Galaxy Surfactants Ltd

NSE:GALAXYSURF

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Galaxy Surfactants Limited Q2 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 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. Thank you, and over to you, sir.

[Unnathan Shekhar, executive]

Very good morning, good afternoon to all of you. Welcome to this conference call of quarter 2, financial year '22-'23. Ladies and gentlemen, it gives me immense pleasure to welcome you all once again for this quarterly conference call. [ After this ] said, offense wins games but defense wins championships. And the first half of this year has truly tested our defense. In a half there have seen fatal called prices and freight rates corrects upwards of 50%, along with a contraction in demand, a good defense that is robust risk management, a diverse product portfolio and judicious price calls, combined with experience acquired over decades, enabled us to deliver an almost 100% growth in profits for Q2 and a 55% for the first half, vis-a-vis H1 of FY '22, thus enabling the momentum garnered in quarter 4 of financial year '22 to continue into the first half of FY '23.

Before we get into details, I would specifically like to acknowledge the efforts put in by our team at Galaxy. Given the rapid change that has occurred over the last 12 months, both on the supply as well as the demand side, consistency achieved in the last 3 quarters is worthy of praise and acknowledgment.

Moving on to the business performance, it is important that we understand the structural drivers as well as the short-term factors influencing it. India continues to remain a bright spot for us. While the volumes have grown 8% for Q2 and 5.5% for H1, the bigger picture is what pleases us. Today, we are on course to touch the 100,000 metric tons sales number for India. The same stood at 69,361 metric tons in FY '18 thus growing at an 8% CAGR for the past 5 years. Based on this performance, we can safely conclude that the structural uptick we witnessed during COVID has not only sustained but as inflationary pressures ease, we can expect further buildup in momentum. I would urge you all to look at the bigger picture, which remains bright and healthy.

The Africa, Middle East, Turkey region has been a point of concern. The overall volumes declined 3.5% for H1 FY '23, primarily due to the 19% decline in Africa, Middle East, Turkey volumes. The local market, which makes up for approximately 33% to 43% of our total AMET volumes has been experiencing significant headwinds on account of currency depreciation, down-trading and cutback in demand. The Egyptian pound which stood at EGP 15.7 to $1 in March '22, today stands at EGP 24.37 depreciating [ 50% ] in just last 8 months. [indiscernible] has resulted in a local backward integrated player gaining share at the cost of our customers, which has adversely impacted our performance.

While this may be a repeat of FY '19, given the sharp depreciation seen over the last 8 months, the lower Egypt market might take 3 to 4 quarters more to stabilize. But I would like to assure you that the AMET story remains intact. Given the macroeconomic dynamics of this region, while mass and masstige categories may witness a decline once in 3, 4 years. They were also the first ones to make a comeback, talking in higher levels than before. We have witnessed in FY '20, FY '22, and we remain optimistic about FY '24.

The rest of the world has been a mixed bag for us, registering a 14% growth over Q2 and 3.6% for H1 FY '23. While U.S. and Asia Pacific markets have been stable, the slowdown in Europe needs to be tracked carefully. Europe is a big market for our mild surfactants, preservatives as well as other specialties.

If you look at our Rest of the World volumes over the past 3 to 4 years, while they have remained in the 54,000 to 59,000 band, we remain optimistic. Yes, there have been multiple challenges, be it on account of the pandemic, which impacted consumptions in FY '21, supply-driven volatility, which impacted our performance in FY '22, our broad-based slowdown in Europe, we are experiencing now. But despite all of this, let me assure you, the structural story remains intact. With easing inflation and improvement in global demand for premium products, we see the next leg of growth starting soon for our specialty products.

Before we move on to the outlook, let me dwell a bit more on the EBITDA per metric tonne, which has been consistently in the INR 22,000 to INR 26,000 metric tonne for the past 3 quarters, well above our guided EBITDA of INR 16,000 to INR 18,000 per metric tonne. The EBITDA per metric tonne is a derivative of our EBITDA performance and volume growth. While multiple initiatives are being carried out in terms of product mix, operational improvements or judicious price calls to capital is on emerging opportunities, we need to acknowledge that the decline in volumes as well as reversal of multiple supply-led factors have also contributed to this jump. But for ensuring sustainable growth volumes are the key. While inflationary pressures have impacted the mass and masstige segments that's impacting our performance products, using inflationary pressure will ensure volume growth, which eventually will result in correction of our EBITDA per metric ton, as and when the same happens. This will be particularly true as the AMET volumes recover. But for now, given that we have been consistently clocking in EBITDA per metric tonne of INR 22,000 to INR 25,000 per metric tonne for the past 3 quarters, we would like to revise our EBITDA guidance for the year to INR 21,000 to INR 22,000 metric tonne from INR 16,000 to INR 18,000 per metric tonne.

While the prerogative remains on ensuring volume growth, given the slowdown in volatility we are witnessing globally, meeting the previous year volumes should be good. Having said that, we aspire for a 2% to 3% volume growth. But for that to happen, we need a more conducive demand environment.

While we never issue any half yearly or yearly guidance, this is being done to give a true picture of the current situation. Going ahead, we will always aspire for a 6% to 8% volume growth with EBITDA growth being 300 to 400 bps above it, and a ROCE of minimum 22%. The structural framework that has enabled our growth over digits remains the same, and volumes are an integral part of it.

To conclude, ladies and gentlemen, it is said that the successful warrior is a man like no other with a laser-like focus. And it is this laser-like focus great defense in terms of risk management, and an optimistic approach that will ensure your company continues to march ahead. Thank you very much. Once again, ladies and gentlemen. Thank you. Now over to you for your questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question from the line of Sanjesh Jain from ICICI Securities.

[Sanjesh Jain, analyst]

I've got a few questions this time more than 2 probably. First, on the emerging business model, we have changed our guidance both for EBITDA and volume, one for better and one for inferior from the long-term perspective. Do you think this model sustaining more than FY '23? Will this be even be flowing to FY '24? Because you also made a commentary that Egypt may take another 3 to 4 quarters to stabilize. That means a significant portion of FY '24 volume again is at a risk. Considering a low volume growth scenario and a better mix in favor of India and ROW, do you think this higher EBITDA sustaining beyond FY '23? That's number one. And number two, do you also see that in a longer term, this could be a more emerging model than the volume growth? Is that a possibility? Or we would want to go towards more volume growth then and higher EBITDA. How do you see the model?

[Unnathan Shekhar, executive]

Good, Sanjesh. See, as we very clearly said we want to grow ahead of the markets in terms of volumes. That is the fundamental structure on which we would like to operate. Nobody can forecast the future with respect to the growth or decline in the industry. Of course, however, we do believe that these are short-term blips. The long-term story is very much intact. So we would expect once some sort of stability comes in into the world scenario, the volumes will pick up with respect to all the segments, whether it is mass, masstige or prestige.

So to your second question, the answer is we would always like to focus on volumes because we need to grow with the industry and grow ahead of the industry on all segments of Personal and Home Care, okay? So when and whenever the volume growth happens as in a normal or a secular trend, our EBITDA per tonne will automatically adjust itself. So however, as I have told you multiple times, the EBITDA per tonne will securely move up because as the world gets to become more and more premium as penetration increases more and more, the requirement of specialty ingredients will increase, okay? So that's the answer. I hope I have answered your question.

[Sanjesh Jain, analyst]

For first part of the question was also related to how do you see FY '24 more near term?

[Unnathan Shekhar, executive]

We cannot really predict, okay? As I said, so many things can happen, okay? We would wish that the world returns back to normalcy and you have growth on all categories on all class.

[Sanjesh Jain, analyst]

Just to add what worries me a little bit is that AMET continues to struggle for us. Egypt market, as you rightly said, the local guys are gaining the market share. I understand the drag is -- looks like it's more longer than what had happened 2 years back or 3 years back. Number two, Europe continues to struggle. One of your peer in his call said that the preservative -- nontoxic preservative which they sell in Europe, they are seeing a headwind there. So if these 2 happen, then we are looking at a risk both to volume as well as margin, right?

[Natarajan Krishnan, executive]

Yes, Sanjesh, so this is Rajan here. So I think thanks for this question related to AMET and Egypt because, yes, the number surely expresses the concern, but we need to understand what exactly is happening in that part of the world. You might have noticed that last 6 to 9 months consistently, the -- specifically now I'll talk about Egyptian government because that is a significant share of our AMET market. The government's entire influence was to drastically reduce the imports and food barriers because this currency was under pressure. IMF was negotiating with the Egyptian Central Bank. And this was a phase -- was more or less the replica of what happened in 2016 if you really go back and check. So obviously, the availability of foreign exchange was completely controlled and many home -- local Home and Personal Care industries though we produce and supply a significant amount of ingredients to them. They're also dependent on certain critical imported ingredients. So they were really chock-a-black in terms of getting things into the market. So this was affecting the operations in almost all the customers in Egypt. Apart from that, the supply chain has not really fully restored in the region, which we are seeing that is now substantially restored since last few months, and we see that it is almost getting towards normalization.

So two important points that the currency, the devaluation now, which was about to happen now that has happened. The event has happened. The currency is on float, the negotiations are over between the country and the IMF. This -- if we can correlate with 2016, exercise was similar, we had seen that it took almost 4 to 5 months' time for the market to fully absorb the impact and start resuming the normal demand curve. We expect it to more or less follow the similar trend, and this is what our interaction with our customers in that particular country has shared with us. The consumption of Home Care and Personal Care products per se, they are good in the country. The habits are seasoned. So we don't expect it to follow any different trend than what had happened in the last major currency change that has happened. And so recovery should be visible in 4 to 6 months' time as we have discussed. And as a added factor is that supply chain is a good normalcy is experienced in the region. So that should also smoothen the accessibility of imported raw materials and market environment should normalize.

So our prediction is on -- based on that understanding the only one factor which is beyond anybody's guess is the Ukraine/Russia war situation is affecting Europe. And Europe is close to [ vicinity ] and Egypt is in that region. We will not be really able to estimate those impacts, but we feel that more or less, it is isolated, the energy costs are very much maintained in the country. So I think things should normalize in 4 to 6 months' time. And Egypt constitutes almost 35% of our AMET business that has taken a hit. And once that restore, I think we should come back more or less as far as our story AMET is concerned.

[Sanjesh Jain, analyst]

Thanks, Rajan for the detailed answer. Just one related question to that. The peak AMET contributed 91,000 metric tonne, we are at 65,000 this year, probably there about where we will close this year. But we have lost close to 30,000 metric tonne there. We couldn't place that anywhere in the other geography, say, in Africa, in Europe, In Latin. Now, that's a very big loss of volume we have.

[Natarajan Krishnan, executive]

Sanjesh, Natrajan here. So that is obviously is the way we look at it. But if you look at entire Africa was also troubled with food inflation. They had their own challenges, because all the economies in Africa aren't doing that well. So [import] as we getting material out, there were supply chain issues until almost June, getting material out -- then the demand in those countries also were not conducive for us to be able to place those volumes. If you look at previous -- when it was only -- the problem was only with local Egyptian currency depreciation, we had a good opportunity to be able to place those volumes into other markets in Africa and Middle East. This problem seems to be across, okay, the Africa and Middle East. Turkey was again a bright spot last time in Egypt market had an issue due to the currency depreciation. But even Turkey now is an issue with the way inflation and currency depreciation happened. So this has been a very unique situation.

[Sanjesh Jain, analyst]

Got it. Got it. And any comments on the euro kind of your peer talking about...

[Natarajan Krishnan, executive]

As we -- Sanjesh, you know that we have -- we never give half yearly revised guidance. We have given for this year because we know that there is too much amount of moving parts as far as the macroeconomic environment is concerned. But yes, we need to be giving some sort of proper guidance specific only to this year because we want the investors to be having a good picture about what we see by end of this year. But yes, if you asked me, we would like to be decoupled from the global macro environment and what happens in Europe in terms of bad demand, but it doesn't work that way.

So what is our objective very clearly. First is to prioritize volume growth, and we need to be growing higher of the market. That's very clear. So if the global economy doesn't grow, degrow, then obviously, we need to see whether degrowth is lower than the degrowth of the global economy. That is one. Second is the EBITDA per metric tonne is always a derivative, okay, of the business model that we have. So in the situation is there where there is a macro [ economic ] environment preventing you from growing volumes in the 6% to 8% band, the only lever available with us is to how do we now then look at various opportunities in terms of operational excellence, getting our costs properly done and then ensure that we're actually able to deliver that growth in EBITDA. And that's what we've been doing. That is testimony to the capability of our team as also out business model.

The way we manage risk, the way we manage our operational efficiencies is what is going to ensure this. But yes, we want to come back to the 6% to 8% volume growth. And EBITDA will be a derivative of that into the INR 16,000, INR 18,000 per metric tonne that I've been talking about, and that should happen as AMET volumes pick up. If Europe again picks up pretty well, yes, we probably will be at the higher end of the EBITDA per metric tonne of INR 18,000 per metric tonne in that subsequent financial year of FY '23-'24.

[Operator]

[Operator Instructions] We have the next question from the line of Rohan Gupta from Nuvama.

[Rohan Gupta, analyst]

Congratulations on a good set of numbers despite the challenging environment. I heard you that in terms of the margin guidance, INR 21,000 to INR 22,000 per tonne. And do I understand it may be mainly driven by the product mix? Sir, I just want to have some more clarity in terms of like going ahead, though it will be applicable for the current year. But the focus is, as you rightly mentioned, is more on the volume growth. So when we -- when you are striving for volume growth and going for 8% to 10% volume growth trajectory in the medium term, do you see that it's absolute necessary to dilute the product mix that will pull down the overall margin? I mean if we, in the current scenario, can maintain a INR 21,000 to INR 22,000 margin trajectory, why you see that once the focus will be more on volume growth, the margins have to come down and fall down to INR 16,000 to INR 18,000 EBITDA range? So I just wanted to understand that is it absolutely necessary in the deterioration in product portfolio product basket? Or I mean, why the margin contraction will happen?

[Unnathan Shekhar, executive]

We want to, once again, clarify on our approach. For us, EBITDA is not a target. EBITDA is a derivative, okay? Our target is always the market. Our customers, we want to grow with the market, grow ahead of the market. That has always been our approach and that will continue to be the approach for the next whatever number of years Galaxy is going to be repair because it's important for us -- margin is the most important thing. Customers are the most important things and volume growth howling along with the market. Repeat EBITDA is a derivative.

[Natarajan Krishnan, executive]

Yes. Rohan, other thing what we need to also probably keep in mind is that our objective will be in terms of growing in both the developed and the developing markets, grow the legs of both our performance of surfactants and specialty ingredients. That's where it will be. Now it is our effort. Now how the way the market really evolves, okay? It's quite possible that once the growth starts coming back, it's quite possible that you will have performance products doing significantly better because it has been growing because your AMET will come back. And then you also have demand of specialty ingredients in rest of the world, giving you a momentum. So that's what I said, for us to be looking at revising guidance, we need to see a steady state. If it was a steady state in the global macroeconomic environment and our efforts then will determine as to how we partake. But here, there is a situation where we are at the receiving end, we walk the global macro environment is on a clear picture. We're always going to evolve in FY '24. So what are we telling you is based on that side as of today, given how we approach business?

[Rohan Gupta, analyst]

Got it, sir. Sir, second question is on our specialty care product basket. So I think that, that market is primarily driven by Europe and maybe U.S. -- primarily U.S. market. There are also [Technical Difficulty]

[Unnathan Shekhar, executive]

Yes, it's clear now? Rohan, are you there?

[Unknown Executive]

Yes, sir. We can hear you now.

[Rohan Gupta, analyst]

So sir, I was saying that coming back on the specialty care product market. So I understand the performance surfactant, the pressure on volume, but specialty care markets are more in U.S. and Europe driven market. And there also in this quarter, we see some weakness in volume. So this specialty care market, which is where we have already added capacities in first half, I mean, in the end of the last year, probably that we are -- our operating leverage will not be playing here and utilization level will be quite low as of now. So why there is a pressure on a specialty care product market? When in last 2 to 3 years, we have seen that the Specialty Care has done very well, and we have added many products and have also commissioned the additional capacities.

[Natarajan Krishnan, executive]

Yes, correct. So if you look at it, Rohan, is that the rest of the world, which is majorly driven by specialty ingredient market. If you look at it, there is down almost [ 3.5% ] in the first half. And if you look at quarter-on-quarter, it's down by almost 7% to 8%. But the issue that we need to be cognizant like this, that the major impact is because the way Europe has been not measuring up. So yes, we do have the product. There are several projects in the pipeline that were maturing, but then people in a given scenario where the demand itself is under question, people have taken a step back. So this will come back once the sentiment changes. See, finally, any new product reductions with specialty ingredients requires the sentiment to be positive, correct? Whereas AMET, U.S. has been a bright spot in terms of specialty ingredients because that has been holding up at least as of -- up to quarter 2. And Asia Pacific also has been stable. The concern obviously is Europe. All of us know why it is so. Once that starts turning around, things will start looking better on the specialty care ingredients. We are ready now.

[Unnathan Shekhar, executive]

One other very important thing to note is that macroeconomic environment with respect to inflation in these developed markets also has an impact on the sentiment with respect to consumption. That is one. And number two, we also hear, of course, this is not validated or proven that all the major customers as well as retailers like Walmart and overstock themselves in the context of the supply chain issues, which the world experienced. And they are now de-inventorizing as far as their pipeline is concerned. So this is going to use also will have an impact for maybe a few months or so. Of course, this particular thing, I just wanted to tell you that this was -- what was told to us, we are not validated it as yet. Okay, these are the 2 primary. One is the macroeconomic inflation impacting the sentiment of consumption, and 2 the de-invetorizing the final pipeline.

[Rohan Gupta, analyst]

Got it. Sir, the third, if I'm allowed to and otherwise, I can quickly go back into queue. We have seen a sharp fall in fatty alcohol prices, went almost to $1,500 quite sharply corrected from almost $2,900 at the peak level. Still there's somehow, the correction in raw material prices is not visible in the inventories like our inventory level are still at almost INR 700 crores -- I mean, INR 775 crores in September versus March. And also, there has not been a very sharp correction in the trade receivables actually, it has gone up. So this raw material prices led correction and falling raw material prices should have led to lower working capital requirement. That is not visible. Just wanted to understand our primary.

[Natarajan Krishnan, executive]

Very good, Rohan. So what needs to be understood is that the raw material price started correcting since -- significantly since the end of May, June. So obviously, you also have -- the contracts don't get them 1 on 1. So you'll have contracts that will flow in to what you have been prior to the correction happened. The other thing, so obviously, you'll start seeing the impact in the coming quarters in terms of the lower price of the inventory. The other thing also is that the inventory in the pipeline also was enhanced where given the supply uncertainties that were there.

Now that is also something that will start getting corrected. So the receivables, again, are not resetting because my receivables are based on what was sold in the month of June in typically, its about 60 days is our receivable's position. So they reflect what was sold even and the higher feedstock prices. So you will see this reflecting in the coming quarters progressively.

[Operator]

[Operator Instructions] We have the next question from the line of [ Pujan Shah ] from Congruent Advisors.

[Unknown Analyst]

Two questions from my side. First question would be, can you just give us the possible geographical volume for H1?

[Unnathan Shekhar, executive]

Yes. So it was -- as I think 42...

[Natarajan Krishnan, executive]

About, say, H1 '23 was about 51,000 in India. Rest of the world. You wanted the volumes or the percentage growth?

[Unnathan Shekhar, executive]

Percentage.

[Unknown Analyst]

No, no, no, I just want the split of the volume for H1.

[Natarajan Krishnan, executive]

So this is -- yes, so the split of the volume is something that we will typically something that we don't want to be talking now, okay? But that's something that we want to keep it as we only talk about the category of customers [indiscernible] territory.

[Unknown Analyst]

Okay. Okay. Okay. Got it. And my second question was which on the previous call, we were saying that U.S. has been a pretty good demand. We are seeing a pretty good demand on that part. And currently, we are saying that the U.S. demand is being currently at stable point of view. So are there have been inflationary point of view, they are waiting for a couple of months to stabilize and they start to -- for the distribution costs, anything like that? Or it's been like the U.S. has been pretty strong currently as well?

[Natarajan Krishnan, executive]

No. So if you just look at it last year at the same time, U.S. was extremely strong in terms of demand. Now that obviously has got a little bit tempered. So U.S. is not as -- the sentiments are as negative as what we have seen in Europe. We need to wait and watch as to how things are going to pan out in U.S. at least till quarter 2, when we have been speaking to our customers in the U.S., they have been not that very negative. Although we did say that they are seeing correction as Shekhar explained earlier, there is inventory correction happening in the U.S. at the -- by the retailers, like at Walmart and at Target, which is obviously getting passed on, okay, to everyone in the value chain. So that may be an issue that needs to be kept in mind. Now whether the consumer demand is going to turn negative in U.S., we need to wait and watch. We are not seeing that implication as of now.

[Operator]

We have the next question from the line of Rohit Nagraj from Centrum Broking. Mr. Rohit can you hear us? This is the operator. Mr. Rohit can you hear us? The participant left the queue. We have the next question from the line of Jasdeep Walia from Clockvine Capital.

[Unknown Analyst]

Am I audible?

[Unknown Executive]

Yes.

[Unknown Analyst]

My question is specifically on the Betaine part of your specialty portfolio. So what I wanted to understand is, is it the slowest growing part of the specialty portfolio? And if yes, what are the reasons behind the same? And is this also one of the reasons why this growth in specialty has been low over the last 1 or 2 years?

[Natarajan Krishnan, executive]

No, there is nothing something like it. I don't know how did you come to that conclusion.

[Unknown Analyst]

So Betaine is like growing at around 6%, 8% kind of volume CAGR as the other part of the specialty portfolio.

[Natarajan Krishnan, executive]

Correct. But I am not able to understand because we never specifically talk about each product within the category. So I won't understand where you get this information on Betaine's degrowing and that being a problem. So then I will be able to answer your question.

[Unknown Analyst]

Sir, broadly spoke to people in the industry.

[Natarajan Krishnan, executive]

Okay. So that's -- that obviously is not right. It may be specific to them. So it is not -- so that can -- I think you probably need not keep that in your mind.

[Unknown Analyst]

Got it. My second question is on the APD class of surfactants. My understanding is Galaxy not present in this market, whereas this market is much bigger than the amino acid based surfactants. So what are your long-term plans with respect to launching products in this market?

[Natarajan Krishnan, executive]

Yes. So Mild Surfactants is a strategic category for us, a segment part of our Specialty Care Ingredients portfolio. APG is one of the Mild Surfactants. And yes, that is in our radar. And at the appropriate time, we'll be able to tell the market as to what our plan about that. As of now, we will not like to be talking about what we're thinking on that.

[Operator]

We have the next question Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Sir, in terms of the customer product commercializations due to the current issues and inventory destockings, have there been any delays from their end and probably that will have some consequent impact on our volumes?

[Natarajan Krishnan, executive]

There are -- which I did explain earlier in response to question on similar lines. That yes, the sentiments are not as bullish as it was same time last year. So sort customer products are getting a little bit pushed because earlier, we had an issue because of COVID on the supply side, there's some of the projects in pipeline are delayed. Now there's a demand sentiment in the negative, we do see some, there have been some that has moved well. Some of them are -- we'll see some delay. But overall, what is critical is that we are ready now, okay, with our capacities, and ready to serve the market movement, the demand starts -- sentiment starts picking up.

[Rohit Nagraj, analyst]

Right. Got it. Sir, second question is in terms of India growth. So the volume growth has been again relatively muted. And fortunately, there are no headwinds that have been placed by other global countries in India. So is there any possibility of this India growth accelerate to maybe 8%, 10%? And what could be the levers for the same?

[Natarajan Krishnan, executive]

One thing is I don't know -- you mentioned that India growth has been muted. Now is it India as an economy or Galaxy single business? So I wanted to understand that.

[Rohit Nagraj, analyst]

No, I said that it is about 6% as of now.

[Unnathan Shekhar, executive]

We would like to share your optimism, okay? We would wish that India grows at even much, much faster rate.

[Natarajan Krishnan, executive]

Yes, and that will be good. Yes, that will be good. [indiscernible] economy is in a very bright spot. And we'd like it to get better and better.

[Rohit Nagraj, analyst]

Perfect. Perfect. Just one last clarification. So you mentioned that our focus next year would be on volume growth, and that could have...

[Unnathan Shekhar, executive]

Per year, per year.

[Rohit Nagraj, analyst]

Generally, right, right. I mean, right. So it will be predominantly on volume growth and the EBITDA per tonne would be a derivative of the same. So this year, since the volume growth seems to be muted and the EBITDA per tonne is higher. Next year, I mean, given just mathematically speaking, would the performance be more or less similar to FY '23, given that we have the volume growth which we are targeting.

[Natarajan Krishnan, executive]

Yes, you're right. I would be happy if the business follows the rules of mathematics, but unfortunately not so. So what is important is how we being ready, we understand the markets, our deep customer engagements, and able to ensure that we are able to get -- keep growing our volumes with them, be ready with our supply side capabilities. And yes, the EBITDA as a derivative will obviously be good. So the issue is that we need to be very clearly focused on our strategy. Only thing is that the external environment has to be conducive, which obviously has not been on the demand side for the last 6 to 9 months. We do hope that these things -- everything has to come to and end even this particular negative sentiment on demand side should turn around and then we are well positioned to be able to grow our volumes in the 6% to 8% range that we've been talking about.

[Operator]

We have the next question from the line of Sanjesh Jain from ICICI Securities.

[Sanjesh Jain, analyst]

Couple of bookkeeping questions. First on the employee cost inflation. It's quite high for last 2 to 3 quarters on a Y-o-Y basis, even in the stand-alone India, I can understand from outside of India, given the currency movement, but India inflation remains quite high. What's leading to this employee cost inflation? That's number one. Number two is on the tax rate. Now India minus -- console minus stand-alone, if I do subsidiary numbers, there again, the tax rate is around 15.5%. AMET is a tax-free for us. So it's all what we are paying tax in America and that means around 50% of our PBT is coming now from U.S. and a bit the contribution from AMET has significantly come down. And that's -- is that leading to the tax rate going up in the subsidiaries business? These are my two questions.

[Unknown Executive]

Yes, Sanjesh. So this is Abhijeet here. You're right, the employee cost has increased. I mean the primary reason is the normal increase in the employee cost year-on-year. Thus, you already mentioned the reason of currency depreciation, which gets translated, I mean the reconciliation of subsidiary companies into INR, and the other part is we have recently -- I mean, last year, if you see, we were into 2 projects into the pre-capitalization stage. So now we have those projects up and running. So additional manpower on account of the 2 projects have also been flown in the P&L this year. And your next question.

[Unnathan Shekhar, executive]

And the other thing also is Sanjesh. Last year base, if you compare the variable pay was not powered for based on the muted performance we had. But this year, the variable pay and commission for the employee is eligible for that have been provided for.

[Unknown Executive]

And tax rate, you rightly mentioned, it's basically the subsidiary tax rate will be dependent upon the composition of the Egypt and Turkey profitability. Egypt being a no tax zone, and accordingly, that variation will always be there.

[Unnathan Shekhar, executive]

However, as we know, the corporate tax rate in India is 25%. For U.S. again, it is about 21%, and Egypt is 0.

[Unknown Analyst]

So U.S. is a 30% tax rate or more than that?

[Unnathan Shekhar, executive]

No, it will also be around 25%.

[Sanjesh Jain, analyst]

Around 25%. That's it from my side.

[Operator]

We have the next question in the line of Rohit Sinha from Sunidhi Securities.

[Rohit Sinha, analyst]

So one question is on the CapEx pipeline for '23 and '24, FY '23 and '24. And secondly, just trying to understand the volume outlook. I mean, if at all right now, as we are talking about the euro slowdown and which is impacting the volumes. So considering these things get prolonged for maybe 6 months more or 1 year. So what we would be targeting I mean, whether we would be looking at a lower -- operating at lower utilization level or would be looking to address the new market from what production level would be?

[Natarajan Krishnan, executive]

Yes. So firstly, on the CapEx, so I think '23, '24 also typically, our CapEx per annum has been close to INR 150 crores to INR 175 crores. So that is essentially be continuing into '20, '24 as well. Now our capacity utilization is about 67% to 68% as of now, we don't expect that to be significantly different next year unless the demand environment corrects much more significantly. And yes, our object -- our clear -- this thing is to ensure we grow out of the market, and we want to stick to our volume growth target of 6% to 8%.

[Rohit Sinha, analyst]

So 6% to 8% right now as we are seeing this Europe situation as well. So taking into account that?

[Natarajan Krishnan, executive]

Yes. So what is happening in Europe is only known to us after things have happened, but we need to be moving with what we want to be targeting. So the objective is to see which markets we can run at, which new customers you can add on. So that is a constant effort that we do, because our key objective is to grow ahead of the market. The market, when we say we want to go at 6% to 8%, the market has to grow, at least at 3% to 5%, correct? So we do expect that things should turn around. The demand environment will become conducive to start growing at those levels and then we want to be targeting that. And that is what drives our business initiatives in terms of our desire to grow volumes at 6% to 8%.

[Rohit Sinha, analyst]

Okay. So that is what I was trying to understand. I mean, if at all in case Europe situation get worse or still going to impact our volumes. So which region would be our next target to maintain this kind of volume growth?

[Unnathan Shekhar, executive]

Galaxy, as you know, sells its products across the various regions in the world, okay? As you know, the general macroeconomic sentiment across the entire world. There is a high level of inflation, which is impacting the consumption sentiment, which is what we need to be aware of and alert about, okay? So out of all these things, what we are seeing as a bright spot is, one is, of course, India and number two, USA. Even in these 2 countries, the sentiment, the service inflation is not as encouraging as it was in the first 2 quarters of this particular year. So we have to wait and watch for this particular quarter, that is September to December as well as January to March.

[Rohit Sinha, analyst]

Okay. Okay. One last thing. I mean...

[Unknown Executive]

Hello? I think the line dropped.

[Operator]

Mr. Sinha can you hear us? Mr. Rohit Sinha, can you hear us? It appears the participant is no longer connected. We move on to the next question from the line of [ Ajinkar Yadav ] from [ Kanyaka Wealth Management ].

Your voice is not very clear. If you could go off the speaker phone?

[Unknown Analyst]

We understand that the raw material prices have gone down. So going ahead, will they continue to go down for the, let's say, FY '23, '24, or will they stabilize at this point at this price level?

[Natarajan Krishnan, executive]

So we don't have a crystal ball in front of us. But what we can only understand is that if the global demand is going to be not very robust. You certainly have commodity prices being lower and nominal prices would be lower in sympathy with the commodity prices being down. But we need to wait and watch. As of now, we are not able to make clear statement on that. Our objective is to ensure that we have to manage the highs and the lows in a way that we don't have any risks flowing into the P&L. So that we are very conscious about. But we don't have any clear statement on how the raw material prices will be in the next year.

[Operator]

We have the next question from the line of Rohan Gupta from Nuvama.

[Rohan Gupta, analyst]

Sir, the volume growth guidance which you're talking about for the current year is 2% to 3%. I understand that, that is for the full year, right, because our first half has almost been close to negative 4% volume growth. So still looking 2% to 3% for full year volume growth, right?

[Unnathan Shekhar, executive]

So that is what we are aspiring for with a caveat, that's the demand environment has returned conducive. So that is what we are aspiring for.

[Rohan Gupta, analyst]

Got it. Sir, second is that the poor performance and the pressure in AMET market. So just to drill a little bit deeper. So in AMET, is it mainly because of the Turkey, we are facing all this issue. That market is continuously pulling down because of the country itself is facing multiple challenges or you see that even Africa and Middle East are also contributing to the similar way in terms of the poor performance of AMET region?

[Unnathan Shekhar, executive]

Yes. So as I explained before, Egypt and Turkey, both countries contribute the significant share of the AMET region volumes as far as -- and then in that, I explained the Egypt case in detail. So we expect the currency has now settled. The free float is there. The foreign exchange availability has started to ease out. Supply chain situation has almost coming to normalcy. So based on our past experience of 2016, '17, we expect the volume recovery should start in 3 to 6 months' time frame to come to its normalcy. Turkey also has undergone a similar severe inflationary pressures, currency has almost devaluated more than 100% over a period of a year. So it had seen an impact progressively getting built up over a period of 9 to 12 months, not that it has happened suddenly. But now we feel that it has come to some state of equilibrium as far as the country is concerned. So these 2 countries since they contribute something like 60% -- 60%, 65% of a total volume, we believe that in next 3 to 6 months' time, the recovery of volume should be visible very much. Turkey also is attractive low-cost export destination into European market. They don't have any significant energy crisis. So we believe that even Turkey should start to catch up their export business as in the rest of the Europe. It's concerned in turn, our export to Turkey also should resume to its normalcy. So I think -- and that covers the significant story for us in AMET region. Specific point to rest of the countries in Africa is concerned, they have also undergone not equivalent depreciation of their currencies, but there are visible sense of inflationary pressures. The lot of food supply chain has got disrupted because of Russia and Ukraine war. So to an extent, there is this equilibrium in terms of demand there, but it's not as severe as we have seen in Egypt and Turkey market. So significant amount of our recovery will continue to depend on Egypt and Turkey market. And we just expect that the time frame, we believe something like 3 to 6 months based on our past experience. We have to wait and watch how the Europe situation further settles down. So that's how we look at it.

[Rohan Gupta, analyst]

And sir, you mentioned Egypt plus Turkey put together roughly 60% to 65% of your total volume or it's the AMET's volume?

[Unknown Executive]

So we restrict to the AMET and the region.

[Rohan Gupta, analyst]

Okay. So 60% to 65% of the AMET volumes come from Egypt plus Turkey?

[Unknown Executive]

No, no, we haven't -- we wouldn't like to what is called, give those break ups.

[Unnathan Shekhar, executive]

So Egypt and rest of AMET. So Turkey is one of the significant area.

[Unknown Executive]

They contribute a significant proportion of the AMET region business.

[Rohan Gupta, analyst]

Sir, earlier you used to share the regional breakup. I'm not asking for the particular current quarter, but possible for you to share the revenue mix of India, AMET and ROW now?

[Unnathan Shekhar, executive]

I think we have already done that even in our presentation, which we have filed. It is -- the share of India, AMET and Rest of The World is 40%, 28%, 32% for the first half, 40% is to 28% is to 32%.

[Operator]

We have the next question from the line of Rohit Sinha from Sunidhi Securities.

[Rohit Sinha, analyst]

So just a follow-up question. In terms of pricing scenario right now since we are seeing the inflationary pressure across the world. So how the contracts with our customers getting revised? And is there any particular, I mean, cycle which is there or it is I mean the mix of 6 months or a contract which getting revised regularly?

[Natarajan Krishnan, executive]

Because getting into specifics, typically, these things get revised on a quarterly basis and then that's normal. There's nothing different than we're doing in the current year.

[Operator]

That was the last question. I now hand it over to the management for closing comments.

[Unnathan Shekhar, executive]

Thank you all, ladies and gentlemen. Have a very, very good day. Thank you very much once again.

[Natarajan Krishnan, executive]

Now thanks over to you. Thank you. Have a good day. Bye-bye.

[Operator]

Thank you. On behalf of Galaxy Surfactants Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.