GULFOILLUBNSEOctober 31, 2023

Gulf Oil Lubricants India Limited

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143turns

14analyst exchanges

3executives

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Management on call

Sabri Hazarika

EMKAY GLOBAL FINANCIAL SERVICES

Ravi Chawla

MANAGING DIRECTOR & CHIEF

Manish Gangwal

CHIEF FINANCIAL OFFICER – GULF OIL LUBRICANTS INDIA LIMITED

Key numbers — 40 extracted

INR 100 crore

hare with all of you that this quarter is indeed a milestone quarter for us where we have crossed INR 100 crore in terms of our EBITDA for the first time in the history of the company and we also have seen thi

25%

BITDA in a single quarter for the first time. Also happy to share that obviously the EBITDA is up 25% year on year and we have seen also quarter on quarter sequential increase. We have also seen the

6.3%

e have also seen the core lubricants volume for the quarter come in at 34,000 kl with a growth of 6.3% over last year, which indicates to us obviously the market is growing positively, which is in the

which indicates to us obviously the market is growing positively, which is in the region of the 2X to the industry growth. For us the double digit growth we have seen across many segments that we

23%

k much stronger compared to the earlier quarter and personal mobility which has contributed 23% in this quarter versus the last quarter of 21%. Would also like to add here that we have contin

21%

uarter and personal mobility which has contributed 23% in this quarter versus the last quarter of 21%. Would also like to add here that we have continued to invest in our brands in terms of our var

12.5%

yone. As Ravi mentioned, a very good quarter for us. Margins also tracked very well. We delivered 12.5% EBITDA margins as against 11.5% in the previous quarter, there is EBITDA margin improvement by 10

11.5%

good quarter for us. Margins also tracked very well. We delivered 12.5% EBITDA margins as against 11.5% in the previous quarter, there is EBITDA margin improvement by 100 basis points. At the same ti

100 basis point

5% EBITDA margins as against 11.5% in the previous quarter, there is EBITDA margin improvement by 100 basis points. At the same time gross margins you must have noticed also improved by nearly 1.8% during Q2 o

1.8%

by 100 basis points. At the same time gross margins you must have noticed also improved by nearly 1.8% during Q2 over Q1 and over last year it is more than 400 basis point improvement in the gross mar

400 basis point

st have noticed also improved by nearly 1.8% during Q2 over Q1 and over last year it is more than 400 basis point improvement in the gross margins as the input cost stabilized and we have been talking about it i

INR 73.6 crore

ocess. At the same time, all these resulted in the highest PAT ever in a quarter which is INR 73.6 crore a growth or surge of 41% over last year same quarter so again, a very good performance there. All

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Guidance — 14 items

Pritesh Chheda

“And your H1 total volume growth will be now standing at.”

Anik Mitra

“So what sort of impact we may see going forward?”

Ravi Chawla

“The lubricant market will continue to grow 3% in volume for the next 8 to 9 years, 10 years they have predicted even after the penetration across EV as you know they have estimated and also that is 3% in volume CAGR plus value growth of 6%.”

S Ramesh

“So can you give us some color in terms of what is the investment, what is the revenue you can expect per charging unit or station and how do you see that being scaled up and over a period of time what is the kind of share of revenue and profits you can expect to earn from that business?”

Manish Gangwal

“We expect to complete this transaction within October itself so in next one week all condition precedents are being complied as we speak.”

Manish Gangwal

“The target segments are primarily four, bus OEMs, PSUs, retail segment where shopping malls or offices may install fast charges so these are some of the prime target areas for company and they are in touch with all the stakeholders and we at Gulf Oil will help them because of our relationship with OEMs as well as our retail distribution channel,B2B customer and OEM links.”

Manish Gangwal

“We will be supporting them in their growth journey and obviously currently the founders are having balance 49% and they will be pushing it to take it to the next level with the support of Gulf Oil.”

Manish Gangwal

“You see on a on a decent number of chargers what we can say at this stage is that it will be EBITDA margin accretive to Gulf current business or current EBITDA margins, it will not be margin dilutive.”

Hemal

“Is there an expectation by when you reach INR 100 crore revenue in that subsidiary like in next year, two years, is there a viewpoint that you have on it?”

Manish Gangwal

“We have to really see how is the penetration, how is the government spending on this sector but as we mentioned the target is eventually to retain our growth by 8% to 10% market share in this industry, it is very difficult to give milestones at this moment as to when we can achieve INR 100 crore and then again INR 200 crore.”

Risks & concerns — 6 flagged

So it is very difficult to give you exact number, but the factory fill business, which is the first fill business for us is less than 10% of our total volumes.

— Manish Gangwal

So in terms of the next two years, if you see the growth in the automobile sector how do you see that increasing your growth rate compared to what you have done this year so far, but the broader question is on that kind of growth expectation what happens to your business say the market like Delhi progressively converting to EVs for the aggregator market, which has been a bit of a concern, so from 2026 to 2030 the aggregator market is going to switch to EVs between 50% by 2026 and 100% by 2030.

— S Ramesh

So how would that impact your volume growth in markets like Delhi, if that were to happen in other states, how would you address that challenge in terms of your own growth strategy in the coming years?

— S Ramesh

We have to really see how is the penetration, how is the government spending on this sector but as we mentioned the target is eventually to retain our growth by 8% to 10% market share in this industry, it is very difficult to give milestones at this moment as to when we can achieve INR 100 crore and then again INR 200 crore.

— Manish Gangwal

So is there a possibility of a slowdown, say in the next couple of quarters as the automobile industry adjusts itself to clearing out the inventory.

— S Ramesh

— Manish Gangwal

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Q&A — 14 exchanges

Sir, apologies but I missed your comment on volumes. So if you could give your comment on the volume on Q2 and H1.

Manish Gangwal

So our core lubricants volume for Q2 has been 34,000 kl and 30,000 kl of Adblue, so overall it is 64,000 kl of volume during September quarter. And what is the volume growth? Core lubricants have grown by nearly 6.3% and Adblue has grown significantly higher nearly 113% Y-o-Y basis. So what is your total aggregate volume growth Sir? 64,000 kl of total volume versus 46,500 kl of volume in the previous year September quarter. The core lubricants has grown to 34,000 from the last quarter 32,000, so 6.3% growth in the core lubricants. And your H1 total volume growth will be now standing at. This i

Sir my first question is what is the current trade of lube base oil and crude and what sort of impact we may see due to the current rise in the crude prices because last quarter you told like $75 to $85 is the comfort zone for the product. So currently it is hovering above $85 for quite some time. So what sort of impact we may see going forward?

Manish Gangwal

See the base oil, which is our key raw material for lubricants, is linked to crude over a period of time. Of course the short term movements do not reflect in the base oil immediately, there is a lag effect of usually one to two months depending on various categories of base oil and demand / supply situation in each category. There are many permutation combinations here. It is not a very straightforward thing, but overall on a longer period if the crude sustains above a certain level, obviously the base oil will have a moment and then the pricing action and the margin management action starts

So I have just have slightly one question only which is quite off topic. So since today morning there was a rumor going on about the company entering into the defense business. So just wanted to know your comments on that. So is there anything on that?

Manish Gangwal

No, I think that is the announcement by our other company GOCL Corporation Limited. It is not connected to us. That is a separate listed entity, GOCL Corporation. I think you are mixing it between the two. Okay alright. No issues. That is all. Thank you.

Yes good evening and thank you very much and congratulations on your good result. So if I am looking at your mix of vehicles and the trajectory for growth, if you look at the next two years obviously there is traction in motorcycles perhaps in diesel vehicles and if you see the launch of SUV that could also be a good growth momentum. So in terms of the next two years, if you see the growth in the automobile sector how do you see that increasing your growth rate compared to what you have done this year so far, but the broader question is on that kind of growth expectation what happens to your b

Ravi Chawla

Recently in July 26 there is an organization called Kline which does a market study of India and this actually looked at the factors that you are mentioning on the EV penetration and various categories. Based on that Kline kind of shared their analysis which is a very detailed analysis. We can send you a copy of the report if you contact us later. The lubricant market will continue to grow 3% in volume for the next 8 to 9 years, 10 years they have predicted even after the penetration across EV as you know they have estimated and also that is 3% in volume CAGR plus value growth of 6%. So you se

Hello, Sir. Thank you for the opportunity and congratulations on very good numbers. Just I have two different set of questions. First, this is the basics, if you can just give the advertising, battery and the working capital cycle would appreciate it.

Manish Gangwal

We have continued our advertisement in this quarter to maintain the share of voice and the expenditure is similar to the previous quarters in terms of percentage what we mentioned earlier, so this has been again good investment into the brand building this quarter as well. Sorry how much is the amount. I do not have it, what was the percentage. So roughly it is around 3.5% is what we have spent this quarter and coming to your second question, working capital I think in the last call we were at around 105 days of gross working capital that has gone up slightly to around 110 to 112 days and we h

Just wanted to understand a little bit on Adblue volumes. So what is our current market share in this market and what percentage of our sales comes from related products in Adblue volumes?

Ravi Chawla

Mr. Shah this is a product which obviously we are manufacturing and getting manufactured in our own plants and satellite plants. There are number of manufacturers of this. We believe that kind of product that we have put in the market would take us definitely in kind of top three, top five kind of organized players but data again is getting organized in this sector and definitely for us we are looking at the quality product and we wanted to use our distribution and customer base. It is a product which is used for the BSVI vehicles and some BSIV vehicles based on the diesel consumption and what

Hi, thank you for the opportunity and congratulations on good set of numbers. Can you please give me realization of both Adblue and core lube in this quarter?

Manish Gangwal

So usually we do not share per liter realization. You have the revenue on a total basis and the volumes we have already shared. Okay and if you can share the capacity utilization at company level that we have. In this quarter again we are close to 95% to 100% utilization in both our plants and in fact Chennai plant is also touching near 100% capacity utilization but this is on two shift basis. We can always run a third shift and increase the production. Thank you. That is all.

Sir my question is what is two wheelers and four wheelers ratio in your top line?

Manish Gangwal

The product mix as it goes 23% is personal mobility, that is motorcycle and car put together in this quarter. It varies between 21 to 23% depending on the quarter and the demand in other segments. This quarter has been 23%. So 23% is two wheelers and passenger vehicles together. Yes. Okay and what is the share of commercial vehicle. In this quarter it is again 38%, but it is again between 38 to 41% or 42% depending on quarter to quarter and depending on whether there is a seasonal rain because in the monsoon quarter, usually the diesel engine oil consumption will go down like it has happened i

Thanks for the opportunity. Sir I would like to know what has been the major component for the other expenses increases in this quarter?

Manish Gangwal

See, one of the primary reason is freight because as we increased the Adblue volumes, the freight goes up so that is one of the key reason I would say and we have mentioned in one of the earlier questions that advertisement cost has been also higher in this quarter so these two are primary reasons plus if you do more OEM sales, there is OEM royalty link so I would say three components primarily. Okay thank you and how has been the export as an overall percentage of the turnover in this quarter, has it changed? What is the range of that? Typically this is in the range of 5-7% for us. So it is i

Thank you again. Sorry I just had one clarification. So let me ask you reverse like when you say this new subsidiary JV that you have done. Is there an expectation by when you reach INR 100 crore revenue in that subsidiary like in next year, two years, is there a viewpoint that you have on it?

Manish Gangwal

This is too early to comment on an industry which is at a nascent stage. We have to really see how is the penetration, how is the government spending on this sector but as we mentioned the target is eventually to retain our growth by 8% to 10% market share in this industry, it is very difficult to give milestones at this moment as to when we can achieve INR 100 crore and then again INR 200 crore. Do we see ourselves doing more such acquisitions in the future as part of our EV strategy? We keep evaluating the space in the EV segment, for sure and we have already done three investments in this s

Thank you once again. So if you look at the auto sector, there is some inventory buildup, particularly with Maruti because they have been ramping up production. So is there a possibility of a slowdown, say in the next couple of quarters as the automobile industry adjusts itself to clearing out the inventory. So how do you see that going forward and secondly in terms of sustainability and progress towards scope one scope two emissions, how are you seeing the progress over the next one or two years?

Manish Gangwal

For a lubricant industry player like us factory fill business, which is directly linked to the new vehicle sale, whether it is car or trucks or two wheeler as I mentioned in one of the previous questions that our factory fill exposure is less than 10% of our total volumes and that to primarily with one or two OEMs and hence it is not a direct impact of inventory corrections by the vehicle OEMs etc on our business. Our business is more linked to the vehicle running on the ground, the activity happening, the GDP moving up and if there is more running of the vehicle, more cement and steel being c

Hi Sir, good evening. Thanks for the opportunity. Sir, my question is related to the position of Tirex so I just want to understand that how does the business of Tirex compare with business of Indra Renewable and if you can help us understand the three business models and also the kind of basically similarity or synergy if there is any significance between these three businesses that is the first question and secondly if you can, just as a reminder summarize for us that what we have sort of paid for Indra Renewable and ElectreeFi in the past and what their revenues are on an annual basis and s

Ravi Chawla

Nitin I will try to explain so Indra Renewable is making car chargers which are slow chargers. They make smart charges. In Europe they are supplying and they are into slow car chargers and definitely they are doing well. We have also tested the charger in India to see how we can bring it in so that is the slow car charger in which we are working on based on their inputs. ElectreeFi as you know is a software as a service company. They make software for all kinds of connectivities on EV. They work with car OEMs with charging infrastructure, so they are a software as a service company all kinds o

Yes Sir. Thanks for the opportunity. Sir just wanted more understanding on this Tirex transmission. Now we said that we are aspiring to reach revenue of almost about INR 500 crore potentially in next 4-5 years. So what is the revenue model and we how do we see this scaling up and what is the government subsidy part in this part of the business?

Manish Gangwal

This is an outright sale of charges, this is not a CPO sort of a business where it is linked to utilization etc. What they do is they supply to these government PSUs or to bus OEMs or to retail and other customers so they are into make and sale type of a model. It is not actually sort of linked to utilization or anything so it is more buy and sell or rather make and sell. So we are saying we have about 500 charging stations as of now in India so that is what we have sold it or we operate those charging stations. Tirex makes the charger and sells it and obviously it provides some maintenance fo

Thank you. Well Q2 has been a good quarter for us and we have grown 2X the industry growth at 6.3% percent and also H1 we have seen positive growth well in line with what our plans were and we have also seen Q2 has been good stability in cost and pricing that has also helped and mix has helped for sequential improvement in gross margins and definitely we are working towards a guided brand as we continue to make investments in our brand. We are confident that we will continue this market leading growth and of course gaining market share with continuous focus on margin management in view of the

Management

Speaking time

Manish Gangwal

Ravi Chawla

Moderator

Anik Mitra

Hemal

Arpit Shah

S Ramesh

Pritesh Chheda

Nirav Savai

Esha Mulchandani

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Opening remarks

Sabri Hazarika

Thanks. Welcome good afternoon ladies and gentlemen on behalf of Emkay Global, I welcome you all to this conference call of Gulf Oil Lubricants India Limited Q2 & H1 FY2024 earnings. We are pleased to have the senior management of Gulf Oil led by Mr. Ravi Chawla – MD & CEO and Mr. Manish Kumar Gangwal – CFO. So today's session would be a brief on the results by the management and that would be followed by the question and answer round. So now I request Mr. Chawla for the opening remarks. Over to you Sir!

Ravi Chawla

Good day to everybody and welcome to the Q2 & H1FY24 call for Gulf Oil Lubricants India Limited. It is my pleasure to share with all of you that this quarter is indeed a milestone quarter for us where we have crossed INR 100 crore in terms of our EBITDA for the first time in the history of the company and we also have seen this quarter which is usually a July to September quarter is seasonally impacted quarter for the industry due to the rains across India and we do see a slowdown in the consumption of lubricants due to the vehicle movements, due to the monsoons, due to lower infrastructure projects. However, we have seen that for us the team has done a very good all round performance and the performance in terms of volumes growth, the revenue, the margins, and the profitability have enabled us to achieve this milestone of INR 100 crore EBITDA in a single quarter for the first time. Also happy to share that obviously the EBITDA is up 25% year on year and we have seen also quarter on qu

Manish Gangwal

Thanks Ravi. Good afternoon everyone. As Ravi mentioned, a very good quarter for us. Margins also tracked very well. We delivered 12.5% EBITDA margins as against 11.5% in the previous quarter, there is EBITDA margin improvement by 100 basis points. At the same time gross margins you must have noticed also improved by nearly 1.8% during Q2 over Q1 and over last year it is more than 400 basis point improvement in the gross margins as the input cost stabilized and we have been talking about it in our earlier calls that these are the periods as and when the input cost stabilizes after a certain spike globally, these are the opportunities for improvement of margins as we tend to retain some of the margins during the process. At the same time, all these resulted in the highest PAT ever in a quarter which is INR 73.6 crore a growth or surge of 41% over last year same quarter so again, a very good performance there. All this has also resulted in significant and continuous increase in cash flow

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