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Good day, ladies and gentlemen, welcome to Galaxy Surfactants Limited Q4 and FY '22 Earnings Conference Call.
This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Unnathan Shekhar, Promoter and Managing Director of Galaxy Surfactants Limited. Thank you, and over to you, sir.
Thank you. A very good afternoon, ladies and gentlemen. It gives me immense pleasure to welcome you all for our final quarterly earnings call for the financial year '22. Nicholas Taleb in his famous quote summarizes in one statement what happened in the year '21-'22. He says, fragility is the quality of things that are vulnerable to volatility. Taking from this, if we were to summarize 2021-'22 in one statement, we would say it was the year which separated the best from the rest, differentiated fragile from robust, and tested the vulnerabilities of every business model.
While the year began on an optimistic note, supply-led volatility on account of feedstock shortages, shipment delays, rising freight costs and feedstocks adversely impacted our performance in the first 9 months of this financial year. Though the situation exacerbated on account of Russia-Ukraine war and the Chinese lockdowns, our quarter 4 performance clearly reflects the robustness of our business model.
But we need to understand the crux of this U-shaped recovery. There were multiple factors responsible for the same. One, application of our learnings and experience gained during quarter one to quarter 3 helped us manage the situation better despite the supply situation deteriorating further in Q4. Better mix and higher share of specialties in the developed markets played a key role in notching-up our highest quarterly EBITDA per metric ton of INR 25,400. Contract revisions and recoveries ensured better realizations. Disruptions on the inflationary scenario too created opportunities which we could capitalize in this quarter. While the EBITDA per metric ton and profitability improved remarkably quarter-on-quarter, the volume decline is something to be noted and cautiously managed.
Ladies and gentlemen, the global scenario remains delicately balanced. Global inflation has not only started impacting people, for now, has also started engulfing countries. The crisis in Sri Lanka, Turkey, devaluation in Egypt and cutback in demand, especially for our performance surfactants due to overall reduction in consumption and grammage cutbacks are risks that will have our attention. The home and personal care market grew in the minus 1% to 1% band globally with most of our customers registering a decline or flat volume growth. Though the situation remains muted, we are optimistic that the situation will reverse in the coming quarters. A volatile supply side, combined with cutback in demand due to down-trading will be the potential downside to our business model in the coming year. FY '23, we believe will be all about effective risk management and capitalizing on every metric ton of volumes to ensure sustainable growth.
Coming to the regional performance and outlook, the inflationary scenario has impacted consumption in Turkey and Egypt. These markets make up 50% to 55% of our AMET business. The entire decline in our Q4 volumes was due to the decline in our performance surfactants business in these markets. The situation remains muted in the short-term and while we are geared up to address the same, we remain cautious. India, while has registered 9.4% volumes growth for FY '22, the trajectory of growth has been scaling down every quarter. We are seeing the first signs for demand cutback in India. While the situation is not as serious as the Africa, Middle East, we need to be extremely vigilant and geared up.
While the scenario appears concerning in the short-term for our performance surfactants, our specialty portfolio finally got its mojo back. The opening up of developed markets along with operationalization of our new specialty CapExes have started yielding results. We see this trend continuing in the coming quarters, which will ensure that we meet our stated EBITDA per metric ton guidance of 16,000 to 18,000 per metric ton with a higher probability of us remaining in the upper band.
While FY '23 will see Galaxy facing both supply as well as demand-driven volatility, let me assure you we are geared up for the same. The strong performance registered in Q4 is a clear reflection of our preparation and resolve.
Before I conclude, I want to highlight some of the important developments which have happened in Galaxy. On sustainability, I am extremely delighted to share with you all about the accomplishment of our goal of becoming a 1.4 times water positive company, which is a rare achievement by a chemical company. We are very, very proud of this accomplishment. The outcome we see today is a result of our sustained efforts laid down by our Sustainability and Corporate Social Responsibility team throughout the entire journey, which began more than a decade ago. On CapExes, some of our CapExes got operationalized in Q4 and the complete operationalization of the same will happen by Q1 FY '23. These expansions will assure in more opportunities for our specialty care products.
Ladies and gentlemen, to conclude, growth is never linear. There will always be short-term hurdles and bumps as we march ahead. While there might be short-term challenges, the long-term structural story continues to remain robust. As John Allen Paulos, a famous professor said, uncertainty is the only certainty there is and knowing how to live with insecurity is the only security. Amidst these uncertain times, we continue to focus on our internal stability and march ahead steadily and with firm resolve.
Thank you, ladies and gentlemen.
Sir, should we open-up for questions?
Yes, please.
[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.
Good afternoon, everyone.
Yes, Hi. Good afternoon.
Sir, first of all, congratulation on exceptional performance, and Shekhar sir, opening remark which gives a lot of confidence on how the FY '23 is going to pan out. Few questions from my side. First on the gross profit per kg, INR 60 from INR 44 from Q3. Can you help us bridge this expansion, even rough guess will do on what is the pricing realignment benefit, what is the mix improvement benefit, what is the gain on some inventory and any other factor which has helped because this expansion in a quarter look quite sharp for us? And how much of it should be a sustainable number?
Yes, Sanjesh, Natarajan.
Yes, sir, good afternoon.
Hi. Good afternoon. So if you look at the margin expansion that happened, okay, we have said there have been 3 factors. So there -- what I would like to say, the inventory gains and recoveries that we have started getting on the new contracts, okay, certainly -- and the mix improvement that happened in terms of our specialty ingredients getting better in the last quarter were the major reasons for this gross margins to go up to INR 60 per kg. It is also important to note that our US subsidiary Tri-K has been doing exceptionally well given that the US market has been pretty robust and they have been able to get the realizations and their volumes in a much significantly better manner. In fact, Q4 was a very big highlight for them in terms of their performance. And what has aided that also was the expansion we commissioned in our US facility just before COVID hit us and stood us in good stead in terms of this particular expansion in gross margins that you're seeing.
How much will be protein, Natarajan sir, now for us?
See, in terms of volume, it is not anything significant, if you look at overall volumes. But in terms of the realizations, they are pretty significant. Okay. And they have been doing pretty well. A lot of work has been done over the last 2 years in terms of expanding our proteins portfolio and in terms of the sort of range we have on the various vegetable proteins. And the way we could capitalize on the opportunities, they've got consolidated itself during the last 18 months and we continue to see that going to be in the same tracks -- in the same trajectory in the coming months.
So is it fair to assume that our US has grown in FY '22 upwards of 40%, 50%?
Yes, sir. In terms of their performance, yes, they have.
They have grown. Okay. And do you think that can continue for a few more years to come back on a low base?
Yes. We do see that continuing. Okay. Except that I would like to have a word of caution because we are also seeing that the inflationary pressures are impacting US as well. So how that market pans out, how the consumer demand will get impact because of inflation is a question that none of us are able to answer now. But if I see as of today, I expect these things to continue because everything else remaining same, I don't see why this can't continue.
No. I was more thinking in a way that this is more of a luxury product where inflation doesn't really impact too much, right. Inflation is more on the mass and mass-niche product. On the luxury, we are generally protected out of inflation.
So what I was trying to explain was, these are specialty -- highly special cosmetic proteins. So what can happen is that if the demand -- if the inflation situation continues very high, you can have consumers starting to down trade. Okay. So that can be a risk there. Although that's something that may not happen quite…
Yes. It's a luxury item, generally doesn't happen that way.
Yes. So we hope that. That's why I'm saying that as of now, the way I see it, we don't see this not continuing. There is no reason for that.
Okay. On the AMET side, this is the fifth quarter of a volume decline and they have declined quite sharply, 29%, on a base where we have declined already 5%. Looks like a complete collapse in AMET. And last few quarters, I could have understood that we were fighting with [indiscernible] availability and so and so forth. Even on a low base, a 29% decline, was it difficult to place the volumes from the Egypt and Turkey to the other markets? Was it a difficult situation or it happened and you were also not prepared for it and hence we should be able to adjust this volume in the coming quarter? How should we see this?
See, there are 2 things. One is, if you see, almost in first 6 to 8 months of the financial year there were severe supply-side constraints because of the international logistic scenario. Now obviously, it also meant that there are some customers, obviously, they would have met the requirements elsewhere, people who could give them the material. So as our team looked at keeping all our key customers in place in terms of servicing the volumes. And as we were doing that and the supply situation started improving, you had this huge impact in terms of inflation and the Egypt and Turkish lira devaluation will start impacting demand. So it's something that we are watching on and we do see things improving, but, yes, demand cutback has happened because inflation scenario is something that we need to factor-in right now, it's not that we were not seeing this trend coming down in terms of volume, but to this extent we didn't expect.
Okay. So we could now take some course correction, some development to other markets and all. And what was the learning from ourselves, because this happened in Turkey in 2019 also, right, where we saw 2 quarter of sharp decline and then this smartly bounced back. What was the learning from that time and do you think this time also that's fairly possible?
See, last time what happened was, if you look at the learning, the consumer demand didn't get impacted that significantly. So there was a situation where people were adjusting to it and they adjusted to it quickly. Now what we need to be waiting for is whether the situation -- the consumers adjust to this sort of inflation quickly. With this, all our consumers are adjusting to the changed dynamics, correct?
Correct.
That happened last year, but we are always well-prepared in terms of leveraging on the opportunities that present once the consumers start adjusting to the inflationary scenario. And we would expect the same thing would happen now. Only thing, we are not able to make a precise guess on what the timing would be, whether it would be 6 months like last time or it can be beyond that or even lesser than that.
Okay. But do you think there is a scenario where inventory liquidation has also happened which will correct, right? Sometimes when in a high inflation, people tend to liquidate their inventory.
Yes, that's possible. So it's quite possible there. And obviously with people wanting to carry on their price increases, they would want to flush-out the lower-price inventory from the system. So this is something that can be a good tailwind, but we only hope that this is the way it transferred in the coming months.
Got it. Just one last from my side. On the Rest of the World, the bounce-back look quite interesting. It is because we were constrained by capacity and new product addition have done very well? And which are the segments which are performing so well? Is it more of a preservative and mild surfactants pulling us and that is why the realization has so much of a large benefit because these are high-margin products, right?
All the specialties, Sanjesh, all the specialties. We would certainly say yes, there was a constraint on capacity before, which we do not have it now, one, because they were waiting for the operationalization of the new CapExes. And number 2, of course, we have repeatedly said that we were also constrained by the outbound logistics, which certainly improved in last quarter, but we are afraid, I think it is again reverting back to square one with whatever is happening in China now. So these are situations, which is what we say highly volatile and we need to be very careful in navigating these waters.
Just one bookkeeping. Which are the products which were commissioned now and what are the capacity additions?
We say that we had commissioned capacities on mild surfactants, non-toxic preservatives. So these are the -- and we also commissioned our proteins plant, new plant in [indiscernible] just before COVID hit us. That was in 2020.
And what was the capacity we added there?
So these capacities. we would not want to be mentioning that because that's something that we would want to keep it confidential with specialty ingredients. And we have not -- but in order of magnitude, they can be in the zone of about 10,000 tons and odd.
I think we had only 1,000-odd tons earlier. Right?
Which one?
In Tri-K, the protein capacity was some 60-odd capacity.
All put together, including all my mild surfactants -- and other specialty care ingredients.
Okay. This is not particularly for US, it's India plus US, and all that? Okay. That's fair enough. Thank you, sir. And best of luck for the coming quarter.
Thank you.
Thank you.
Thank you. [Operator Instructions] The next question is from the line of Rohan Gupta from Edelweiss. Please go ahead.
Yes. Hi, sir. Good afternoon and thanks for the opportunity.
Good afternoon.
And Shekhar sir, thank you very much for sharing all those insights, good wisdom quotes in your opening remark. That's great.
Credit goes to our team.
No, sir, definitely, they have done a remarkable job in linking all those quotes with our current performance of the company. I have got a few questions from my side. The first is on this EBITDA per ton or gross margin per ton. Definitely sir, I mean it's a unheard journey, I mean, an improvement in a such small period of time from EBITDA of almost INR 12,000, INR 13,000 couple of quarters back to INR 25,000, driven by gross margin. Sir, we have seen that how the Galaxy's journey has been from almost INR 12,000 average margins to INR 15,000 to INR 18,000 sustaining there and now we have seen this unheard INR 25,000 per ton do. Though I understand the challenges of the business and volatility which any business have, do you see this FY '23 is going to sustain on average these kinds of margins, or probably the change in the product mix will pull it down? That's first question.
Yes. So what I would respond, Rohan, is that, see, we improve our guidance from INR 15,000 to INR 17,000 per metric ton to INR 16,000 to INR 18,000 a ton. And then if you see now, we had told in the last investor call that we would come back -- we were lower than 16,000 tons, okay, INR 16,000 per metric ton till for the 9 months, and we said we will get back to the INR 16,000 to INR 18,000 tons at the full year level, which has happened because of what we did in quarter 4. Now moving forward, what we would like to be very -- make it clear is that we will continue with this guidance of INR 16,000 to INR 18,000 per metric ton. And, yes, to be a little bit more positive, we do see it can be at the upper end of the band of INR 16,000 to INR 18,000.
Sir, any particular reason that we still will not change the guidance to slightly on a -- maybe INR 20,000.
It will happen. See, we know that the trajectory is towards the upward trend. Okay. But nothing will happen overnight. They will be gradual. Okay. They will be progressive, because as we have said, for us both the pillars, both performance surfactants as well as specialty ingredients are key in terms of sustainability of our business model. Okay. Both are equally important as far as this market is concerned, the customer potential. So we will -- our strategy as you have mentioned is to grow on both these legs, that is performance surfactants, as well as specialty ingredients.
Right, sir. So in the current quarter, it was more driven by the higher share…
Yes. In the current quarter, as you would have seen, we did talk about challenges to our performance surfactant business. Obviously, the specialties performed much, much better. They constituted more of the total portfolio of our products and they resulted in this particular EBITDA margins. It tells you about the potential from specialties.
Exactly. And it also tells that how high margins are in our specialty products.
No, I would like to clarify, Rohan. As I explained when Sanjesh asked the question, there were 3 factors. One is in terms of the raw material pricing, these were happening, say, almost up to November, almost every 15 days where the intensity and the frequency were high. So as we were passing on one increase, another increase was happening on raw materials. Now, that actually started -- stabilized at those higher level, say, from December onwards. Okay. So that enabled us to -- otherwise there is always a lag in terms of passing on. So that obviously didn't happen. The lag wasn't there because we increased the prices had stabilized at the higher levels.
Second is, we also said we had lot of logistics-related costs that were higher in terms of [heating buzz] was going up, which also started tapering off in terms of the increase, and then we didn't have any backlog in terms of recoveries. The third is we talked about certain recoveries in -- when we did certain contracts that were there in place and we renegotiated the contracts, we were able to, with the sort of equations, we had relations there with customers, we were able to get some of them added to our pricing in the new contracts. And the fourth obviously is also the mix had improved. So there were 4 factors that led to this.
Okay. Sir, second question is on tepid volume growth for the quarter, especially in surfactants. So is there any particular one reason that this volume was impacted or do you see that…
Inflation. Inflation across the world, unprecedented inflation. Okay.
So this 15%?
Yes. So the inflation has certainly impacted consumption and as we said, inflation has impacted even countries. See, I'll tell you, I can explain this -- see, when there is such an unprecedented inflation, the issue is in terms of people wanting to wait. So what people would say is that, say, my customers who essentially have to make the finished product, especially my Tier-2 and Tier-3 customers, we would you say let me watch whether the increase is going to get absorbed by the consumers when I increase the price. So there will be this situation where they will say that we will reduce their pipeline inventory, they will wait for the consumers to digest that fully enhanced prices. And they would want to test that out, because they would not be buying in a normal way that they buy if the things were stable. Correct? So that's also one of the reasons.
Absolutely I agree, sir. And that's what uniqueness of our business is that we are catering to -- we are proxy FMCG where people would not stop taking bath and they will not stop washing their hands. But I understand that the weakness may be more to do with the vacuum in the channel filling out or in the trade. That should pick up or that may pick up going forward because ultimate consumption is not getting hit or you see that there is a ultimate consumer level, the demand is getting impacted and if the inflation and the prices remain at the current level, we may see the lower demand from the FMCG.
Yes. So if I were to explain to you, say for example, which is what I'm saying. I'm saying that the way demand cutback would happen is that, one is people will down-trade, down-trading doesn't impact us because we serve customers across all segments, okay, be it tier-1, tier-2 or tier-3, and we have a product portfolio to cater to all these segments. But what we have to note is that, for example, in rural India, people in the last 2 years in the rural population started using, say, a shampoo, okay, from what they were using once a week to 3x a week in terms of habit change. Now, what if they -- say, because of the disposal income getting reduced, they probably will come back to say twice a week. So that obviously can have a demand cutback. That is something is what we need to wait and watch as to how things are panning out.
If the harvest is good and there is a good liquidity in the hands of the rural population, we do see that the demand is not going to be significantly impacted. So we need to see the ability to absorb various moving parts. And these things all have to play out very well and that's why we say that next 3 to 4 months will tell us the story as to how things will look going forward.
Okay. Sir, can you provide us a regional market share for the quarter versus last year?
Region market share? I didn't get your question Rohan, means how the markets has moved between -- in the various regions?
Sir, we have got -- you have shared the volume…
Yes. So if you ask me, my -- our business is split almost one-third, one-third across India, Africa and Middle East…
I think last year it was approximately India and AMET put together was approximately 75 to 76, and the Rest of the World was -- yes, again, we say -- FY '22 was 37, 31 and 32. Okay? That is 37 was India, 31 was AMET and Rest of the World was 32.
And what it will be this year?
This year, see, we don't expect these ratios to significantly alter, but AMET is something that can be a little muted. Again, for quarter 4, India was a little down compared to the last quarter of last year.
Understood. Sir, as far as our spec chem business is concerned, so we have done a significant CapEx from last year completed now. We see that this year was a ramp-up year for the specialty chemical business. What kind of growth one can expect in FY '23 from our specialty chemical business, because given that we don't have any capacity constraints now?
See, normally as we say, see, when we build a CapEx, it is for a horizon, in specialty it's for something like 8 years -- 7 to 8 years or so. So there will be progressive growth as far as these products are concerned. Okay? So we have seen the first leg of growth in last year and this momentum will continue.
And sir, just lastly, the CapEx number for FY '23?
Yes. FY '23 will be again approximately INR 150 crores.
INR 200 crores.
INR 150 crores to INR 200 crores. Last year, we spent INR 155 crores. So again, the coming year, that is FY '23 will be INR 150 crores to INR 200 crores.
Fine enough sir. Thank you very much. I'll come back in queue for any further follow-up questions.
Thank you.
Thank you.
Thank you. The next question is from the line of Anubhav Sahu from MC Research. Please go ahead.
Yes. Hi, sir. Thanks for the opportunity. Couple of questions. So one is, in previous quarters you have also mentioned that volumes getting impacted because of supply issues in terms of timely availability of raw material and things like that. How is the situation on that front? Are we still getting impacted on that front?
Situation did improve in quarter 4, but because of this Russia-Ukraine issue and also because of this very, very stringent lockdown in China, it is suddenly again presenting new challenges. And we are already seeing that. So we do hope that it will take another about 2 months with something new not happening for things to resolve itself. So we were only -- we were pretty happy in the beginning of Q4 that things are getting resolved, but these 2 events have again started complicating the international logistic scenario and thereby, also creating issues on the supply side.
Okay. And by any way, can you quantify this impact, I mean in terms of volume which would have been possible, but it's not happening because of supply issues?
No there is nothing -- I don't think we will be able to quantify that. It's only that we did say that there was a good amount of impact up to first 9 months. Q4, I would not say there was anything significant because the things improved. But moving forward, we would not be able to quantify. We only are hoping that we are able to manage it without a significant impact.
Got it. And secondly, you have alluded to a downside situation that there is a probability of demand cutback and inflation impacting consumption. But on the other hand, the other narrative was of course start with the opening-up of economy, demand should actually firm up as far as the home applications are concerned. So wanted to understand, right now, is it more a channel inventory correction which -- is that what you're seeing, right?
Yes. Anubhav, let me say that the long-term outlook is excellent as far as this industry is concerned. Whatever we will see now, they are all short-term challenges. So as Rohan said, people cannot stop taking bath or brushing their teeth or washing their hands. So whatever we see, they will be short-term blips.
Okay, got it. And do you have a view on what is the market share we have in domestic market?
We have a significant market share, we will not talk about the number. As we have always said that we have a significant market share and we have had over the last now 42 years.
Okay. And sir, last question on this fatty alcohol prices. How are you reading situation now? And I know there is a supply setback because of palm oil, but how much that is impacting palm oil derivatives for us, in terms of availability as well as prices?
The first correction is the market is so volatile that we are not reading, we are only watching. So if you see, it went up significantly because of that Indonesia stuff and then it started correcting downwards, but again it went up because of the ban that Indonesia put. But we do see that this particular -- there are high-season months approaching now. So we do see that things should start stabilizing, but we wouldn't know -- we can't make any clear judgment on this, because there are too many things that are happening at the same time. So as of today, the prices of fatty alcohol are close to $2,800 per metric ton. We do hope that with the high-season months coming in, and the inventory level going up, things can start coming down, but we need to wait and watch.
Okay. So on a longer term, I mean, how are you seeing the -- of course, there are a lot of supply-side issues as far as palm oil is concerned. Labor shortage is also one of the reasons post this COVID era. Is there also a structural reason that the palm oil getting diverted to biofuel and all those kind of things, so there would be a new normal…
Yes. Anubhav, see, if you see the last 15 years, this volatility has been a part of this commodity industry and particularly with respect to palm and palm kernel oil. So as we said, the bottom line for us is that the way to grow our business is to have effective risk management with respect to our feedstocks and that's what Galaxy has been doing over the last 10 years. We have gained our skills with respect to effective risk management on this. And we don't believe in predicting what will happen, whether the feedstock prices will go up or go down. For us, the constant is how we manage this risk.
Biodiesel mandate is only for palm oil. Palm kernel oil, which is the major -- palm kernel oil derivative is what we use. So the palm diesel -- biodiesel mandates are for palm oil. I would like to correct that.
Yes. And palm derivatives are not the major raw materials for us. For us, the major derivatives which is fatty alcohol, is from palm kernel oil and not palm oil.
Okay. And sir, you mentioned about risk management part. So how is the contract cycle happening on that side as far as procuring lauryl alcohol is concerned? I mean is it…
Yes. I cannot say how we manage it, because that's something that's proprietary to us, but it is suffice to say that it is ensuring that we do not have any open positions which are something that we can't digest in case if the correction happens. That's the way risk is managed.
Okay, got it. That's understood. Thanks a lot, sir.
Thank you. The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.
Yes. Thank you for taking my question, sir. And congratulations for good set of numbers. So some of my questions are already answered. Just few from my side. So one, obviously, we know that there would be some contract revision in this Jan period, commissioning of this new year. So how much -- I mean out of how much total contract has been revised and is there any still left -- few contracts to be re-aligned with the current -- existing price or we should be having -- all those contracts have been already realigned to the current market price?
See, there is nothing like -- our contracts happen only in the beginning of the calendar year. So there are contracts starting and ending at various periods during the year. So it's not that the contracts that start getting done only at the beginning of January. So there are a lot of contracts that keep happening at various times of the year depending on the products and the customers. So what do you need to know is that we are ensuring that every contracts are properly renegotiated, to take care of the current scenario.
And what we are normally seeing also in the current scenario is that the long-term contracts which were earlier -- more than one-year contracts. So a lot of contracts are now shifting from annual to maybe quarterly or maybe half-year, I mean quarterly or half-yearly kind of changes there. So is that happening for us also or is it that all our contracts are still in place with a long-term perspective?
Yes. So there is nothing major change is happening in terms of the contract tenures. Okay. So things are in line with what we used to be doing earlier.
Okay. And sir, in terms of the volume growth, just wanted to understand that since we have -- I think I would say, decent size of customer base, so the incremental volume growth which we will be seeing would be coming from -- benefiting these customers or we have still scope of adding new customers?
No, we have a huge scope of adding new customers, which we're constantly doing. So our whole this thing is based on how do we penetrate various countries that we are currently not present, how do we gain share from existing customers and how do we hunt for new customers. And there is a huge opportunity for us to mine newer and new customers in various geographies.
Okay. So any ballpark number we can put on, on the volume outlook for maybe 23'-'24?
No, we would not. That's why I said -- I don't want to hazard any guess because things are pretty, pretty, what do you say, nebulous with various events happening. So we need to wait for I think at least 2, 3 months to understand as to how things are panning out.
Okay. And one last question obviously from the Turkey side, where I think currently the position is in there. So how we are seeing, I mean, the scenario currently and is there any takeaway we can have from the current development there immediately, in terms of our exposure in those regions?
So what I explained to Sanjesh is, so typically we have to wait for the consumers there to be able to adjust to the higher per scenario. And, yes as our products are into daily use items, once consumers adjust, then the demands will start coming back. So as Sanjesh said earlier when the similar thing happened, Turkish lira depreciation, things started improving after 6 months. We do hope that it happens earlier than that.
Okay. that's it from my side, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Rohit Nagraj from Emkay Global. Please go ahead.
Yes. Thanks for the opportunity and congrats on a very good Q4. Sir, first question again on the volumes front. I understand since our IPO, we had been saying that our volume growth will be in the range of 6% to 8%. Last 2 years have been quite challenging. FY '23 also you just suggested that would be challenging and we are not having any clarity. But instead of having this volume growth, which will probably be skewed towards specialty care products where the volumes will be lesser for the incremental quantities like mild-surfactants et cetera, however, the pricing and EBITDA would be far better than the existing profile. Do we like to give a guidance on absolute EBITDA increase, because I think earlier we used to say that 6% to 8% volume growth and absolute EBITDA increase would be in, say, teens or double-digits. So would you like to give any such guidance for FY '23-'24 or incrementally? Thank you.
Yes, indeed. On EBITDA we said that the guidance will be in the zone of INR 16,000 to INR 18,000 per metric ton, and we said on a -- if you look at the positive side, we probably will be at the upper end of the band.
I'm talking about absolute EBITDA in terms of -- not EBITDA per ton.
Absolute EBITDA, I don't think we'll be able to give that guidance.
Fair enough, sir. No worries. Sir, the second question is in terms of our product basket or diversification. So earlier we had gone into adjacencies like Tri-K acquisition where it is into proteins and high-end maybe products. So any such adjacencies are there for us to venture into? That is A? And are we looking very concretely in terms of getting into such adjacencies given that the current environment, the existing business is going through a rough patch and these adjacencies probably would be beneficial from a revenue profitability perspective? And second, these could be also a growth driver going forward? Thank you.
Yes. See, we have always been catering to adjacencies. While we say our focus is on catering to the home and personal care market, which is our focused market, where we essentially are solution providers. For adjacencies, we obviously sell the molecules. We do supply into agro, we do supply into pharma, we do supply into textile, we do, do that, and that is something that we are ensuring that we are able to capitalize on all the opportunities available. But we cannot shift our focusing saying that since HPC is not growing, I'll shift to the other industries. That is something will be fraught with a huge amount of risk, which we never do, because HPC industry is the best industry to be in, in terms of the way that we have built our capabilities. So these are all -- like Shekhar said, these are all short-term blips. The long-term structure of this business and this industry is extremely exciting.
Right. Got it. Sir, just one clarification on this front. This particular confidence which we have in terms of the long-term prospect, does it come from a sense that other global players are not really keen on expanding their business or is there any other element into it? Thank you.
We don't know anything about those things. We focus on ourselves.
The only way to explain is the confidence is in terms of emerging from the way we know this industry and our 40 years of being in this industry.
Right, sir. Got it. Thank you so much for all the answers and best of luck, sir.
Thank you. The next question is from the line of Sudhanshu from Marcellus Investment Managers.
Hello sir. My question is on the working capital of the company. So we see a lot of deterioration in the operating cash flows of the company, primarily because the company is being invested in inventories and receivables. Can you give us some clarity on where does the company stand. Has the terms of trade change, where we have structurally changed our inventory days or inventory levels and better payment terms or is it just a transitionary phase, which we are witnessing right now?
Yes. See, in case of working capital, it is essentially a function of what the dynamics of the market is today. Now, one, in terms of higher -- earlier also we have said, higher price values will result in higher monetary working capital. I think during the discussions we have said that right. It's a feature. So the price levels are impacted. That is one. The second is the transit times. And the third is essentially raw material uncertainties have resulted in procurement of raw material from those sources which are not regular, resulting in [indiscernible]. These are temporary factors and once they cease to exist, this liquidity will get released.
Okay. So would it be fair to say that there has been no change in the credit terms offered to our customers and no changes in terms of…
Clear.
Debt terms have not changed.
Thank you. The next question is from the line of Abhijit Sinha from Pi Square Investments.
Good afternoon, sir. Wanted to understand the debt [indiscernible] where has that been allocated for? And the CapEx that you mentioned about INR 150 crores to INR 200 crores next year, where will we be using that? And the INR 150 crores that we used last year, where did we use that?
I think we weren't able to hear you clearly. Can you repeat?
Am I audible?
Yes. Can you repeat your question? We weren't able to hear you clearly.
So I'll go step by step. Firstly, the debt that we have, has increased a bit, right?
No, what did you say, debt has increased.
The short-term debt size, if you see it's now about INR 290 crores…
That is on account of 2 things. The cash generation has gone into the working capital which has been expressed, right? But that debt to equity ratio has not changed.
Yes. That has not changed for sure. So that is just for working capital requirement?
[indiscernible]
Sorry, sir, your voice was not that audible.
One minute. See, what we mentioned earlier in the last question is that the entire cash generation that has happened during the year has got basically sucked into the working capital, right, and that has happened on account of higher raw material prices. So what is going to happen is that to the extent of our other funding needs in CapExes, there has been borrowing, up to INR 90 crores or so extra. But in terms of debt to equity if you look at it, it remains 0.22 only, it has not increased.
True. And sir, the INR 150 crores that we used last year was used for which plant exactly?
It was used for the various specialty products as well as certain performance products, both in Egypt as well as India. And India, largely, we said we incurred it on our Jhagadia project for manufacture of mild-surfactants and the non-toxic preservatives and also our R&D center in -- our pilot plant center in Tarapur where we spent this. So as we also said, some of these have got operationalized and some of this will get operationalized by the end of this Q1.
And we have mentioned that our cash outflow on account of CapEx is INR 155 crores.
Yes. We have also mentioned that our CapEx of last year was INR 155 cores.
Yes sir. I totally understood that. So just for my understanding, the capacity has not increased, it's just for the supplementary stuff such as R&D et cetera, then everything which will help eventually for the company, right?
No. Certain capacity increase has also have happened. We did mention right in the beginning, we have increased capacities on mild surfactants, non-toxic preservatives and also our investment in the pilot plant and R&D center, which will really drive our innovation over the next coming years.
Exactly. And sir, the next INR 150 crore that we're planning for this year, that will be used in the similar region like where will we be spending over there?
It will again for similar reasons.
Same R&D stuff and all. Perfect.
R&D, plus mild surfactants [Technical difficulty]
Last question will be sir that I think you mentioned it earlier, but since obviously Egypt and AMET region is facing quite a bit of a problem for us right now, since the economy is not that great, what is our timeline as a business? When do we see things stabilizing there? And if it still impacts our this year FY '23, what kind of impact do we see?
See, if you remember correctly, see, Egypt, we have seen impacts in 2016-'17. But Egypt as a country, the population is certainly growing. So it will pass through these challenges and ups and downs, but then eventually it will come back to its consol, it has to.
So what kind of timeline do we think that it should come in, like 9 months?
No. There is no point in me thinking. We only say based on our past experience. When earlier this happened in terms of -- when the depreciation of the currency happened, it took almost 6 to 9 months for things to come back for the consumers to adjust to the inflationary scenario. We do hope that it can happen earlier than that now, but we will not be able to…
Because the situation in Turkey is even worse than Egypt, right?
Yes. I wouldn't be able to make the statement because consumers know how to adjust, governments also would be equally concerned about ensuring that the consumption picks up, correct? So the government can come up with some stimulus. We never know. Because as much as we are bothered, the governments are more bothered in terms of ensuring that the people are able to manage in inflationary scenario. So we need to wait and watch. So we can only go based on what the past experience was. We don't have a crystal ball in terms of saying as to when things would improve. We only want to hope that it improves much earlier than what happened last.
Fair enough sir. Sir, you mentioned that our -- you specified that our raw material is not the crude -- palm oil thing, it's the palm oil kernel, right. So what would be the pricing or the demand-supply differences between the 2?
Demand supply situation of?
Of the kernel. You mentioned that that is our actual raw material, not palm oil itself.
Correct. So the palm kernel oil also has seen significant volatility. So as Natarajan mentioned, the ups and downs in lauryl alcohol that we saw was in sympathy with the price of palm kernel oil going up and down. So in this year, in the last year, I think we have seen the swing of lauryl alcohol prices right from 2,100 to 3,200, coming back to 2,450, again going back to 2,800. So these things have been happening over the last one year. And we see this happening even in the coming year.
Okay. So, sir, 16% EBITDA margins are not that likely for FY '23, but can we expect about a 12% to 13%, larger than that 13%, sir?
No. We would not to make any -- for us, EBITDA percentages don't make any relevance.
EBITDA per ton, we have talked about the guidance between 16% to 18% and we are pretty optimistic and hopeful that we will remain in the upper band of this range in the coming year.
The next question is from the line of Bob from Falcon Investments.
Yes, hello. Regarding the performance surfactants, how is the demand now versus the COVID time? Has it gone back all the way to 2019?
See, the demand, certainly, as we said, there has been a cut back -- your inflation has certainly had an impact on consumption. Our customers, and that is FMCG manufacturers or the home and personal care manufacturers have resorted to maintain their magic price points by reducing grammages and that is how they are trying to serve the customer, so that they are able to retain the customers, albeit with volumes getting impacted at their end. So this is going to be certainly an issue and a situation while the commodity prices remain very high. Once the commodity prices start correcting, I think we should come back to normal in terms of the volume growth that we see as far as this industry is concerned. We have seen that for ourselves, this industry has grown globally at a level of 2% to 3% and the Indian market has grown at a level of something like 8% to 10% over a long-time span. So we see this coming back once this commodity prices start correcting.
Right. When you say coming back, you mean the whole demand or the post-COVID demand? Because there was talk that some of the hygiene products would sustain post-COVID.
The COVID demand, which happened on hand sanitization and handwash corrected last year itself. But then the habit of washing their hands is something which will be sustainable. So we saw the handwash markets which were growing in the COVID times by about 30% got corrected to coming back in terms of growth rate of about 10% to 15% or so in the last year.
But still higher than normal, though?
Yes, they are higher. So to answer your question, the overall entire HPC category, obviously, is settled at a higher level than the pre-COVID volumes. Very clearly. Only the rate of growth is getting corrected. But yes, it is higher than the pre-COVID volumes.
Okay. Second question on down-trading, you had mentioned earlier that that would actually cause -- it will have an effect on your sales. But you do supply to a range of manufacturers. So do the tier 2 and tier 3 have lower pricing for your chemicals versus the top-tier?
No, it's not what they buy. So essentially the formulations are different. For products that are -- say at the mass segment, the products are different. So they require different ingredients. Because the ingredients are having a different specification and performance, they will be at a lower price. So it is not that for the same product we have lower prices for tier 2 and tier 3 customers. No.
Understand. So in that sense downtrading would affect your business?
See, what we are seeing -- what our salespeople tell us is that the small customers problem is now cash because the prices have risen significantly, they would have to work or manage their operations with a lower level of inventory. They can't afford to have or maintain more inventory. So they would possibly live for the day in a way of saying that they live for, say, 7 days in a series.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Unnathan Shekhar for his closing comments.
Thank you. Thank you very much, ladies and gentlemen. See you again in another 90 to 100 days. Thank you.
Thank you all of you. Thank you so much. By-bye.
Ladies and gentlemen, on behalf of Galaxy Surfactants Limited, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.