned to be leveraging on that opportunity. You're right.
No. My question is, are we seeing...
Mr. Jain, I'm sorry to interrupt, sir, but we'll have to just proceed to the next question. The next question is from the line of Rohit Nagraj from Centrum Broking.
One question on how historically the FMCG company pricing has behaved during such events of hyperinflation? And generally, once the FMCG consumer product is priced at a particular level, usually, those prices do not correct. So historically, what is our understanding of the same in the last maybe 20, 25 years?
So what we have seen is that it's not a question of how the consumers respond. So overall, if it doesn't hit the consumers too much in terms of their disposable income, then yes, they would not mind continuing to pay those high prices. But if you ask us -- if you ask my personal opinion in terms of what would be the response to the current situation, I think everyone wants to be incentivizing consumer demand, and they will certainly end up passing on any reductions. But yes, they would want that -- to get a signal that it is going to sustain. So they don't want to be reducing and then increasing it again. So they would probably wait for some months. But surely everyone want to pass on because they would want the demand to come back to the robust levels that they have seen earlier.
Right, sir. Sir, second is a bookkeeping question. We have seen that by end of FY '22, the debts had increased and given that we had very strong cash flows during Q1, how has been the debt situation at the end of the quarter? I mean, has it reduced substantially and probably reduce eventually over the next 2 quarters or just similar kind of result is coming?
Yes. Abhijit, our CFO, will respond.
Yes. So the overall debt situation continues to be at the same levels that we had in the previous quarter with debt equity ratios of around 0.2. And this will -- going ahead, I mean there won't be any significant change going ahead till the end of the year in this.
The next question is from the line of [Technical Difficulty] from [ Kamakhya Wealth Management ].
So sir, I'm just trying to understand, so there have been 2 reasons here. First is that, obviously, there have been constraints on the volume side as you were talking about inflationary scenarios in your target markets, And secondly, with your RM prices coming down, as you had already mentioned that even the lower prices, you will have to be passing them on to the consumers. So I'm just trying to understand, sir, like in both ways, these situations are not really working in our favor. So what exactly are the growth drivers for, say, the coming 2, 3 quarters? Or is the scenario just going to be like this? And probably, we just have to wait and see what is going to happen? Or do you have some kind of a strategy now?
See, let us admit and acknowledge that the consumer demand is a very, very extremely important parameter. If the consumer doesn't buy, I don't think any unique strategy will make your sales grow, okay? So it is important that the consumer demand comes back to robust scale levels. Now all the indications are right for that to happen because the commodity prices are correcting, okay? So -- and you will also see some of the festive [ queue ] is coming back. People today, obviously, when we are coming back to normalcy with respect to daily life, I mean, maybe for the first time, India will be celebrating the festivals in full measure in this year, whether it is your Ganesh Chaturthi or Diwali, okay? So this should certainly augur well as far as consumption is concerned. So our strategy is to ensure that we have rhythmic operations, we are able to respond to our customer needs very well, which was a concern in the last 18 to 24 months because of supply chain disruptions. I'm not talking about just Indian customers, here I'm talking about our global customers, India as well as global.
So we would want to ensure that we are able to very -- in agile and a prompt way and a consistent way able to respond to various consumer needs with respect to demands. The consumer demand to come back and thirdly, the inflation to correct because that will ensure that the wallet of a consumer -- he's able to appropriately devote some of it to the prestige products, which is what has driven the specialty portfolio and which will drive the specialty portfolio consistently. See, when there is a stress with respect to his wallet, the customer -- our consumer reverts back to minimalism, it's actually about minimal, whatever he wants to consume. That is what we have seen. We have also seen, for example, the reflection of this is consumers going back to store brands as well as dollar store brands in U.S.A., okay? And the same thing happens even in India. So these are the sort of situations that we would hope correct themselves in the coming quarters.
All right. Understood. And sir, lastly, just one final question. You had mentioned earlier that you're likely to do CapEx of about INR 150 crores per annum for coming 1 or 2 years. So could you just elaborate a little bit more on that whether are you going for more capacity enhancements? Or is this just regular maintenance CapEx?
We maintain that. That will continue. We would have a CapEx of approximately INR 150 crores year-on-year.
No, no. Sir, my question was whether this is going for capacity enhancements? Or is this general maintenance CapEx only?
No, no, it is also the capacity enhancements. Some are already underway, yes.
The next question is from the line of Rohan Gupta from Edelweiss.
Sir, first question is on our working capital itself. So last year, because of the sharp increase in input prices, we have seen a large part of our cash flows where we deployed in working capital. And that led to almost flattening of the debt level. And even also, it was added up with the CapEx, which we had close to INR [ 300 ] crores-plus. This year, we see that the reverse is likely to happen with the falling raw material prices and we are expecting some release of the working capital. Just to give some numbers from the balance sheet, last year, we had deployed close to INR 350 crores additionally working capital. So the question remains to see is that, with the surplus cash flows which we had this year in -- at the end of FY '23, and even if you give some working capital to be released this year, so not only just a part of net debt, we should be ending up with a solid cash and EBITDA at the end of this year. Do we have any plans, given the limited CapEx plan we have? Do we have any plan for the -- to [ release it ] to shareholders in terms of any additional distribution or through dividends or any buyback?
See, this working capital increase that has happened has essentially basically happened from the borrowings, and which will be distributed in the different jurisdictions in different subsidiaries. So as the raw material prices correct, obviously, there is also going to be a release of working capital, which will essentially go on to reduce the borrowings.
Okay. So you are saying that, obviously, we would be having [indiscernible] cash on the balance sheet to distribute to the shareholders.
Yes, yes. Correct.
Okay. Sir, second question is on our realization. So definitely, even in the current quarter also, we have seen that on quarter-on-quarter basis also, the realizations of performance and specialties has gone up by close to 14% to 15% on Q-on-Q basis itself. So the performance surfactants and net realization going from [Technical Difficulty] [ INR 12 lakhs, INR 15 lakhs ] and specialty from INR 2 lakhs to INR 230,000, a 15% increase. However, the raw material prices have fallen on quarter-on-quarter basis by close to 20%. So I understand that is because of the lag. So do you see that from the Q2 itself, this will correct and the realizations has already started coming down and our net realization will be down by close to 15% to 20% from Q2 itself or it will take some time to get reflected in the results?
So what is important, Rohan, is that we need to ensure that we are able to calibrate appropriately in terms of how the market responds to the lower commodity prices. But it's important that we respond well. And that's what we'll do. How it pans out in terms of margins is something of a consequence. But we do see -- we will do everything that is required to be done in a very calibrated way, make sure that we protect value as well as our market. So that's the approach we will take. Subsequently, how it pans out will be a consequence, but we do see that things will start -- that we'll always -- we need to correctly price this in terms of the way the prices are corrected because otherwise, your demand can get impacted. So we will do what is appropriate.
Okay. And sir, just last from my side and this is on basically our new product launches like the Galsoft and even the [indiscernible] categories in terms of COGS which we had launched this year. How is the performance in Galsoft and Galguard and [indiscernible] coming? And do you see that, any -- whether the [ 3 ] remaining new product basket, which we have for FY '23, which can be significantly -- which can be significant driver for us?
So it's -- that's what I said, it's progressed well in terms of certain projects in pipeline maturing with the customers. But there are a good amount of projects in pipeline that are at advanced stage in terms of commercializing. But we need to keep our fingers crossed with the current situation, as we explained, in terms of recession and the inflation. We need to see as to how quickly this product is rolled out. So we need to wait. But yes, in terms of our engagement with customers and the way that we are progressing, it's in a pretty good state.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Yes. Thank you. Thank you, ladies and gentlemen. We would once again meet about 3 months from now. Thank you, once again.
Thank you. On behalf of Galaxy Surfactants Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.