U Shekhar, Promoter and Managing Director, Galaxy Surfactants, talked about the Q2FY22 numbers, price hike, the international markets, Capex, expected growth in FY22, PLI scheme, and expansion plans, among others, during an interview with Zee Business Executive Editor Swati Khandelwal. Edited Excerpts:

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Q: How the second quarter of FY22 has been for the company and how were the demands? Also, we have seen pressure on margins. What was the major reasons for it?

A: There was no issue on the front of demand, it was robust. But what impacted us was our ability to supply because of the supply chain disruptions. The supply chain disruptions that we are seeing in the shipping industry and containers availability has elongated the supply chain period. There was a long delay in the arrival of the raw materials and sometimes the delays on raw materials reaching us have been even as much as three to four weeks. So, raw materials availability has been a significant issue in the last quarter from South East Asia with respect to raw material reaching us as Lauryl Alcohol. Similarly, we had an issue with respect to the availability of ethylene oxide because of an outage in our suppliers' demand in the first two quarters. So, the availability of Ethylene Oxide was also restricted. Both of them impacted our production quantities in the first two quarters. So, we lost a significant amount of production quantities, which impacted our ability to supply or respond to the demand requirements of our customers. So, this was one impact with respect to our revenue or volumes growth as well as our margins. The second was, of course, the volatility with respect to our raw material Lauryl Alcohol, which has seen a huge swing compared to the quarter and half of the last year. This combined with the freight increases, we could not pass on it to our customers because that is a process and we will be able to pass it in the coming period.

Q: You have talked about the plans to pass on the price increases to the consumers. What can be the quantum of price hike, the products on which it is likely to happen and by when it is likely to be done?

A: What I can tell you is that we see constraints and we do foresee that they would remain for the next one to two quarters, suddenly. Though freight cost has seen some signs of tampering, we would like to keep our fingers crossed with how it is going to pan out in the coming quarters. But we do see, an improvement in supply situations. For example, local supply conditions have suddenly improved and we are certainly optimistic and hopeful of responding to our customers' needs and requirements in the coming days.  

Q: How the international markets are performing and how is the demand in it? Also, the company's release shows that QoQ, the volumes are down 7% and YoY they are down 2%. What is the reason for this?

A: As I said, the demand across the various markets has been pretty good. We have performed well in the US. However, Egypt has been as impacted as India with respect to the supply chain, volatility as well as disruptions. But in the coming two quarters, we do expect that we would be able to respond better to our customer requirements. We have seen growth in India in the first half compared to the first half of the last year. We expect this Indian demand to continue because we have seen a significant change and sustainability because of the habit of people with respect to hygiene. So, we would continue to expect India to grow. The speciality products have a remarkable comeback compared to last year. Our plant commissioning has happened and is in phases, we have started commissioning and we will compete for the commissioning in around two months. This will certainly give a boost to our speciality product performance both on mild surfactants as well as non-toxic preservatives in the coming quarters and years. So, all in all, we would like to look at the future with optimism.

Q: You have delayed certain new capacity additions due to the COVID. Are they back on stream? Also, how much CapEx will you be doing this year? Your company has also brought land at Jhagadia. What are your plans for it?

A: As far as the new land is concerned, we have already applied for environmental clearance and I think, we should be able to get our environmental clearance in the next three-four months or so. The new land will enable us to expand our capacity further both on speciality ingredients as well as performance products. It is a significant piece of land of almost more than 50 acres of land or so. It will take care of our expansion requirements over the next maybe eight to ten years or so. As far as expansion projects in Jhagadia are concerned, they are under commissioning, now, and those projects should get commissioned in another two months. We have also taken up other expansion projects in Taloja as well as Jhagadia, which will get commissioned over the next year or so. Some will get commissioned in the third quarter and some in the fourth quarter of the next year. The total Capex outlay will be approximately Rs 150-200 crore every year and that is fully financed by internal accruals.

Q: What is the expected growth for the rest of FY22 and what would be the growth drivers? Also, what are the areas that are likely to provide maximum growth in the coming future and you are quite bullish on it?

A: The growth drivers that particularly in the last two years have been driven by (i) safety, health and wellbeing by people, (ii) sustainability has been an important growth driver and (iii) premiumization is another driver which is emerging even in a country like India. So, across the world, people are choosing more and more products that fulfil the requirements of sustainability and better health, which means preservation should be done by non-toxic preservatives. These are very significant and important trends that we are seeing and we have responded to them by developing products as well as creating products. This is why our innovation got the PC Ray Innovation Award from Indian Chemical Council this year as well as we received the Golden Peacock award under the category of Eco-Innovation. So, these are the growth drivers and Galaxy is responding to that and this is a trend we are seeing across various markets albeit may vary in degree both Europe and the USA the trend towards premiumization is much more. Now, another driver is announced by our customers and almost all of our customers in the personal and home care space have announced targets to rely only on green surfactants by 2030. They would like to go away from petrol-based feedstock to natural feedstock. Galaxy is well-positioned to be able to respond to the requirements of our customers.

Q: Government is about to bring a PLI scheme worth Rs 5,000 crore especially for surfactants, dye, pigments, chemical and petrochemical sectors and it is in the final stage and we expect that some announcement is likely to be made soon. How big is this opportunity for you and what will it mean for the company?

A: The scheme has not been announced as yet but when it is announced it would certainly be a significant benefit to our industry as well as us. With the expansion projects that are already outlined, it would benefit us with respect to the PLI scheme. We eagerly wait for the announcement of the PLI scheme as soon as possible.

Q: Update us about the international markets in terms of where opportunities are visible and do you think that this is the right time to enter new markets? Also, from an M&A point of view, is there any specific vertical where you are seeing opportunities?

A: We are not working on any M&A opportunity as of now, though we are always on a look around for any right opportunity. What is important for us now - at least in the next one to two years - is to be able to fully capitalise on the capacities of the expansion capacities that we have created and are creating and responding to the growing requirements of our customers very properly and elegantly. So, our focus is going to be on the supply chain smoothening. At the same time, completing our expansion projects and leveraging the potential that they offer with respect to our growth as we see the markets across the world and every single geography are growing. We are well-positioned to respond to that. Our Egypt plant again is ready with those expanded capacities. There are some more capacities that are coming online in the next 3-6 months or so, which will enable us to respond to our customers' requirements. Another thing important in what I have said is the emergence of mild surfactants in the requirement of our customers as well as consumers. There again we are making ourselves ready. So, the coming period is going to come to the rhythm.