HDFC Securities has raised the long-term target price of Galaxy Surfactants (GSL) to Rs 1834 per share from the current market price of Rs 1478. The brokerage sees an over 24 percent upside in the stock on steady volume growth and margins as Galaxy Surfactants, a manufacturer of surfactants and other speciality ingredients that find application in finished home and personal care (HPC), remains a preferred global supplier to leading FMCG MNCs, the HDFC Securities said in a research note on Monday.

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GSL's long and close ties with its over 1700 customers and a diversified portfolio of over 200 products selling across 80 countries, backed by experienced management will help the company's further growth, the report said.

The 'quasi company' is not merely a contract manufacturer but is also closely involved in the home and personal care product development process with its customers, the report added. GSL currently draws 55 percent of its business from 10 leading FMCG companies, which together command 42 percent of global HPC market share.

HDFC Securities expects steady volume growth as rise in demand for HPC products implicitly induces growth for GSL.

"GSL witnessed stronger demand in FY17/18 (12.2/11% YoY) vs FY19 (8.8%), led by 18.8% YoY growth in the (high margin) specialty category. We expect strong traction to continue in this category driven by strong demand in developed markets. Thus, overall sales volume will grow at 9.6% over FY19-22E to 282,349MT," the report said.

Analysts at HDFC Securities are of the view that GSL’s current market price is attractive.

"Currently, the stock is flat (vs. the Nifty FMCG Index that has delivered +16% since then) despite the 29.1/24.3% jump in EBITDA/PAT. Given the secular growth opportunity and its capability to generate 20%+ returns on reinvested profits, GSL’s current PER of 19.0/16.6x FY21/22E looks contextually low. GSL’s products are specialised (not commoditised) but lack branding and pricing power. It should trade at a multiple closer to chemical and at a discount to FMCG companies. We value GSL at 22x Sep-20E and initiate with BUY at a TP of Rs 1,834," the report said.

GSL shares rose 1.08 percent to Rs 1475 per share on the BSE. So far this year, the stock has gained over 20 percent.

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