Galaxy Surfactants Ltd

NSE:GALAXYSURF

Earnings Call Analysis

Galaxy Surfactants Projects Stability Amid Market Challenges

Galaxy Surfactants experienced a steady quarter with a 6.3% volume growth in H1 FY '25 and maintains guidance of 6-8% growth for the year. EBITDA per metric ton was INR 20,097, with guidance of INR 20,500 to INR 21,500. Challenges include fluctuating fatty alcohol prices and slowed demand in India, particularly in premium segments. Despite this, growth potential exists in the Africa, Middle East, and Turkey markets, expected to return to a 6-8% growth band in H2. The rest of the world achieved a notable 26% growth, driven by masstige specialties, indicating resilience and opportunity ahead.

Navigating the Current Landscape

In the recent earnings call, Galaxy Surfactants Limited highlighted a stable quarter despite operating in a challenging environment. The managing director, Natarajan Krishnan, noted sequential volume growth from Q1 to Q2 FY '25, although the overall growth has faced hurdles due to supply chain volatility and geopolitical tensions. While there have been areas of improvement since 2022-2023, the outlook for the second half of FY '25 indicates ongoing challenges in the supply chain.

Demand Dynamics: A Complex Picture

A closer examination of demand reveals mixed signals, particularly in key markets. In India, volume growth has stabilized around flat levels over the past two quarters. The demand for premium home and personal care products has weakened, coupled with a slower recovery in rural areas. Rising prices of fatty alcohols have further complicated the demand landscape, with expectations for this trend to persist over the next two quarters. However, these do not suggest a structural slowdown, allowing potential positivity for FY 2026 pending improvements in government spending.

Opportunities in Africa, the Middle East, and Turkey

For the Africa, Middle East, and Turkey (AMET) region, a potential recovery is anticipated. The company aims to return to a volume growth band of 6% to 8% in this area, despite facing some specific supply challenges. Encouragingly, reports indicate that demand is starting to stabilize as supply chain conditions improve. In particular, the last quarter's developments suggest that a strengthened supply side could mirror the growing demand.

Bright Spots: Rest of the World

Contrastingly, the 'Rest of the World' segments have showcased promising double-digit growth over the last quarter. The revival in premium specialty products has been a significant highlight. With economies, especially in the U.S., stabilizing, Galaxy expects momentum to continue in the latter half of FY '25. However, they remain cautious of potential volume tapering due to base effects, yet anticipate an increase in EBITDA per metric ton.

Performance Metrics and Financial Guidance

In terms of performance, Galaxy reported a 6.3% growth in volume for H1, maintaining its guidance of 6% to 8% growth for the full year. Their EBITDA per metric ton sat at 20,097, slightly below the target band set at 20,500 to 21,500. The company is optimistic about ending the year within these parameters, bolstered by anticipated upticks in premium specialty products. Across different regions, expectations for growth remain prudent, with India projected at around 2% for the year, while AMET aims for 4-5% growth.

Raw Material Challenges and Strategic Adaptations

The call also tackled raw material price fluctuations, particularly the near-record levels of lauryl alcohol prices, currently at significant highs not seen since 2022. Natarajan expressed confidence in managing these costs effectively and noted an approach to passing on price increases to customers, indicating overall industry sensitivity to these fluctuations. The team’s preparation and commitment were cited as crucial strategies in risk management, allowing Galaxy to navigate through turbulent pricing environments.

Structural Pickup in Demand: A Long-Term Perspective

Concluding the call, the management conveyed optimism regarding a structural revival in demand, emphasizing that while regions might not recover simultaneously, signs of recovery are visible. Their geographical spread and robust product range will enable them to capitalize on emergent demand across different markets. Management's focus on maintaining a stable operational outlook amid volatility reflects confidence in their strategic planning and market positioning.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Galaxy Surfactants Limited Q2 and H1 FY '25 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. K. Natarajan, Managing Director. Thank you, and over to you, sir.

[Natarajan Krishnan, executive]

Thank you, Rahul. Very good morning, ladies and gentlemen. Once again, welcome to our quarterly earnings call. At the outset, I take this opportunity to thank all the experts for a stable quarter despite the headwinds that we had. While compared to Q1, the company did clock sequential volume growth, it is important to understand the business environment influencing it.

Let me start with the supply side. While supply volatility has continued to pose challenges with varying intensities across quarters, the southern wise and catalog prices combined with both conditions unavailable of containers did disturb momentum in this quarter.

No improvement also was seen with regard to the elongated supply chain on account of the escalating geopolitical scenario. To summarize, while the supply side situation has significantly improved compared to '22 or '23, increase on the effect of the same H2 was going ahead for H2 FY 2025.

Moving on to demand side, starting with India, the last 2 quarters. Including quarter [indiscernible] have seen flat volume growth. While supplier challenges did disturb momentum, underlying demand has slowed. This is mainly due to slowing demand for premium, home and personal care and lower-than-expected rural recovery. The sudden and significant rise in fatty alcohol prices added to the uncertainty. We see this on continuing for the next 2 quarters, while this is not a structural slowdown for volume momentum to pick up in FY 2026 [indiscernible] as well as government spending needs to improve.

Moving on to the other big market for us, Africa, Middle East and Turkey. While demand has shown [indiscernible] level, this separate challenges have prevented us from fully capitalizing on the same. Steps have been taken in this quarter to ensure H2 FY '25 is going back to the 6% to 8% band in our Africa, Middle East Turkey volumes.

Rest of the world has been a bright spot for us for the past 4 quarters, while this quarter 2 saw a strong double-digit growth, signs of revival in premium specialty was the biggest positive. With inflation easing, also spending improving and economies, especially U.S. stabilizing H2 FY 2025 [indiscernible] for the momentum. While volume may taper off due to the base effect as in our previous calls, pickup in premium specialty should aid EBITDA per metric ton in H2.

Coming to specific numbers for H1, volume growth grew at 6.3%. While we retained our volume growth guidance of 6% to 8% and are also working towards ensuring we end in the upper band, EBITDA per metric tons stood at 20,097 per metric ton while it is below our guide band, we retain our guidance of 20,500 to 21,500 per metric ton. An uptick in premium specialty should enable improvement in H2 as we have been communicating in our earlier calls as well.

Indian AMET have been flat, mainly on upon of slowdown in underlying demand. As far as India is concerned and supplier remains in AMET, for India, we believe gross around 2% for the full year. In case of AMET, H2 should see reasonable growth with full year growth being around 4% to 5%.

Rest of the world, I've seen 26% growth for H1 driven by masstige specialties with H2 should see some moderation volume growth with pickup in premium specialities and base coming in. Overall, we see rest of the work ending in mid-teens volume growth for the year.

While the performance segment registered volume growth of 5.8%, especially on the back of the strong growth rate to the masstige segment saw volume growth of 7.2%.

To conclude, while demand and supplier uncertainties continues to pose challenges at a different point, we strongly believe [indiscernible] inflation makes a strong come back, gradually, we see a structural pickup in demand. It may not happen across regions simultaneously, but there are visible signs of strong demand revival. This bodes well for us in the medium term.

And the performance in the last 2 quarters also underscores the robustness of our business product and our geographical spread because in some of the regions do see some headwinds, we have other regions where we are able to capitalize on the momentum that we have and achieve our numbers on the guided range. But like always, we are leaving nothing to chance and remain fully committed to capitalize on the same.

Thank you, ladies and gentlemen.

[Operator]

Should we open the floor for questions?

[Natarajan Krishnan, executive]

Please.

[Operator]

[Operator Instructions] Our first question comes from Aditya Khetan from SMIFS Institutional Equities.

[Aditya Khetan, analyst]

Sir, my first question is on to the Indian market. Sir, I believe 6 months back, so we were quite convinced that Indian market would continue to grow. And I understand, sir, so with the recent commentary by the FMCG players, there seems to be some structural impact on the demand side, especially on to the body side. Any sort of color so you can give how much -- for how much time this market would remain impacted? And are there any signs of uptick you're [indiscernible] for second half?

[Natarajan Krishnan, executive]

So if you see here the Indian market, actually sequentially improved quarter-on-quarter. Compared to last quarter 1, quarter 2 volumes improved by about 3%. So it does tell us that typically your quarter 2 of the financial is always good quarter as India is concerned because of the festive demand.

This time, it has been higher, but not as high as what it was in the previous year. See, when we talk to customers, it commentaries that we need of our was customers after the Q2 results, all of them are pointing towards rural demand is reviving but not to the extent that it could compensate for the sort of demand challenges they're seeing in the urban side. And all of that, I indicated that it will take about 2 to 3 quarters for things to improve, and they're working towards ensuring that they take the right price calls because one of the things that they've also said in the call is that the inflation coming back in terms of commodity prices is actually posing a new challenge, and they really need to see how they're able to be calibrated price increases without depending on the very nascent demand revival that is happening. So we need to wait and watch and then see as to how things are panning mode as far the customers are concerned.

[Aditya Khetan, analyst]

Sir, my second question is on to the AMET market. Sir, earlier, we were guiding that this market has touched a rear bottom, and there would be some double-digit growth in sight. Sir, for the first half, there is, I think the volume has been almost flattish. But the rest of the world market has grown by roughly around [ 20% ] volume growth. Sir, which are the markets which are growing in this [indiscernible], AMET market is not performing.

[Natarajan Krishnan, executive]

See, AMET market, as I said, AMET market, the unfortunate situation has been the demand certainly was coming back after all the economies went through their own issues grappling with inflation and currency devaluation. But then as the demand was coming back, the supply side got significantly impacted because of the Red Sea blocking that happened. So in fact, supply chain into Egypt [indiscernible] to almost 30 days. This will be actually piling more orders.

Now things have started improving only some probably [ 15 years ] into the current quarter. So I think that this quarter will show some better numbers for AMET, and we should see the impact of a positive impact of the growth that is coming there. But yes, we do not want to have any further escalation in the supply challenges because of any exploration that may happen with geopolitical scenario.

[Aditya Khetan, analyst]

And sir, which are these other markets which are performing in 20 [indiscernible] volume growth, mid-'20s.

[Natarajan Krishnan, executive]

Yes. So we have, it's probably across America, America, North America, you also have Europe getting better. And Latin America as well. These are 3 major which I need to talk.

[Aditya Khetan, analyst]

Okay. And sir, one more question, if I can squeeze in. Sir, on to the raw material prices of lauryl alcohol, sir, we are standing at almost a 2-year high in terms of the lauryl alcohol prices. I think these sort of prices were last seen in 2022, somewhere around $1,900. So sir, how confident are you? So with this right with this pricing raw material price prices, we can maintain our EBITDA per tonne. Considering the demand is porting into the Indian market and AMET is also not performing well. Is there any risk to that EBITDA per tonne guidance which we had given earlier?

[Natarajan Krishnan, executive]

No, we don't see any risk on EBITDA per tonne guidance because we did say that our -- the product mix that we have and the opportunities that we have actually gives me the conference in terms of retaining the guidance. The risk to these numbers can only be any huge escalation in the geopolitical situation, leading to significantly problematic supply chain situation. And it also in the price is going at this time, but then you don't want to see a situation where it becomes so volatile that you have price going up and down, up and down because that's more of a risk. So we do see that the price that has gone up also needs to be sustained in coming -- settling at a stable level rather than you having significant price movements at short sequences, that is -- can be a big problem.

So this particular day that the prices have gone up is also something that no one in the commodity market anticipated. We're still trying to understand one of the reasons. We only pray that you don't have this getting corrected significantly in a very short time. So that can pose challenges in terms of the way customers, our customers then would get little bit jittery in terms of the way that they need to tie up their volumes.

[Aditya Khetan, analyst]

But we can comfortably pass on to, so this higher raw material prices with the quarter [indiscernible]?

[Natarajan Krishnan, executive]

No because. Everyone knows, it's not that we are only impacted. Everyone is impacted with the increasing commodity prices and feedstock prices. So there is no issue in terms of passing on. That's not an issue at all.

[Operator]

[Operator Instructions] The next question comes from Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Sir, first question, again, diving into the EBITDA per metric First half, we have done closer to 20,000. And we still stick to the guidance of 20,500 to 21,000. Given that on a lower side, we will have to do an average of, say, 21,000 for the next couple of quarters. And again, the raw material price inflation is also there. So what gives us confidence that we will be able to have better EBITDA per metric ton in second half than what we ad reported in first half?

[Natarajan Krishnan, executive]

So actually, if you have to look at what the impact, only be guided by what is happening externally, then everything can we look very pessimistic. But the way -- what gives us the content is in terms of the way that we are able to see our team preparing itself how we are managing the risk position as far as raw materials are concerned and how well the team, okay, is geared and committed to make a difference and see how we are able to end the year, okay, within the guided range, whichever to both volume and EBITDA per metric ton, that's very important. Because if you look at everything seems to be externally with a lot of challenges, but it's also important that the team -- what the quality of the team that I have gives me the confidence that we should be able to end this year on a positive note.

[Rohit Nagraj, analyst]

Sure. That's helpful. Sir, for Q2, if you can just give a Y-o-Y volume growth across the 3 geographies and on performance and Specialty Care products for Q2 on a year-on-year basis.

[Natarajan Krishnan, executive]

1 minute.

[Rohit Nagraj, analyst]

Sure.

[Natarajan Krishnan, executive]

So you want to have, you said you want to have the year-on-year, correct?

[Rohit Nagraj, analyst]

For the quarter [indiscernible].

[Natarajan Krishnan, executive]

I think our capital volumes grew by about 5%. And out of that, our performance surfactants grew by about 6% and specialty grew by about 2.5%.

[Rohit Nagraj, analyst]

Okay. And a similar number for India AMET and RoW.

[Natarajan Krishnan, executive]

India was flat, AMET was minus 5%, and RoW was plus 27%.

[Rohit Nagraj, analyst]

This is for the quarter.

[Natarajan Krishnan, executive]

Yes.

[Rohit Nagraj, analyst]

Okay. Fair enough. Just squeezing in last one. In terms of the supply chain challenges, are those challenges now have become stable and those -- I mean, incremental cost have we completely embedded while we are giving the pricing to our customers? Or will that come in coming quarter and probably that will also give some kind of boost to the EBITDA per metric ton.

[Natarajan Krishnan, executive]

Supply chain challenges, as I did say during my opening remarks is that they are still continuing. We expected that things were improving. So the good part is that they are not regressing as compared to what it was. So all of the -- so they are probably at the same stage what it was in the quarter 1, but the intensity seems to be reducing.

The freight rates are correcting lower, but nothing significant. But we -- that also, we had to wait for this quarter in terms of seeing as to how the rights are going to pan out in terms of getting back to the earlier levels in 2022.

So we now need to meet with them, but we don't see any significant challenge in terms of passing on the freighter increases or whatever. We only do not want -- the team is provided in terms of handling what current challenges we have into the next 2 quarters, but if the challenges get intensified or the new challenges coming up because of any issues on the geopolitical side, then yes, that's a different subject that we may have to talk later. But if this current situation continues, the team is fully geared.

[Operator]

[Operator Instructions] The next question comes from Shalini Gupta from East India Securities.

[Shalini Gupta, analyst]

No. My question is answered. Thank you.

[Natarajan Krishnan, executive]

Thank you.

[Operator]

[Operator Instructions] The next question comes from Prashant Poddar from ADIA.

[Unknown Analyst]

Sir, just one question, can you speak a little bit about the market development efforts in terms of new markets as well as any new products that you want to share, which would be, let's say, big volume driver or value driver in the next 2, 3 years?

[Natarajan Krishnan, executive]

Yes. So what we see is that in terms of our Europe and Americas, including Latin America will be something that we are preparing ourselves to have good amount of focus and growth there. That is the reason why we have actually incorporated subsidiaries in Europe and in Mexico. So there is prepare ourselves in terms of the digital development agenda that we have for these locations because we have not been present in a very significant way. We mean more in terms of trying to manage those through distributors and through supplies from Egypt and India. So that is going to be something which is going to be a focus market for us in the coming years, and we are preparing for it.

With regard to new products, we said in terms of premium specialty...

[Unknown Analyst]

[indiscernible]

[Natarajan Krishnan, executive]

Sorry, yes.

[Unknown Analyst]

And just a follow-up on that. So when you say Latin America and Europe, so can you help us understand the potential of these markets vis-a-vis let's say an AMET market that revenue that you have?

[Natarajan Krishnan, executive]

Sure, potentially use because we are scratching the surface there in AMET. We are a local player there. And these sort of product categories that we work on the is essentially what we need to be looking at the local supplier, whereas if we look at what product changes are focusing on for Egypt, for Latin America and Europe is more a how do you focus on specialties. There will also be some performance of factors, but it will be majorly led by our Specialty Ingredients portfolio.

[Unknown Analyst]

Okay. So are selling...

[Natarajan Krishnan, executive]

So the market is [indiscernible] what it is in AMET Yes.

[Unknown Analyst]

Okay. Specialty as well as performance.

[Natarajan Krishnan, executive]

Majorly, the focus will be specialties. But yes, we'll also have the performance affected as part of the basket, but our product focus will be Specialty Ingredients.

[Unknown Analyst]

And on the products, sir?

[Natarajan Krishnan, executive]

The product, yes, it will be, essentially, meaning new products that we are looking, we are our [indiscernible] surfactants, non[indiscernible] preservatives. And there are some MLS and [indiscernible] that we are working on in the pipeline, which we'll be launching shortly, which will enable us to participate more in the B1 skin care range, so that is something that the team is preparing well. So we will be launching those products in the coming quarters.

[Unknown Analyst]

So with the -- I mean, with the ESG now not at the forefront of things that have been spoken, have you seen any softening of efforts from your, let's say, FMCG partners in terms of introducing more sophisticating, more environment-friendly products?

[Natarajan Krishnan, executive]

See, one is where that particular -- the environmentally products, green natural okay, those continue, and they continue to be niche. I think if the [indiscernible] was conducive, probably the rate of growth would have been much better. But the focus continues by the buyer customers. But yes, they're probably waiting a lot of whether they need to introduce more categories, more SKUs into that since given that the demand scenario is a little bit tepid.

But the focus continues. The projects continue to be run by customers. So that hasn't -- the intensity hasn't been reduced, but then the amount of efforts that have been put in, the growth have been much better, but for the way the external situation is panning out.

[Unknown Analyst]

Okay. And I have one more question on the India market. So you traditionally discussed the -- that the new companies give you a lot of value as well, while the volumes might be relatively smaller, and the larger companies, they give you volumes. The mid-sized companies are the ones which are tracking behind both of these companies. So multinationals were doing fine. New start-ups were doing much, much better. And the price which between them were generally getting squeezed, what we understood in the last 5 years of discussing with you and some other companies as well? Can you help us understand the market environment today while you've spoken about India being soft in general? And there was a question earlier about the demand conditions. And I understand you were a -- you have -- you come to know the derivative of the demand that your customers see, but anything that you can share, any insights you can share?

[Natarajan Krishnan, executive]

Yes, you see -- if you see, generally, all the categories, all the categories or segments of our customers. A global multi-license or and especially in India or you look at the Indian regional majors or the tie-up with customers, all of them, okay, have been not seeing a good volume growth.

If you see the commentaries of all of them, this has been very typical of what has happened in the last 2 quarters. The direct-to-consumer segment which we were -- which we have a lot of players coming in and launching of new prospects, I think that also we have seen there -- they're also having to bear the grunt of this demand environment getting weaker. So you do find that they're also looking at inventory in the pipeline. We also see that they are launching schemes to get the inventory plus that. So we are able to see that across segments. So it is not that any segment has been spared of this demand environment being tepid.

[Unknown Analyst]

Okay. Just one more expansion. So you talked about AMET as well. Can you give us some insights into your relative competitiveness versus the local players? As you said, you are as good as a local player there, but there was increment there was some competition in between where you had lost to lower value competition. Can you help us understand...

[Natarajan Krishnan, executive]

So that was our customers because India plays a majorly home care market, African Middle East, Turkey. In Egypt, one of our -- the major customers with global multinational lost share to local players, okay, because of the highly inflationary situation. So that situation because even today, Egypt after having 100% depreciation interest rates of 28%, 30% is still settling down, okay? So currency now has been made pre floating. The foreign currency availability has improved, but yes, the inflationary situation continues. So that situation hasn't changed significantly for the better.

[Unknown Analyst]

Okay. Okay, it's growing. It's tracking in line now.

[Natarajan Krishnan, executive]

It is going because smaller seen, whenever this situation happens, it takes about 1 year to 18 months for things to come back on track, and we are seeing a momentum towards things improving, yes.

[Operator]

The next question comes from Prasad Warner from HDFC Securities.

[Unknown Analyst]

Sir, you have mentioned in a previous comment that the EBITDA per kg will be primarily driven by Specialty Care going higher in H2. And you also mentioned that the RoW volume was primarily driven by the masstige Specialty Care. So anything you could guide upon premium Specialty Care, the regions which will be primary driver going here?

[Natarajan Krishnan, executive]

So the premiums specialties are driven majorly by Europe and North America. Okay. So the reason why we are saying because we're seeing that the products in pipeline are getting built and customers are engaging pretty well. So that gives you the confidence that things will start panning out better. At the same time last year, I said that speciality is actually got impacted because Europe and Americas was grappling with significant inflation and increased interest rates.

I'm saying that now the interest rate being reduced and inflation getting better. We are seeing that there is a good improvement in the way the products in Patanase [indiscernible]getting built for the premium specialties, majorly in Europe and Americas.

[Operator]

The next question comes from Nirav from Anvil Corporation.

[Nirav Jimudia, analyst]

I have two questions. So one on the rest of the world market. If you can just help us understand, this sort of volume growth, what we have lost in H1, was it predominantly -- so if you can just bifurcate in terms of the contribution of this volume growth coming from new products, new customers, newer applications or the existing customers taking higher volumes from us and because of which we have clocked that sort of volume growth?

[Natarajan Krishnan, executive]

I can't answer everything in the sort of granularity that you want, okay? I have to say that, as I said, Europe, America and Latin America have been the major growth drivers as far as desktop [indiscernible] is concerned, okay?

And essentially in Europe and Americas, it has been majorly through your Specialty Ingredients. And whereas if you look at Latin America, it has been majorly driven the performance surfactants.

[Nirav Jimudia, analyst]

Got it. So let's say, currently, if we see in terms of our overall volumes in the rest of the world market, how much would be the share of specialty in the overall volume mix?

[Natarajan Krishnan, executive]

Sure, [indiscernible], if you look at it, it's majorly -- you can say that I'm just trying to make [indiscernible]. I don't have this number with me. But.

[Nirav Jimudia, analyst]

Not a ballpark number, if you can just help, because I just wanted to understand what was the base last year in terms of the overall volumes of specialty? And how much it is currently? Because now what we have been adding is that our...

[Natarajan Krishnan, executive]

It'll be upwards to 50%.

[Nirav Jimudia, analyst]

Got it. Got it. And similar was the figure last year also?

[Natarajan Krishnan, executive]

Yes. I don't have it with me. But yes, I don't see any reason why it will not be in the similar zone.

[Nirav Jimudia, analyst]

Got it. And sir, second, you mentioned that we have been opening offices in Europe and in Mexico.

[Natarajan Krishnan, executive]

[indiscernible] subsidiaries.

[Nirav Jimudia, analyst]

Subsidiaries, sorry. My apologies. So what I wanted to understand is like the main logic for us is to compete based on the freight cost, which probably the domestic players would have an advantage there. And because of which we have been now setting up the subsidiaries and most probably the warehouses and the storage facility is there, this would help us to compete with the local players despite of the fact that the volumes may not be going up in the same proportion what we have seen in India. Like India has been a growing market, but those markets are mostly saturated. So probably we may be taking the market share from the existing players in order to grow our volumes by setting up the subsidiaries there.

[Natarajan Krishnan, executive]

So it's like this, again, the subsidiaries that is being set up, we only underscore the strategic importance that locations have in our strategy for the future, okay the business strategy that we have.

So I think if you really need to be looking at those look at significant in terms of business growth because it is a given fact that we are not a big player in these geographies as far as our volumes are concerned. We did a good job, but not good enough in terms of being significant there. So getting the subsidiary only to as part of our go-to-market strategy. How do we convince our customers that I'm looking at this region in a big way and enabling them to look at me for bigger projects, correct? So this is the reason why we're doing it, and that's what anyone could do it, not only me. That's the rationale, okay?

[Nirav Jimudia, analyst]

Perfect. Sir, second question is, a few months back, there was an article about is cutting the consumption palm oil to extent of 25% to be used in the [indiscernible]. So would it affect it anyway in terms of our volumes to HUL? Or if you can say that how much of our product goes into HUL terms of their soap usage, some understanding on the same would be helpful.

[Rohit Nagraj, analyst]

Normally, palm oil derivatives are used into normal regular source, and we have no participation in terms of our ingredients getting into regular source. We're only into the premium source category where this is not. Palm oil is not the major is there. So it is not going to have any impact. We got it, sir.

[Operator]

The next question comes from Rohit Nagraj from Sandra Broking.

[Rohit Nagraj, analyst]

Sir, fatty acid prices -- so, sorry, at fatty alcohol prices during the quarter have jumped significantly. And you also mentioned, if I'm not wrong, that they are likely to remain higher for the next couple of quarters. What has changed in terms of the dynamics and why sudden or and prices extends to a broader perspective?

[Natarajan Krishnan, executive]

Yes. So let me correct, I didn't say that it will remain high for the next 2 quarters. I always said that I only hope that even the prices remains stable. You cannot -- we do not want volatility price going up and on up and down and with very increased frequency, because that impacts, okay, customer confidence in terms of doing [indiscernible]. So that is first.

Second is I don't have [indiscernible] in front of me in terms of what's going to be the future. With regard to pass for, one of the reason that it is causing this, we have spoken to multiple players in the [indiscernible] segment. I think it is being attributed to lower production, lower inventory, yield being lower, okay? But then not everything fits in, but only fact remains that the price has gone up. And the way this price has gone up, it has not gone up in a very, very gradual way. They've gone up in spurts, which essentially is not a good thing to happen.

The reason that essentially more on the supply side. The demand on is not what is causing the price going up. I think it's more in terms of the supply not being as conducive. That's what the players in the segment colors.

[Rohit Nagraj, analyst]

Sure. That is helpful. And second, in terms of the Specialty Care products, I mean, generally, if you can give us the idea how the contribution from the new set of products, including the mild surfactants has changed over the last maybe 2 or 3 years. Just to get a perspective -- and I mean, if there is a continuous rise in EBITDA per metric ton, this also could be one of the factors to add to it.

[Natarajan Krishnan, executive]

So what we would say is that I think the thing in terms of the way that we are approaching the business development of these categories in a very focused way in terms of very clear in terms of what product, what priority markets. The way we're resourcing the Specialty Ingredients organization, I can tell you that obviously, the reason that it is always because we see a huge potential, and we also see a good growth happening, and that will continue.

I would not be able to share the sort of numbers specifically they're asking. That's not something that we reveal.

[Rohit Nagraj, analyst]

But just directionally, the contribution is growing every single year, right, I mean from a -- or new product development perspective or the focus on mild surfactants more sustainable products?

[Natarajan Krishnan, executive]

Yes. It is. Obviously, is growing. And with the sort of efforts we're putting in, we are very clear that given the opportunity available in the market, it should be something that grows in a very significant superior way in the coming years.

[Operator]

The next question comes from Nilesh Ghuge from HDFC Securities.

[Nilesh Ghuge, analyst]

Sir, if I look at the lauryl alcohol prices, they have gone up by about 36% Y-o-Y. Are you able to pass on the entire jump in raw material? Or will there be pass on in third quarter of FY '25.

[Natarajan Krishnan, executive]

No, no. So the question is you're very ready to say the entire jump. So the way it jumps -- so your ability to jump in terms of price increases is not something that we can do. But then I only say that our ability to pass on, given the way the [indiscernible] gone up, is certainly much better. It is no way that we can absorb these sort of increases into our [indiscernible], but there can be timing differences, but that may not be significant.

[Nilesh Ghuge, analyst]

Okay. So if prices remain related, you will subsequently in a subsequent quarter, you will pass on.

[Natarajan Krishnan, executive]

Yes, the bigger risk is -- okay, not only for me, for even my co-place is that if we have significant corrections happening downward for the prices, then you have exposure, and that is where our risk management framework gives us the confidence that even if the prices correct significantly downwards, we have ability to manage it.

[Nilesh Ghuge, analyst]

Yes. And sir, if I look at your revenue contribution coming from the local and niche player, if I compare first half FY '25 with the FY '24, so it has gone up to 39% compared to 34% in FY '24. So is company taking focus or shifting focus to local and niche player? Or is it just happening because of the maybe spurt in demand coming from the local and niche player? Or is there, is there a structural change the focus of the management to supply more to local and niche player?

[Natarajan Krishnan, executive]

It's not that. It's not the -- it is essentially again underscore the superiority of the way the business model that we have in terms of how we are well entrenched with all segments of customers. So what do you see today in the market is you do see that you have more B2C brands coming, more e-commerce channels being better in terms of the way that many volumes, a good amount of volumes are flowing through them, although the base is small.

So what happens is that you have some of the smaller customers coming in the niche players who are able to push certain things through the quick commerce or e-commerce channels. And the way that we are integrating with all of them, it gives us the opportunity to be able to participate with them in the growth that they are having. There is no [indiscernible] that is happening, okay?

One thing that even you would know is that people are trying to access more through the quick commerce channels. So -- but for us, that really doesn't matter because what we do is we serve. We serve and if there is some amount of increase change that happened in the material going more to the quick commercial channel, okay, it's good for us because we are well entrenched with all the category of customers.

[Nilesh Ghuge, analyst]

Okay. So how easy or difficult it is to pass on raw material cost to local and niche compared to MNCs? Because earlier in our conversation, you always mentioned that it's for MNCs take some time. But for a local or niche player, you can -- because there is a spot buying also. So you can pass on easily to local and niche players. So any comment on that?

[Natarajan Krishnan, executive]

It's not a question easily passing on or difficult to pass on. It's the question of when you are going to be having such see decreases in prices, okay, of 30% and 40% in 1 quarter, the issue is not in terms of going to the customer and saying, it's one of the -- I need a price increase of 30%. The important thing is how well you're able to keep them informed, how well you inform them about what do you see as the things in the coming months, give them a good rationale as to why this has gone up. What do you see in terms of the sustaining, how do they enable them to take a decision to buy.

The smaller asset sale need to give you [indiscernible] is 30%. Okay. But if you approach it that way, then your customer is going to [indiscernible] convince the ability to be able to look at things in a very, in terms of [indiscernible] there this is finally, we need to make the customer being the marketplace correct. So how well we are able to give a rational support them with information, okay, as to why these are happening, what do we see in the coming 3 months, whether they should go long or go short, okay? So that if you look at it, that's a difficult job.

Just sending a price increase communication of saying the price is going to be 30%, easy job, but we always take a difficult path. And the ensures we are able to in a very effective and elegant way to pass on, a very big increase of what we need to pass on as far as the normal [indiscernible] is concerned.

[Operator]

The next question comes from Tejus Lakhani from Unifi Capital.

[Unknown Analyst]

Could you just talk about the mix in the India business across the 3 channels -- or see, if I were to break it up in traditional FMCG, modern trade and online aggregators, the big baskets, the DMATs and the Reliance of the world and the D2C brands which are doing well, could you [indiscernible] cohort mix...

[Natarajan Krishnan, executive]

Hello?

[Unknown Analyst]

Are you able to hear me?

[Natarajan Krishnan, executive]

The line dropped. So can you repeat your question?

[Unknown Analyst]

Yes, just Hello, is this better?

[Natarajan Krishnan, executive]

Better.

[Unknown Analyst]

Yes. Sir, I wanted to understand that in the India revenue, could you just quantify the percentage broadly of the traditional FMCG channel, the modern trade and online aggregators is 1 cohort, the likes of the demats the big baskets and the D2C brand, the newer D2C brands. What is the approximate revenue breakup of these 3 segments and which the segment that is growing the fastest for you?

[Natarajan Krishnan, executive]

So one thing is [indiscernible], I will not be able to -- because we took a customer. Now the customer then that mix in terms of how most to modern trade, almost through your quick comers or what we do in D2C that I will not be able to quantify that. What we do is that we know that we have a Tier 1 with a global multinational status the regional majors and Tier 3 are all the local players, okay? So basically, we say, our thing is like overall, we are at about -- if you look at H1, we are about 50% was the Tier 1 customers about, the balance was Tier 2 and Tier 3 customers.

[Unknown Analyst]

Got it. Sir, let me rephrase my question with a slightly more nance approach. Could you tell me that your percentage of India sales that was going to D2C brands, irrespective of where they sold, how has that been trending?

[Natarajan Krishnan, executive]

Yes. correct. So that I can tell you. So that is something that we grew well. And I did say, as part of the response to the earlier question, that even we are now finding the last 2 quarters, certain challenges in terms of the way the their pipeline is not moving well. So all of them are looking at how do they now start adjusting to the new normal, and they're coming up with some schemes and all that to get the inventory out of the system.

They also are now grappling increase prices that are happening. So they're a redefining things as to what they need to do. But [indiscernible] some of intensity that we see in terms of new and new brand company, new D2C players coming in, they're launching a new product. We do see that is pretty healthy, and we are -- our innovation team is doing a good job in terms of engaging with them. So we see that this is all temporary stuff. But this particular focus of the direct-to-consumer brands increasing is going to be there.

[Unknown Analyst]

Okay. Is it possible to quantify that, say, 2 years back, what was the percentage India percentage revenue of these brands to India sales versus the same for FY '25 your estimate.

[Natarajan Krishnan, executive]

The percentage is small. Let me not give you any great because finally, even today, all the D2C brands are a very small fraction of the overall market. But if you look at last 2 to 3 years, if you have to look at 2, 3 years back where we were in terms of the business with them and where we are today, I would say that we are not up by about 30% to 50%. What we sell -- what is the volume we do with that.

This tells you in terms of the intensity of what we do and what is the sort of actions happening as well, that is the PTC brands.

[Unknown Analyst]

Got it. So basically, you're seeing wallet share with them has significantly improved and increased.

[Natarajan Krishnan, executive]

Yes. Correct.

[Unknown Analyst]

Got it. Okay. And sir, secondly, I've heard you through the call. I'm just trying to contextualize this better that there is a situation where the RM has increased where inherently, freight cost is higher, and it is hurting us is reflected in the OpEx number. There is demand slowdown in India. Demand is hopefully receiving a little bit coming back in the met region. RoW is doing at least from the destocking rates in the face of restocking, if I were to sort of look at all these players in aggregate, how do we get the sense that we will be able to improve our EBITDA per kg in the second half?

[Natarajan Krishnan, executive]

So that's what I said. Raw material size is going up is not a factor that we look at in terms of because it's not that your ability to pass on is not there, you will pass on. So that's not an issue.

The [indiscernible] comes from we expecting demand as to -- we expect demand things to a demand situation to at least get better, better, I mean, I'm not looking at it getting it at least start improving or not go in the first 2 quarters. Second is the premium specializes, getting into a better traction in the second half, which I even told in my call for the first quarter that we do expect this to happen when we revised the guidance for EBITDA to a higher range of INR 20,500 to INR 21,500. So I still remain optimistic on that front in terms of what work my team is doing.

The excellent situation obviously has to be cooperating, and we don't see any reason as to why that happens, the sort of work that we are internally doing is not going to yield it selves.

[Operator]

The next question comes from Aditya Khetan from Smiths Institutional Equities.

[Aditya Khetan, analyst]

Sir, my first question is on to the Indian market volumes. Sir, into the presentation, we have mentioned that the volumes have remained flattish, largely because of the slowdown into the premium consumption and a lower-than-expected recovery into the rural areas. But I believe, sir, that Indian market contribution from the premium side is very lower, so majority of the portion is only the performance side only. And the recovery into the rural market, I believe -- so the urban market was weak. And you had also mentioned that the rural recovery was good, but the urban markets were weak. So there is some disconnect into the presentation, what you have mentioned.

[Natarajan Krishnan, executive]

There's no disconnect. The urban market, if you see, okay, the urban market is bigger. When you say the premium categories in terms of, say, your personal care and beauty and wellness has got impacted, correct? When we look at that, it is a premium positioning of my customer. It is not my premium ingredients are getting me. It is the way in my customers, customers have a masstige and prestige. So they even getting that they long we can more mainly contain in the urban market. So when you look at the companies of many of our customers, we say that we do see that the demand has got impact in urban area in terms of the iron brands that they are catering.

And rural didn't pick up because rural still is majorly at the masstige segment, and that didn't pick up significant enough for them to have a good volume growth.

[Aditya Khetan, analyst]

Okay. And sir, possible to quantify what would be the premium and the performance split into the Indian volumes only? Just a product.

[Natarajan Krishnan, executive]

I don't think we have that and neither would we want to do that. We don't have it right now. Yes.

[Aditya Khetan, analyst]

Okay. My second question is on to the other expenses. Sir, there is a steep jump into the other expenses. I believe largely this is led by the threat only. Sir, on an average, when we look at the threat cost, that is, so that remains at around 4% to 4.5% of sales generally for the last 4 to 5 years, any number, sir, which you can quantify how much -- so this number has jumped from the 4% to 4.5%, which is why we are seeing this higher other expense.

[Natarajan Krishnan, executive]

What is the [indiscernible]. See, what we need to understand is that any increase in the base rate also reflects in my revenue. So what happens is that the revenue has a higher freight rate in terms of the selling price. And then you have the higher freight rate that gets booked in the expense. So that is only one of the reasons. I don't see freight rate as a percentage will work if you have depending on what sort of materialize spend, what is the countries to send to that also [indiscernible] the mix of the geographies and the product needs as the [indiscernible]. that's always [indiscernible] freight rate. But one thing is very clear is that there is nothing that is significantly impacting us because you're not able to pass on the higher rate rates, okay? It happens with the lag, but we pass on. So it is not that we are going to have a negative in terms of your freight is going up.

[Operator]

Sir, the line for the participant has been dropped from the queue. And as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

[Natarajan Krishnan, executive]

Yes. Thank you, ladies and gentlemen. Thank you for patiently listening to my opening remarks and the very interesting Q&A that we had. I look forward to talking to all of you for the Q3 results call. Thank you so much. Wish you all a good day. Buh-bye.

[Unknown Executive]

Buh-bye. Thank you.

[Operator]

Thank you.

[Natarajan Krishnan, executive]

Thank you. Bye.

[Operator]

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