Galaxy Surfactants Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS

Galaxy Surfactants Limited is one of the leaders in the performance surfactants and specialty care ingredients industry, serving the home and personal care sectors. Our comprehensive product portfolio is divided into two principal categories:

Performance Surfactants: These are critical ingredients that form the backbone of any cleansing and foaming solutions.

Specialty Surfactants: These are designed to deliver specific, targeted functionalities within home and personal care formulations.

Since our establishment in 1980, we have achieved significant growth, now extending our reach to over 80 countries. Our diverse portfolio encompasses more than 215 products, and we are proud to serve a customer base exceeding 1,500 clients. Our manufacturing facilities, strategically located in India, Egypt, and the USA, ensure a robust and reliable supply chain, reinforcing our commitment to quality and innovation.

Global Economy Overview

Global economic conditions are shaped by changing growth dynamics, fluctuating commodity prices, and evolving monetary policies, which influence domestic inflation, trade balances, and capital flows. Globally, 2024 has been an eventful year. The year witnessed unprecedented electoral activity on the political front, with more than half of the global population voting in major elections across countries. Meanwhile, adverse developments like the Russia-Ukraine conflict and the Israel- Hamas conflict increased regional instability.

According to the International Monetary Fund (IMF), global economic growth in CY 2024 was 3.2%. However, the latest projections indicate a downgrade, with global growth expected to drop to 2.8% in 2025 and 3.0% in 2026, down from the previous projection of 3.3% for both years. This is far below the historical average of 3.7% from 2000 to 2019. The downgrade is primarily due to the escalation of trade tensions and high levels of policy uncertainty across the globe.

Advanced economies are projected to experience slower growth in CY 2025. The United States, the fastest-growing G7 economy, is now expected to grow at a lower rate of 1.8% in 2025, down from the previous projection of 2.7% in 2025 as compared to 2.8% in 2024 this is attributed to potential tariffs, tighter immigration policies leading to labour supply constraints, and weaker domestic demand pose downside risks. In the Eurozone also, real GDP growth is projected at 0.8% in CY 2025 same as CY 2024 with an upward bias due to inflation control and interest rates moderation.

Central banks around the world have been navigating a delicate balance between controlling inflation and supporting economic growth. In CY 2024, elevated central bank rates were used

to fight inflation, but as inflation begins to ease, some central banks started easing monetary policy in the second half. This shift is expected to support economic activity by reducing the cost of borrowing and encouraging investment.

Global inflation is forecast to decline steadily, from 6.8% in CY 2023 to 5.9% in CY 2024 and 4.3% in CY 2025 and 3.6% in CY 2026. This decline is due to unwinding supply-side issues and restrictive monetary policies.

Indian Economy Overview

Indias economy has shown resilience amidst global uncertainties. According to the International Monetary Fund (IMF), Indias economic growth for CY 2024 was initially projected to be 6.7%, but the actual growth was revised downward to 6.5%. This adjustment reflects several factors, including increased global economic uncertainties, deepening geoeconomic fragmentation, and a slower pace of domestic demand recovery.

IMF in April 2025 has revised Indias growth rate downwards to 6.2% from 6.5% earlier in CY 2025 and 6.3% CY 2026 citing the impact of trade tensions and global uncertainty triggered by United States imposition of tariffs. Despite all these challenges India still remains the fastest growing economy of the world.

Indias growth outlook for 2025 remains relatively more stable, buoyed by private consumption, especially in rural areas according to the IMF Outlook. This growth is expected to be supported by sustained domestic demand, government spending on infrastructure, and improvements in the business environment. However, vigilance is required to navigate potential challenges arising from geopolitical tensions and global economic uncertainties. While the global economic environment remains challenging, Indias strong macroeconomic fundamentals and resilient domestic demand provide a solid foundation for continued growth.

The governments proactive measures to enhance infrastructure and improve the business environment are expected to further support economic expansion.

The Reserve Bank of India (RBI) has been cautious in its monetary policy, balancing the need to control inflation with supporting economic growth. As global inflation eases, there is an expectation that the RBI may also consider rate cuts to stimulate economic activity, which is evident from recent rate cuts announced by the RBI in its monetary policy totalling 100 bps in first six months of CY 2025.

Inflation in India has been under control, with headline inflation expected to a low of 4.0% in 2025. This decline is due to effective monetary policy and a stable supply situation. However, India, being a net importer of crude oil, is affected by fluctuations in global crude prices. If crude prices increase or remain elevated the cost of imports would also increase, impacting the current account deficit and inflation.

The Central Government in Union Budget for FY26 has implemented several measures to provide tax relief and stimulate economic growth. These measures include tax cuts for corporates and individuals, aimed at boosting investment and consumption. These policies are expected to support domestic demand and contribute to economic growth in the coming years.

Moving on to the Individual Markets Performance in FY25

The Indian market experienced a challenging year with a volume decline of 2%. The first half of the year remained relatively flat, showing no significant growth. However, the second half witnessed a drop in volumes. This decline was primarily due to an underwhelming festive season, which did not meet expectations. Additionally, raw material prices surged by over 40% from Q2 to Q3, significantly impacting demand as cost pressures were passed on to consumers. The combination of these factors led to a subdued performance in the Indian market.

The AMET region saw a slight decline in volume growth, registering a 1% decrease. The first half of the year was particularly challenging due to persistent supply chain issues, which disrupted the flow of goods and affected market performance. However, these issues began to ease in the third and fourth quarters, leading to a gradual recovery. Despite the initial setbacks, the easing of supply chain constraints in the latter half of the year provided some relief and helped stabilise the market.

The ROW market was the standout performer for FY25, achieving an impressive +17% volume growth. This robust performance was driven by strong demand for specialty products across key regions, including the Americas, Europe, and the APAC (Asia-Pacific) region. The consistent double-digit growth throughout the year indicates a healthy market environment and a successful strategy in promoting specialty products. The growth in these regions highlights the effectiveness of our efforts to cater to diverse market needs and capitalise on emerging opportunities.

Despite the challenges faced in India and AMET, the overall volume growth for the Company stood at +3.3% for FY25. The strong performance in the ROW market played a crucial role in offsetting the declines in other regions. The focus on specialty products and the ability to navigate supply chain issues contributed to this modest yet positive growth.

Moving forward, the Company remains optimistic about leveraging the momentum in the ROW market and capitalising on the tailwinds in other international markets arising from cooling inflation, opportunities created out of tariff wars and addressing the challenges in India and AMET to achieve better profitability and sustained growth.

Business Segments Performance

FY25 saw Company register mixed volume growth across regions and segments. The Performance Surfactants segment demonstrated resilience, achieving a 5% volume growth. In the first half of the year, Performance Surfactants grew by 6%, aligning with our guidance of 6-8%. However, the increase in raw material costs from Q2 onwards led to a demand drop in the second half, resulting in a lower-than-expected 4% growth in H2.

On the other hand, the Specialty Care segment faced challenges, ending the year flat. The first half of FY25 saw a promising 7% growth in Specialty Care volumes, driven primarily by a 17% increase in specialty products in the ROW market. However, the slowdown in Indian market coupled with lower than expected growth internationally during the second half caused a 6% decline in the Specialty Care segment volumes, offsetting the gains made earlier in the year.

Despite these challenges, the Companys strategic focus on specialty products and navigating raw material cost pressures remains pivotal for future growth.

Financial Performance FY25

Following a strong performance in FY24, your Company continued to demonstrate resilience in FY25, achieving an EBITDA/MT of Rs.19,868 which remains within the guided range despite significant headwinds in key markets such as India and AMET.

While this represents a marginal decline from Rs.20,019/MT in FY24, it is important to view this in the context of challenging market dynamics, including muted demand in India and geopolitical and economic pressures in AMET. The ability to maintain EBITDA/MT within guidance under such conditions reflects the structural strength of the business model, ability to service diversified markets, prudent cost management, and continued focus on operational efficiency.

CONSOLIDATED BUSINESS SUMMARY - FY25

Area	FY24	FY25	Change
Total Volumes (MT)	2,48,618	2,56,798	+3.3%
Performance Surfactants	1,59,396	1,67,423	+5.0%
Specialty Care	89,222	89,375	+0.2%
India	1,15,250	1,12,977	-1.9%
AMET	69,992	69,274	-1.0%
ROW	63,376	74,547	+17.6%
EBITDA/MT ( /MT)	20,019	19,868	-0.8%
EBITDA	498	510	2.5%
PAT ( Crores)	301	305	1.2%
Cashflow from Operation ( Crores)	518	421	-18.9%
Debtors Turnover	6.2	6.6	5.3%
Inventory Turnover	4.3	4.5	5.1%
Interest Coverage Ratio	17.8	20.8	16.9%
Current Ratio	2.8	2.1	-24.2%
Debt Equity Ratio	0.1	0.1	-0.6%
Operating Profit Margin (%)	10.6%	9.5%	-9.9%
Net Profit Margin (%)	8.0%	7.3%	-9.3%
ROCE	17.7%	16.5%	-6.6%
RONW	14.8%	13.4%	-9.5%

TRENDS & OPPORTUNITIES AT PLAY - HOME AND PERSONAL CARE INDUSTRY

The Home and Personal Care Industry, a key focus market for Galaxy Surfactants, continues to present significant opportunities. According to industry reports, the global market for home and personal care products is projected to grow at a CAGR of 4~5% over the next five years.

DRIVERS OF SUSTAINABLE GROWTH

Indias Growing Middle Class

As per KANTAR - The socioeconomic landscape of India is changing, and fast. In recent years, more than 250 million citizens have transitioned out of poverty and joined the neomiddle class, a growing group that Prime Minister Narendra Modi describes as the "powerhouse of Indian aspirations". Indias neo-middle class is a powerhouse of global economic activity, too. According to their current projections, the middle class is expected to reach 41% of the countrys citizenry by 2031. As this class of affluent consumers expands, brands can expect massive surges in consumption.

Diversified Growth Across Indian States

Economic growth in India is becoming more balanced across different states. According to the Reserve Bank of Indias (RBI) Handbook of Statistics on Indian States, southern states like Karnataka, Andhra Pradesh, Telangana, Kerala, and Tamil Nadu are major contributors to Indias GDP, accounting for 30% by March 2024. Maharashtra remains the largest GDP contributor at 13.3%, followed by Tamil Nadu and Karnataka. Additionally, smaller cities and rural areas are emerging as new economic powerhouses. This diversified growth ensures a more balanced and resilient economy, reducing the risk of over-reliance on a few regions.

Rising Women Workforce

More women are joining the workforce in India. According to the National Statistical Office (NSO), the Labour Force Participation Rate (LFPR) for women increased from 23.3% in 2017-18 to 37.0% in 2022-23. The Worker Population Ratio (WPR) for women also rose from 22.0% to 35.9% during the same period. This increase is driven by various government initiatives aimed at promoting gender equality and providing a conducive work environment for women. The rising women workforce is contributing to economic growth by enhancing productivity and driving consumer spending.

Increasing Consumer Awareness

Consumer awareness about personal hygiene and the importance of using high-quality, safe, and effective products has been on the rise. This trend is particularly evident in emerging markets, where increasing disposable incomes are enabling consumers to afford better-quality products. Galaxy Surfactants focus on developing innovative and high-performance products positions it well to meet this growing demand.

Rising Disposable Incomes

The increase in disposable incomes in many regions, especially in emerging markets, is driving demand for premium and specialised products. Consumers are willing to pay more for products that offer superior performance, better quality, and added benefits. Galaxy Surfactants product portfolio, which includes a range of high-performance surfactants, is well-suited to cater to this segment of the market.

Premiumisation

The trend of increased spending on premium beauty, personal care, and home care products (such as liquid detergents, liquid dishwashes, and premium detergent powders) is beneficial for us. Additionally, the growing investment in home and personal care items, along with consumer durables like washing machines and dishwashers, combined with a heightened awareness of sustainability, gentleness, and quality, will further support our growth.

Galaxy Trends & Opportunities for Performance Surfactants Segment

Beauty with Intention

Science-backed Beauty Personalisation

Transparency & greater awareness Influencers, Routine & Regime Minimalism

Tnmirm tho TiHo

Sustainability as a Standard in both HC & PC

Cleaner, Greener Choices from RM to FG

Stricter Regulations

Nnmo (^aro- Smarter ^afor & Factor

Anti-Bacterial Claims Sustainable, Superior Performance that is Affordable Multipurpose/Time Saving

Beauty with Intention

The beauty industry is evolving with a focus on intentionality. Consumers are increasingly prioritising products with scientifically proven benefits, leading to the rise of science- backed beauty. Personalisation is also gaining traction, with tailored beauty solutions catering to individual needs. Transparency and greater awareness are becoming crucial, as consumers demand detailed information about product ingredients and ethical practices. Social media influencers continue to shape beauty trends and consumer choices, while routine and regime minimalism is gaining popularity, emphasising fewer but more effective products.

Turning the Tide

Sustainability is gradually becoming a fundamental standard in both the home care and personal care sectors. Consumers and regulatory bodies are increasingly demanding sustainable practices throughout the product lifecycle, from raw materials to finished goods. This includes the use of renewable resources, eco-friendly packaging, and sustainable manufacturing processes. There is a growing preference for cleaner, greener choices, with products that are safe for both consumers and the environment. The industry is also facing stricter regulations aimed at ensuring product safety and environmental sustainability, driving companies to adopt proactive compliance strategies and invest in sustainable innovation.

Home Care: Smarter, Safer & Faster

The home care sector is focussing on delivering smarter, safer, and faster solutions to meet evolving consumer needs. Products with anti-bacterial properties are in high demand, especially in the wake of increased awareness about hygiene and health. Consumers are looking for home care products that offer sustainable, superior performance while being affordable. This includes products that deliver high cleaning efficacy with minimal environmental impact. Additionally, there is a growing demand for multipurpose products that save time and effort, catering to the busy lifestyles of modern consumers.

Trends of Specialty Surfactants are as stated below:

Multifunctionality

Consumers seek personal care products with shorter INCI list, driving demand for products that provide various benefits, such as hydration, anti-oxidation, and sun protection.

Naturality

The trend for natural ingredients continues to thrive, driven by the desire for healthier lifestyle and environmental awareness among consumers.

Sensory Experience

The texture of personal care products is becoming increasingly important to consumers. The sensory experience and texture are key factors in the success of personal care products.

Sustainability

The European Green Deal promotes sustainable and eco-friendly ingredients. Companies are focussing on sustainable ingredients with green chemistry.

Multifunctionality

Consumers are increasingly seeking personal care products that offer multiple benefits in a single formulation. This trend is driven by the desire for convenience and efficiency in daily routines. Products that combine hydration, anti-oxidation, sun protection, and other benefits are in high demand. Galaxy Surfactants can leverage this trend by developing innovative multifunctional ingredients that cater to these consumer needs. By focussing on formulations that deliver multiple benefits, Galaxy can position itself as a leader in the multifunctional personal care segment.

Naturality

The demand for natural and organic ingredients continues to grow as consumers become more health-conscious and environmentally aware. This trend presents a significant opportunity for Galaxy Surfactants to expand its portfolio of natural and sustainable ingredients. By investing in research and development of eco-friendly and biodegradable surfactants, Galaxy can meet the rising consumer demand for natural products. Additionally, promoting the use of sustainably sourced raw materials can enhance Galaxys reputation as a responsible and ethical company.

Sensory Experience

The texture and sensory experience of personal care products are becoming increasingly important to consumers. Products that offer a pleasant sensory experience, such as smooth application and appealing fragrances, are more likely to succeed in the market. Galaxy Surfactants can capitalise on this trend by developing ingredients that enhance the sensory attributes of personal care products. By collaborating with brands to create formulations that deliver superior sensory experiences, Galaxy can strengthen its market position and drive customer loyalty.

Sustainability

Sustainability is a key trend shaping the personal care industry. Consumers are increasingly prioritising products that are environmentally friendly and ethically produced. The European Green Deal and other regulatory frameworks are pushing the industry towards sustainable practices. Galaxy Surfactants can seize this opportunity by focussing on green chemistry and sustainable manufacturing processes. By offering ingredients that reduce the environmental impact of personal care products, Galaxy can attract eco-conscious consumers and align with global sustainability goals.

THE SUPPLY SIDE PICTURE

Fatty Alcohol and Fatty Acids accounted for nearly 2/3rds of our Raw Material purchases. Fatty Alcohol is sourced from South East Asia, with multiple suppliers in Indonesia, Malaysia and Thailand.

In FY25, the prices of fatty alcohol experienced a significant increase due to several key factors. One of the primary drivers was the anticipation of the EU Deforestation Regulation (EUDR), which imposes strict sustainability requirements on the European market. Initially scheduled to take effect in December 2024, the implementation of the EUDR was postponed to December 2025, as announced in October 2024. This delay prompted many companies to start stockpiling raw materials from July onwards, leading to a noticeable price surge from Q2 FY25 to Q3 FY25. Furthermore, in Q4 FY25, majority of production plants underwent planned shutdowns. These shutdowns significantly impacted the supply chain, contributing to the overall increase in fatty alcohol prices.

Crude Oil

The global oil market in 2024 was characterised by a mix of volatility and resilience. Brent crude, the international benchmark, averaged USD 81 per barrel in 2024. For 2025, the EIA forecasts benchmark Brent crude oil prices to fall to an average of USD 74 per barrel.

Oil prices declined 9.7% between August 2024 and March 2025 as trade war fears, strong non-OPEC+ supply growth, and the unwinding of OPEC+ cuts more than offset lingering supply risks. Oil prices then plummeted in early April 2025 amid escalating trade tensions, adding to an already-bearish outlook. This latest catalyst compounded weak fundamentals, with supply growth expected to likely outpace tepid global demand growth through 2025.

RISK ASSESSMENT

Global Risks

The global economic environment remains volatile, with several significant risks on the horizon. One of the most pressing concerns is the ongoing geopolitical tensions, particularly the escalation of conflicts in regions like the Middle East and the Red Sea area. These conflicts can disrupt global supply chains and trade routes. Additionally, the recent trade tariff war between major economies, such as the US and China, continues to create uncertainty and could lead to increased costs and supply chain disruptions

Climate Risk

Delay in Monsoons or Below Average Monsoons in India may halt the growth momentum. Rural recovery critical requisite to ensure demand momentum in India. Catastrophes on account of climatic disasters pose the risk to global supply chains and while the risk cannot be quantified; it does adversely impact consumption

Operational Risks

Unavailability of Key feedstocks / Constrained availability of critical raw materials or slower than expected recovery in demand may have a bearing on volumes which may adversely impact our FY26 performance

Gestation Risks

While Destocking cycle has ended, delay in new launches or slower than expected restocking / recovery cycle of Premium specialties will adversely impact profitability going ahead

Logistic Risks

Container unavailability or sudden increase in Freight costs or increased lead times due to sudden change in routes as seen during the Red Sea crisis pose risk to volumes and overall profitability

OUTLOOK FOR FY26

As we navigate through FY26, the global demand environment is showing encouraging signs. APAC & Europe are witnessing sustained demand momentum, supported by improving consumer sentiment. AMET markets are also on a recovery path, with early indicators pointing to a gradual rebound. Indias demand is showing signs of recovery. The MET department has also predicted a higher than average monsoon which will be conducive for the rural demand. The Americas maintain a positive outlook, driven by steady consumption trends. On the supply side, challenges persist. Freight costs would get impacted due to the postponement of reciprocal tariffs by the USA and continued logistics disruptions, including congestion in major ports and the ongoing avoidance of the Suez Canal route. These challenges underscore the importance of macroeconomic stability as a key prerequisite for growth. The revival of global consumption, and the reduction of interest rates will play a crucial role in sustaining this global recovery and we believe that, barring any unforeseen macroeconomic events, our global portfolio is poised for a strong comeback.