Gulf Oil Lubricants India Limited (GULFOILLUB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Gulf Oil Lubricants India Limited Q2 FY '24 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over to Mr. Sabri Hazarika from Emkay Global Financial Services. Thank you, and over to you, Mr. Hazarika.

Yes. Thanks, Malcolm. Good afternoon, ladies and gentlemen. On behalf of Emkay Global, I welcome you all to this conference call of Gulf Oil Limited for Q2 FY '24 Earnings. We are pleased to have the senior management of Gulf Oil led by Mr. Ravi Chawla, CEO; and Mr. Manish Gangwal, CFO. So today's session would be a brief on the results by the management, and that will be followed by the question-and-answer round. So now I request Mr. Chawla for the opening remarks. Over to you, sir.

Good afternoon, good day to everybody, and welcome to the quarter 2 call for Gulf Oil Lubricants India Limited. Yes, it's my pleasure to share with all of you that this quarter is indeed a milestone quarter for us where we have crossed INR 100 crores in terms of our EBITDA for the first time in the history of the company. And we've also -- have seen this quarter, which is usually July to September quarter is a 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, INR 100 crores EBITDA in a single quarter for the first time. Also happy to share that, obviously, the profit -- EBITDA is up 25% year-on-year, and we have seen also quarter-on-quarter sequential increase. It has also been a quarter where... We're seeing some disturbance.

There is some background voice coming, Sabri, can you be on mute?

Yes. Sorry about that. We've 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 region of the 2x to the market growth, industry growth. For us, the double-digit growth, we have seen across many segments that we cater to. The OEM franchisee workshop business is one where we have seen this double-digit volume growth in the quarter. There has also been a similar growth in the B2B and infrastructure segments. And as I mentioned earlier that despite this being a seasonally-subdued quarter, we have achieved this growth. Our retail channel volumes also showed improved growth, especially in the agri and motorcycle products coming back much stronger compared to the earlier quarter. And personal mobility, which has contributed 23% in this quarter versus the last quarter of 21%. I would also like to add here that we have continued to invest in our brands in terms of our various IPs Suraksha Bandhan, both above the, below the line, and this has been also an additional investment that we are making for the last 2 quarters and in the periods before that. So that is investment in spite of that, the profits have been delivered. Our volumes in terms of AdBlue also remained very strong in this quarter. So in addition to the 34,000 kl we achieved in the Core Lubricants, we have achieved an AdBlue volume of 30,000 kl. And this has also helped us because obviously, the distribution and the strength of our product and our OEM tie-ups are helping us here also. And this is really, again, a good growth that has happened. And our capacity increase in the satellite plants have again helped us along with the ground level activations for AdBlue. So all in all, a very good expansion of this product, which is getting consumed. The advertising cost, obviously, we have invested in quarter 2. We'll continue to monitor our share of voice and look at our future brand investments. Also happy to share that we had a very good strategic partnership beginning with KIA for their franchisee workshops. So through our relationship with S-Oil whose 7 range we are making in the country since a few years and distributing it for them. We got an added sort of tie-up through the S-Oil partnership that they have globally to get into the KIA workshop where again, we have made a very good start. So happy to share these developments. And clearly, for us, we have seen all-round performance. And there has been also very good margin management, as Manish will talk a little more about those details. Distribution also has been a very good growth area for us, and we have seen a double-digit increase in our distribution, both in urban and rural. So all in all, a very good quarter, taking forward our strategies and our marketplace activations. And overall as an organization, we have been able to deliver the INR 100 crores once again, which is essentially, as we have a lot of associations with cricket. So it is indeed a proud moment for us to have this. I'll now hand over to Manish to take you through the other things and, of course, many more business highlights, both the financial and other key aspects. Over to you, Manish.

Thanks, Ravi. Good afternoon, everyone. So 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. So there is an EBITDA margin improvement by 100 basis points. At the same time, the gross margins, you must have noticed, also improved by nearly 1.8% during Q2 over Q1. And over last year, it was more than 400 basis point improvement in the gross margins as the input cost is stabilized, and we have been talking about it in our earlier calls that these are the periods as and when the input cost is stabilizes after a certain spike in 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, I would say, PAT ever in a quarter, which is INR 73.6 crores, a growth or surge of 41% over last year same quarter. So again, a very good performance there. At the same time, all this has also resulted in significant increase -- continuous increase in cash flow generation. And you must have noticed from the cash flow that during H1, we have generated INR 140 crores from operating cash during the period. And our cash on the balance sheet stands at nearly INR 720 crores, gross cash as on 30th September. So all these are a very, very positive sign for the business and a strong business performance and financial performance. We would now like to hand over for Q&A, please. Thank you.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, apologies, but I missed your comment on volumes. So if you could give you a comment on the volume on quarter 2 and H1, both.

So our Core Lubricants, volume for quarter 2 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's the volume growth?

It is -- Core Lubricants have grown by nearly 6.3%. And obviously, AdBlue has grown significantly higher nearly 40% -- 113%, sorry, Y-o-Y basis.

Okay. So which means the 64,000 kl total volume is up?

Sorry?

So what's your total aggregate volume growth, sir?

64,000 kl of total volume. And -- versus 46,500 kl of volume in the previous September quarter -- previous year September quarter.

Yes, the Core Lubricant has grown from 34,000 kl to -- it has gone to 34,000 kl from the last quarter, 32,000 kl. So 6.3% growth in the core lubricants.

Okay. And your H1 total volume growth will be now standing at?

This is nearly around 4.6%, lubricants -- in Core Lubricants.

Okay. My other question is, sir, we were at a certain GM about 4, 5 years back. And the GM number is completely different now. And I was listening to your past 2 calls, you were calling out that the margin in the business should be looked at about 13%, 14%. So which of the -- why is the GP number still on the lower side?

I think we have explained it in the previous calls also that there was a significant increase in the input costs over the last 24 months period baring the September quarter, I would say partly June quarter, up to 31st March '23, there have been significant increase in input cost. And there have been continuous price increases we had to take. We have taken almost 5 to 6 price increases in retail segment alone. And that resulted in the increasing top line significantly. We grew our top line by 37% last year. And that has resulted in the -- on a plain calculation, it will look lower as a GP because while we have been able to pass on per liter cost of input to the end customer/consumers or as a percentage, it will look lower because if your denominator and nominator goes up by the same amount, your -- obviously, the percentage will look lower. That's the reason primarily. On rupee terms per liter basis, we have been able to recover the entire increase in the input cost during those price increases.

The next question is from the line of Anik Mitra from Finnomics.

Sir, my first question is, what is the current trade of new base oil and crude? And is there -- like 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?

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 1 to 2 months depending on various categories of base oil and demand supply situation in each category. So there are many permutation combinations here. It's 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 movement. And then the pricing action and the margin management action figures in at our end.

Okay, sir. Sir, what is the core lube market share for Gulf Oil?

Yes. So overall, we are in the automotive industrial segments. We are not within the white oil and transformer oils. So we have got a 7% plus market share overall. And in the private sector, we believe we are in the second position. And in certain segments like motorcycle and the diesel engine oils, we have 9% plus market share. And the others, we are around 4% to 5% market share in the segments we are in. So that's our market share in terms of various segments.

Okay. Sir, is there any addition in market share in last, let's say, 1 year?

Yes, yes. So we have been growing 2 to 3x the market consistently for over a decade now, in fact, more than 12, 13 years. So if you look at our market share, it is growing. And last year, in fact, our financial year, we grew 15% in our volumes, in lubricants. So definitely increase in market shares there across our segments, and we continue doing that.

Okay. Sir, last quarter you said 6% plus market share in the core lube segment.

We said 6% to 7% because it's an estimate, but it is towards that. And certain segments, as I told you, it is 9% plus. As per our data, it is around 6% to 7%, right? I said 7% because some segments, we are going -- increasing our market share also.

Got it. Got it, sir. And sir, what is the OEM and retail contribution in your top line?

If we talk of OEMs, there are actually various facets of OEM we deal with. We are dealing with factory fill for few OEMs where the vehicle -- the first fill happens, then there is a franchisee workshop of OEMs or dealerships where we supply and then there is an aftermarket relationships with many OEMs. So it's very difficult to give you exact number. But the factory fill business, which is a first fill business for us is less than 10% of our total volumes.

Yes. So just to add, you see, we have very strong partnerships with OEMs. We have more than 35, 40 OEMs actively. We have -- in fact, we have OEM partnerships, which have been with us since we started more than 10, 12 years ago, we started adding OEM then that has gone on. So our OEMs market share differs based on OEM and as Manish said, different segments. So clearly, for us, factory fill is, as you said, in that 10% kind of -- that is there. And we have also OEM business and franchisee workshops, and we do for the aftermarket and also exports. So these associations obviously mean that we sell the products in all these areas. And it is a very good, important segment for us, and that continues to grow.

Fair enough, sir. Sir, one more, please.

Sorry to interrupt you, Mr. Anik Mitra. We have a few more participants. The next question is from the line of [ Aman Soni ] who's an individual investor.

Okay. So I just have slightly one question only which is quite off topic. So there's -- since today morning, there was just 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?

No, I think that is the announcement by our other company, GOCL Corporation Limited. It is not with us -- connected to us. That's a separate listed entity, GOCL Corporation. I think you are mixing it between the two.

The next question is from the line of S. Ramesh from Nirmal Bang Equities.

Congratulations on your good results. So if you're looking at your mix of vehicles and the trajectory for growth, if you look at the next 2 years, obviously, there is traction in motorcycles, perhaps in diesel vehicles. And if you see the launch of SUV, that would also be a good growth momentum. So in terms of the next 2 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, as -- say, in a market like Delhi progressively converting to EVs for the aggregator market, which has been a bit of a concern. So from '26 to '30, the aggregator market is going to switch to EVs between 50% by '26 and 100% by '30. So how would that impact your volume growth in markets like Delhi? Did that get to happen in other states, how would you address that challenge in terms of your own growth strategy in the coming years?

You see recently in May, we -- there is an organization called Kline which does a market study of India. And in July -- sorry, in July, July 26 -- where we had, the Kline study was done. And this actually looked at the factors that you are mentioning on the EV penetration and various categories. So based on that, the Kline has 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 they have estimated, which is -- and now also that is 3% in volume, CAGR, plus value growth of 6%. So you see with that, without getting into too many details, you're right, things are happening. The buses are getting EV and 3-wheelers are getting into EV. Some 2-wheelers and car penetration is happening. We are very focused that given our brand, our distribution, our segment-wise approach and our strengths, we will continue looking at 2 to 3x the market growth rate in terms of our volumes. Of course, there are some segments where our market share is below 5%, where we think we can grow better, plus there are certain segments where certainly, we are building strengths like industrial, B2B, and we have strong OEM partnerships. Automotive and what we call the retail growth, we have a very strong brand. We are amongst the top 2 brands, we believe in our service even if you take us as a top 3 brand. We want to build our distribution touch points, which will again go into segments, both urban and rural. So we are pretty focused on that, and we see that our growth trajectory will continue as 2 to 3x the market growth rate with a very strong model. It will continue for the next decade. But definitely, the next 3 to 4 years, we want to increase our distribution very rapidly. In fact, we want to increase distribution much faster than what we think the volume will because more touch points means better availability. And that is our focus. So a lot of the brand investments go into continuing building our brand and also actively doing brand building with -- at the grassroot level, both in terms of the influencers, the retailers and of course, making sure the reach to our distributor network is optimal. And segment-wise, we look at lot of the gaps that are there in various regions because every region has a different set strength for us. So there is ample scope for growth, and we are focused on doing that.

So the next question is, you have announced a JV for high-power EV charging stations. So can you give us some color in terms of what is the investment, what is the revenue you can expect for 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?

Yes, Manish will take that.

So you see this is a company called Tirex Transmission. And on 27th August, the Board announced the acquisition of 51% shareholding in Tirex Transmission. They are a DC fast charger manufacturing company. And the total consideration is INR 103 crores approximately. We expect to complete this transaction within October itself. So in the next 1 week, all the condition precedents are being complied with as we speak. So this -- the company is, as you rightly said, it is into DC fast charging primarily. And they currently have more than 500 installations of such DC fast chargers across India. And that is something which is nearly there at 8% to 10% market share today. And it's a very interesting opportunity because as the EV's numbers and the population grows over a period of time, especially in certain segments like buses and all, they all will require fast chargers. And it is expected that the opportunity of fast chargers in India will be nearly $1 billion to $1.4 billion by 2030. So if the company Tirex continues to maintain even their market share, you can do the math in terms of the top line and the expectation from this initiative for us. Together with this, I think we have earlier mentioned also that we have also have a product range through our investment in Indra Technology U.K. on AC slow chargers as well as a software company called ElectreeFi for the Software as a Service for electric chargers. So overall, we have a gamut of now complete charger related slower and fast chargers all in our portfolio. And definitely, it should be a significant revenue contributor when the sufficient number of EVs are there on the ground, but it's an initiative which is to play the EV value chain.

[Operator Instructions] The next question is from the line of [ Hemal ] who is an Individual Investor.

Congratulations on very good numbers. Just I have two different set of questions. First is the basic. So if you can just give the advertising, battery and the working capital cycle would appreciate it.

So I think 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, a good investment into the brand building this quarter as well. As far as the working...

Sri, sorry. How much is the amount? I mean, last -- I don't have it. What is the percentage?

So roughly, it is around 3.5% is what we spend -- we have spent in this quarter. And coming to your second question, working capital, I think last -- 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 have also obviously released the balance sheet being the half-year ended. So there is some increase in the working capital because of the liquidity situation in the market and some built up in the inventory of base oil and finished goods. So overall, these are the 2 questions. Sorry, what was the third question?

Battery revenue.

Yes. So the battery revenue was roughly around INR 20 crores for the quarter.

Okay. Sir, my next question was like now since you explained partially you have invested into AC, DC batteries and we have a software. I have one suggestion and one clarification required. One suggestion is that, would you be sharing what are your plans in the next 1 to 2 years? We got that 2030, this is the expectation. But since you have bought something substantial now and it's part of the subsidiary, what are the current sales? What do you expect for this year? What are the plans for next year? Is there anything that you could share with us that we are aware of what's happening in these businesses? And how it's going to be used in the next 1 year, 2 years with Gulf Oil supporting distribution touch points or wherever it is. Do you have anything that you can share with us?

So see, while this is a very nascent industry as of now, what we have tried to do is that we have tried to complete the portfolio around EV chargers. So it is not about battery. We are mostly into manufacturing of chargers, both AC and DC chargers. The company tariffs, which we are talking about and we are going to acquire, they had a turnover of around INR 13 crores, INR 14 crores last year. And they have, as I mentioned, more than 500 installations successfully running at various places and various locations across India. It's a very promising segment as -- because there is a lot of push from government also to create a charging infrastructure across India because that's one of the trigger point for EVs to have a meaningful number on the road. So overall, this is a very exciting segment. The company has a pipeline of discussions with many OEMs, bus OEMs. The target segments are primarily four, bus, OEMs, PSUs, retail segment where shopping malls or offices can -- may install fast chargers. So these are some of the prime target areas for our company, and they are in touch with all the stakeholders in terms of -- and we at Gulf Oil will help them because of our relationship with OEMs as well as our retail distribution channel and B2B customer and OEM links. So 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.

So this product, generally, the EBITDA margins are in the range of 20-plus percent plus or they're lower than that? Or how does that work?

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

Okay. And when you say growth, you -- generally, this is like 3x, like it's large growth, 3 -- 3x, 4x, 5x is yearly growth? Is that how you're imagining it? Or does it go a little bit more slower than that? Like when does it meaningfully -- like do you see '26 -- FY '26 or FY '25 where you see meaningful contribution to your revenue?

I think we have already highlighted in one of the interactions that in 5 years' time, this company -- Tirex can have a INR 500 crores plus business.

But -- yes, I did hear that on CNBC that -- they did mention that.

It's a growing market with 4 segments. So that's the kind of potential with that 7%, 8%, 10% market share, what we mentioned. But we have to see how it evolves also in the market.

Plus, in addition, there is an export potential, which this company can have. And there, the market is once the company can apply for all the certifications for Europe and U.S., then the potential is even bigger.

Mr. Hemal, I'm so sorry to interrupt you. We have other participants. The next question is from the line of Arpit Shah from Stallion Asset.

I just wanted to understand a little bit on add new volumes. So what's our current market share in this market? And what percentage of our sales comes from related products in this -- in AdBlue volumes?

As you see now, Mr. Shah, this is a product which, obviously, we are manufacturing and getting manufactured in our own plants and satellite plants. There is a number of manufacturers of this. We believe that the kind of product that we have put in the market would take us definitely in the top 5 kind of -- top 3, top 5 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 want to use our distribution and customer base. So it's a product which is used for the BS-VI vehicles and some BS-IV vehicles based on the diesel consumption. And whatever diesel consumption is happening in these vehicles, roughly about 4% is the consumption if everybody is using AdBlue that will happen. So it's a very good growth market. It's -- I would say, for us, it's an add-on supplementary product, and we can leverage our brand distribution. And we are amongst the top players in terms of this product in India today.

Okay. So has it by any chance cannibalize the core lube volumes?

No, no, it's a different product company. This is an add-on product for the diesel engines.

Got it. And what kind of margins do you make on this product?

We mentioned to you, it's a single-digit market.

Single-digit EBITDA margin, right?

Yes.

And on the core lube volume, what kind of volume do you envisage, let us say in the next 2 or 3 years, right now it is around 6% volume is for lubricants...

In Core Lubricants?

Yes, yes.