Gandhar Oil Refinery (India) Limited (GANDHAR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call hosted by Gandhar Oil Refinery (India) Limited. [Operator Instructions] I now hand over the conference over to [ Ms. Ashwi Shah ] from [indiscernible]. Thank you, and over to you, Ms. Ashwi Sha.

Thank you. Good morning, everyone. On behalf of the company, I welcome you all to the earnings conference call for Q1 FY '27. Today, on this call, we have with us from the management, Mr. Aslesh Parekh, Joint Managing Director; Mr. Indrajit Bhattacharyya, Chief Financial Officer. We will begin the call with brief opening remarks from management, followed by a Q&A session. Please note that certain statements made during this call may be forward-looking in nature. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results or projections to differ materially from those statements. Gandhar Oil will not be in any way responsible for any actions taken based on such statements and undertakes no obligation to publicly update these forward-looking statements. I would now like to hand over the call to Mr. Aslesh Parekh for the opening remarks. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us on this investor call. Quarter 1 '27 has been significant for Gandhar, delivering highest quarterly profit in the company's history. The quarter was characterized by record profitability, healthy revenue growth, volume expansion and a sharp improvement in the margin spreads. More importantly, the performance demonstrates the resilience of our operating model and our ability to navigate a dynamic environment through agile sourcing, disciplined execution and a diversified portfolio. The operating environment remained challenging, shaped by heightened geopolitical tension in the Middle East, concern surrounding the Strait of Hormuz, volatility in the crude oil and the base oil pricing and intermittent disruptions across the global supply chain. This development led to fluctuations in the raw material availability and pricing, along with elevated freight and insurance costs. Our ability to respond swiftly to this agile through agile sourcing through an inventory management and a favorable product mix enable us to navigate this market dynamics effectively translating into a very strong financial performance. As a result, the consolidated revenue increased by 92% year-on-year to INR 1,731.9 crores while the gross margin spread expanded to 3.4x Y-o-Y basis to INR 28,145 per kiloliter compared to quarter 1 FY '26. Our performance during this quarter was driven by a healthy demand environment across our key end user industries, coupled with disciplined execution across the businesses. We continue to focus on value-added products, optimizing our product mix and maintaining procurement discipline, which enabled us to deliver healthy volume growth while significantly improving our margins. The PHPO segment continued to be our primary growth engine registering an 18% year-on-year growth, driven by sustained demand from the personal care, health care and pharmaceutical sectors. We continue to strengthen our partnership with leading global and domestic customers across their segments. Our PIO business also delivered a robust performance growing 28% year-on-year, supported by healthy demand from the transformer, power and the rubber manufacturer. While the lubricant business remained broadly stable, it continued to provide a resilient revenue base and reinforce strength of our diversified portfolio. Our export business recorded our obvious 54% year-on-year growth, reflecting expanding global customer relationships and a growing international footprint, which further strengthens our overall business momentum. Let me briefly touch upon our subsidiary, Texol, which is in Hamriyah Free Zone, Sharjah. During this period -- during the period of quarter 1, operations were temporarily impacted by regional supply constraints and disruption in vessel movements arising from the geopolitical situation. However, leveraging our regional sourcing capabilities and operational agility, we ensured uninterrupted supplies to customers and maintain business continuity. As logistics have gradually started normalizing, throughput has improved, and we remain confident that Texol will continue to be a strategically important and margin accretive business for the group. Looking ahead, while we remain mindful of evolving geopolitical development and global market uncertainties, we are confident in the structural trend we have built over the years position us for sustained growth. Our diversified sourcing network, strong customer relationship, leadership in high-value personal care, health care and performance oil expanding global footprint and disciplined execution provide a strong combination for the future coupled with our debt-free balance sheet, healthy cash generation and robust internal accruals, we have a significant financial flexibility while maintaining our prudent approach to capital allocation. As we continue to strengthen our capabilities and scale our business, we remain well positioned to capitalize on emerging opportunities and deliver sustainable long-term value for all our stakeholders. We are also glad to inform that we have declared an interim dividend of 100% of the face value of our share. With that, I'll now hand over the call to Mr. Indrajit Bhattacharyya, who will take you through the financial performance in the greater detail. Thank you very much. Over to you, Mr. Indrajit.

Thank you, Aslesh-bhai, and good morning, everyone. I'll now take you through the financial performance for Q1 FY '27, which was a record quarter for the company across revenue and profitability. On a consolidated basis, revenue for the quarter stood at INR 1,732 crores compared with INR 903 crores in Q1 FY '26 and INR 1,093 crores in Q4 '26 representing a growth of approximately 92% year-on-year and 58% quarter-on-quarter. Total sales volume during the quarter stood at approximately 131,000 kiloliters compared with approximately 121,000 kiloliters in Q1 FY '26, reflecting a growth of around 8% year-on-year. Consolidated EBITDA for the quarter stood at INR 281 crores compared with INR 46 crores in Q1 FY '26 and INR 64 crores in Q4 FY '26 representing a growth of approximately 512% year-on-year and 342% quarter-on-quarter. EBITDA margins expanded to 16.20% compared with 5.1% in Q1 FY '26. Profit after tax stood at INR 206 crores compared with INR 26 crores in Q1 FY '26 and INR 37 crores in Q4 FY '26, representing a growth of approximately [indiscernible] year-on-year and 456% quarter-on-quarter. This represents the highest quarterly profit reported by the company and exceeded the profit generated during the entire FY '26. Gross margin spreads expanded to be to approximately INR 28,145 per kiloliter compared with approximately INR 8,274 per kiloliter under a normal an operating environment. The improvement was supported by favorable market conditions during the quarter, together with disciplined sourcing, effective and effective inventory management. While these spreads are significantly above historical levels, they should be viewed in the context of the exceptional market conditions witnessed during the quarter. Exports continued to perform strongly during the quarter, with export volumes increasing by approximately 54% year-on-year. Exports contributed approximately 51% of consolidated revenue compared with around 37% in the corresponding quarter last year reflecting the continued expansion of our international business and the increasing contribution of higher-value specialty products. The company continues to maintain a strong financial position on a stand-alone basis. We remain effectively debt-free while consolidated borrowings primarily related to normal trade finance arrangements and borrowings at our overseas subsidiary Texol. The strong profitability during the quarter has enabled as further strengthened our balance sheet and provides us to the financial flexibility of capital allocation. In this context, like Aslesh-bhai just mentioned, we have also declared an interim dividend of 100% of the face value of the shares. We remain focused on maintaining prudent working capital management, improving operational efficiencies and pursuing disciplined capital allocation while supporting the company's long-term growth objectives. Overall, the financial performance for the quarter reflects strong operational execution, disciplined financial management and the resilience of our business model. With that, I conclude my remarks. We'll now be pleased to take your questions. Thank you.

[Operator Instructions] The first question is from the line of [ Disha ] from Sapphire Capital.

Firstly, sir, congratulations on a stellar set of results are on the back of such volatile operating environment. So a couple of questions here from my side. you've seen very strong gross margin and EBITDA margin expansion. You alluded that to the inventory management and product mix. So we just want you to break down how much of this has been driven by product mix? How much with the inventory gains? And how do we see the EBITDA margins going ahead for entire year.

We don't carry that much of inventory to justify inventory gains or inventory losses. On a raw material front, we carry inventories generally up to 30, 35, 40 days. So not much of this is represented by inventory gains at the inventory level. The gains has mostly come in on account of being able to sell at higher prices than at much higher prices. What was the second question?

And sir, how do we see these margins panning out for the rest of the year?

We are hopeful of the margins remaining at this level or around this level. The current quarter looks good, and we are hopeful of it carrying forward at these levels for the whole year.

Just to add on what Mr. Indrajit said. Obviously, this has been a significantly historic quarter for us. But as we informed earlier during his speech, I mean, obviously, this is -- they've been in -- because of this exceptional market condition, we have witnessed during this quarter, obviously, because of efficient sourcing management and effectively higher realization of our revenue. That is why we could contribute to an overall stellar performance for this quarter.

So we do see these realizations being maintained in the year?

We wouldn't say -- we are hopeful of this. These margins continue in most of this year.

The company continues focusing on the personal health care performance oil products. Obviously, the still remains the same. And obviously, that is how we would like to continue and focus on our customers and improve the relationship with our customers and grow with these customers accordingly.

Okay. And sir, how do we look at the overall revenue growth for this year? How much of this will be driven by volume? What sort of volume [indiscernible] this year and remaining how much will be coming from price?

Historically, we've always been doing volume growth in the range of 8% to 10% to even 11%. So we see ourselves getting that much of the volume growth during this year also.

And sir, in terms of our exports, our export performance has been really good. We see 51% increase in revenue. How do you see contribution for exports for the entire year, which geographies will we be targeting for this year?

See, the company continues to export to 100-plus countries across globally. The company continues to maintain a very strong relationship with its overseas customers. Having said that, the company have focused more on export than the overseas sales as we sell -- as we tell. We anticipate the export revenue and the export sales will be in the same level for the quarters to come.

In terms of our growth driven by segment, which segment do you see as contributing the highest of this year, any segmental mix that we expect to change significantly maintaining mix that we had this quarter.

The star performing segment was still being -- the PHPO, which is the Personal Care health care performance oil division, second by the process and insulating oil division. So these are the 2 segments where we can anticipate the growth will be similar. The trend will continue to be similar for the next quarter as well.

Okay. That is very good year. Congratulations and all the best.

The next question comes from the line of Dhaval Shah from Girik Capital.

So just taking elaborating more on the first question you answered. So if you can help us understand what sort of scenarios have happened in terms of price increase, basically a spread increase -- and was it driven by some -- I mean the supply getting stack from Middle East, impacting the demand supply of our products versus the movement in the raw material, the base oil prices. Can you just help us understand a bit more for us to take a view that these margins could extend maybe 1, 2 quarters more? And b, the kind of cash flows which we are going to generate out of this. Any [indiscernible] too early, but if you would like to answer anything on that. But first part of the question, if you can just help me understand more on it.

You are well aware about the Middle East war. Obviously, most of our supply is primarily coming from Arabia and South Korea. So because of the geopolitical situation, the Hormuz closure, obviously, the headwind slight in our sourcing strategy. We've continued buying from them, although since we have done contracts we get shipments from Saudi Aramco -- but obviously, the shipment is a little bit delayed because of the Hormuz closure. But apart from that, we've started -- we've changed our sourcing strategy buying more from domestic vehicle producers as well. So that helps us in navigating the situation, and we could get our key raw material, which is base oil from our suppliers. That is why because of our sourcing strategy, we could sell it with an expanded margin or expanded revenue to our customers.

[indiscernible] our expertise and our lives and are agile to procure the material at that right point of time at the right prices.

Okay. Understood. Yes. So the raw material the supply, which is not coming from the Middle East, you were able to compensate by buying from the -- from South Korea and those sites?

See, obviously, I'm not told that raw material is not coming in Middle East. Raw materials were coming from Saudi Arabia, but I mean, obviously, not to the level that we anticipated or that we have planned on. So to compensate or to take care of our requirement, we had to source it from South Korea or from other Indian producers at a different price level, of course.

The next questions come from the line of [ Vinit Takur ] from +91 Asset Management.

Congratulations this amazing and exceptional quarter results. Sir, I had a couple of questions. So we have seen a volume growth Q-o-Q, but year-on-year, there is a volume increase. But if you could help me understand, there is a year decrease on volume growth for PIO and channel partners as well.

Yes. So channel partners is something which we which we categorize as those big traders who purchase from us, but we don't know where the -- to which end industry, the material is going. So channel partners is something which keeps going up and down. And as long as the volumes are coming from them, we are happy with it. The PIO is a tender-based industry. But on a consolidated basis, the PIO manufacturing volumes have gone up from 14,000 to 18,000 KL.

So there has not been a degrowth in the PIO category. That's what given in my statement.

Channel partners, yes, but the channel partner has a different volume altogether.

Okay, sir. And sir, so could you just comment on the realization. I know you have done it, but there has been almost a quite at least a 70% to 80% incremental realization for each of the segment Y-o-Y. So do you feel like this will be a sustainable realization going forward would divert back to the Q4 realization for the Q1 on FY '26.

I just discussed during the first question asked by Sapphire Capital, I think the [indiscernible] still similar. Obviously, this has been an exceptionally good quarter. We continue focusing on expanding our revenues our relations with our customers and focusing on our key categories across the product portfolio.

Sir, what was the margin expansion attributable to them? It's a combination of all the things but what would be the sustainable for going forward to maintain these margins? That would be my question.

Company would do its endeavor or its best to ensure to sustain this margin to be very precise. But obviously, this has been historically a good quarter because of [ Agilent ] sourcing. It was agile sourcing and optimum utilization of the inventories that we had. So obviously, this has been a historical good quarter, but obviously, we anticipate the margins would be continued to be that is a stellar level for at least the next 1 or 2 quarters to come.

Okay. So we would not be reverting back to the previous margins for at least for a couple of quarters.

Not immediately.

Not immediately, sir. I understood. And sir, just last, the gross -- so what was the gross margin for this year in percentage-wise?

For the quarter, you mean?

Yes, yes, for the quarter sir.

So the gross margin for the quarter on a consol level.

It was 21.4%.

The next question comes from the line of [ Nayan Gala ] from [indiscernible]

Congratulations on a record quarter. I had a couple of questions. Just taking the queue from the previous participant on the margin front. Just wanted to understand that during the quarter, was the inventory positioning due to crude price volatility favorable? Or the margins had a -- the product mix had a chance on the margin improvement?

So it was a combination of both the things. Obviously, with the elevated oil pricing with the situation across the Middle East, the Hormuz closure. There has been a constraint in getting the raw material, but obviously, with advanced planning of buying of the raw materials well on time and the strategy that we had for optimum utilization of that inventory has paid off this quarter.

Okay. Okay. Understood. And sir, you mentioned about the strong engagement with customers. Could you share whether this quarter's growth was broad based across customer base? Or it was largely driven by few large customers?

So as you know, I mean, we have been export. I mean we have a customer base of more than 4,000 plus customers. So obviously, the business has been skewed across the value chain.

Okay. So if you can just help us understand how much of the revenue is coming from maybe the top 5 customers?

That data is actually...

But let me interrupt over here, see with a 4,000 customer base, top 5 is not significant at all. So this has to be taken in a broader perspective. And to answer your specific question, this quarter, the growth in exports was significant, and that is what the major increase in revenue came from.

Okay. Understood. Understood. Sir, just wanted to understand on the South Africa entry. If you can just elaborate on that? And would this be through distribution, local partnerships or setting up our own infrastructure? And what is the expected time line around the operational of South Africa business?

The strategy for the South Africa, South Africa am is being worked out. There will be much more clarity being emerging in the next 1 or 2 odd quarters. It will be difficult to -- it's premature for me to give you more details on the specific plan.

Okay. Okay And congratulations once again.

The next question comes from the line of [ Darshan Garg ] from Tiger assets.

I hope I'm audible.

Yes.

I wanted to understand what is the average realization difference between [indiscernible] the export market?

In terms of number of days, so you're talking about days or realization, there is about 5%, 6% differential between exports and domestic.

The next question comes from the line of [ Anirudh Sharma ] from [indiscernible] Investment.

So my first question is that you mentioned that PHPO continued to be the key growth driver during the quarter. Could you share whether this was largely volume-led or customer additions or better realizations Also, are you seeing stronger demand from pharma or personal care customers?

Can you repeat your first question, please?

Am I audible?

Yes, you're audible.

So my question was you mentioned that PHPO continues to be the key growth driver during the quarter. Could you share whether this was largely volume-led or customer additions or better realization Also, are you seeing stronger demand from pharma or personal care customers?

It was a combination of volume and expanded revenue base from our existing customers. There has been addition obviously, is a part of day-to-day routine at Gandhar -- customer addition, new customer development is all our ongoing progress. that will continue to happen even in the future quarters.

Okay. And my second question was export contribution has increased quite significantly this quarter. Should we expect exports to remain around the 50% mark going forward? Or was this elevated due to certain temporary opportunities?

There has been certain opportunities on table, which obviously we took it, and that's why we have been -- the company could deliver this kind of stellar results this time. But we anticipate the company has, obviously, if you look even and look at the historical part of the company has a significant amount of exports and obviously, the endeavor is to increase the export metrics as well in the year ahead.

The next question comes from the line of [ Aryan Vijan ] from RV Investments.

My first question is regarding the borrowings. As you can see, there has been increase in borrowings. So can we expect any decrease in the borrowings?

On the borrowing front, the stand-alone company that is Gandhar Oil is absolutely debt-free. The borrowing, whatever you see is in Texol, that is our overseas subsidiary. Most of the borrowing is in the form of working capital funding. There is also a bit of term loan funding over there, which was given for setting up of the plant initially. So obviously, over the period that term-loan funding is going to keep reducing.

Okay. Sir. And any revenue potential from the new expanded geographies, just like you have said for Indonesia, Europe, ESP and South Africa entry. Is there any revenue potential from that?

It's too early for me to give us a revenue projection, but obviously, we'll share once there is much more clarity emerging in the quarter ahead.

And sir, we can see the increase in the trade payables from INR 315 crores to INR 430 crores. So can we see any decrease in this?

No, no. So the trade payables in number of days has not gone up. Out of that 900 odd the trade payables, there is 600 which is not yet due on a basic historical basis, even currently, 90% of it is within 90 days. So we don't see an increase in trade payables. There has been a significant increase in revenue on the basis of which the trade receivables have increased.

[Operator Instructions] The next question comes from the line of [ Muhammad Farooq ] from Pal Capital.

So a couple of questions -- in previous questions, you mentioned that -- the top line growth is remained a significant increase in exports. Could you please give us more detail on.

We can't hear you at all.

Mr. Farooq you are not audible properly. There is a lot of background noise.