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

Ladies and gentlemen, good day, and welcome to Gulf Oil's Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Probal Sen from ICICI Securities. Thank you. And over to you, sir.

Thank you, operator. Welcome, everyone, to this post Q1 FY '27 call to discuss Gulf Oil's Q1 results. With us we have senior members of the management, including Mr. Ravi Chawla, the Managing Director and CEO; Mr. Manish Gangwal, Whole-Time Director and the CFO of the company. As usual, we'll first start off with a briefing on the results from the management and then go into an interactive Q&A session. So without further ado, I'll hand over to the management. Over to you, sir.

Thank you. Good day, good afternoon, good evening, everyone. It is a pleasure to invite you to this quarter 1 performance investor call. Very happy to inform you that this quarter has really seen us performing in terms of all-time highs on all fronts. Last quarter, you may remember, we crossed the revenue of INR 1,000 crores. Very happy to share that this quarter with all the execution, agility and certainly managing the situation to the best in terms of focused attention, we have been able to cross our revenues and reach INR 1,300-plus crores. If you look at all the other parameters, including EBITDA and profits, significantly ahead of the last quarter, which was also a record for us. So, I think overall, starting FY '27 on a strong momentum with record performance is certainly satisfying for us. We saw the West Asia crisis and quite a volatile macro environment, cost environment. But with the focus on really executing well with agility, we have seen a very strong volume-led profitable growth in this quarter. The volumes have grown 17% year-on-year. You may recall that last year, we ended at 11% and quarter 4 of last financial year was at 14%. But clearly, for us, this quarter, we have been seeing that the way the entire business has been managed across all categories which have grown, have really seen a very good result for us, effective real market execution, supply chain solidity that has helped us and proactive customer engagement. And as mentioned to you, across all segments, B2C, OEM and B2B, we have delivered good double-digit growth, which has given us these results. For us, really, if you look at the main things that were obviously challenging were the supply security, both from the customer point of view and the availability of raw materials, which were disrupted a bit because of the Hormuz crisis. We've seen that we've been able to manage this as a top priority, and we've ensured uninterrupted availability throughout this period, which has helped us, not only the customers who are obviously buying from us, the OEMs, the channel partners, the retailers, the proactive approach that the team has used and of course, backed by great supply efficiency, supply solidity in terms of sourcing all the materials, we have been able to make this sort of crisis situation into all of us and really optimized on the opportunities. Not only have we been able to ensure supply security with our current OEMs, distributors, customers, we've been able to also win new customers and really optimize on all this. There was a lot of heightened apprehension from customers. And I think we have been able to reinforce our position as a reliable partner and really supporting the customers, including new customers have got added on in many segments like infra. We have increased our share with customers and also in terms of retail, in terms of our customers, OEM franchisee workshops, we have increased our share. The growth was broad-based. As I mentioned, we have seen growth across segments. In OEMs, we've continued to grow and strengthen our position, double-digit growth in OEM. Franchisee workshop was led by agriculture segment, where we have Mahindra & Swaraj, PCMO and motorcycle where we have Bajaj in OEM workshops. In our B2C, there has been a very good double-digit growth with PCMO, passenger car leading it and also gains in agriculture, commercial vehicles and motorcycles. In B2B, where we do business with industries, infrastructure and mining, we have again been seeing growth across our customer base, also driven by new customer acquisitions as the traction improved. And of course, this is an important segment for us. So, I think, overall, the key numbers, lubes volume was at 48,000, again, a record for us, previous high being 45,000 in the last quarter, so followed by that 48,000. And we have seen this high double-digit growth of 17%, which is over 3x the industry growth rate. Revenue, as I mentioned, up 33% at INR 1,320 crores. EBITDA was up 35% at INR 170 crores. Last quarter, we did again a highest of EBITDA, which was INR 135 crores. So, we have exceeded that and I think with quite a sizable increase. And the margin also, which Manish will talk about later, we've been able to show a lot of operational resilience. There have been huge cost increases month-on-month for the last 3 to 4 months. We have managed to obviously proactively communicate that, explain that. And across all our different customer bases, we've been able to manage that, plus I think our stock solidity, which was there. We've been able to keep the margin at 13%, which is within the guided range. I think we have seen that momentum has been there for us in terms of all segments. And definitely, the quarter has been a very good fulfilling quarter for all of us in the team. and we've been able to take it to a significantly high record level, which I think is also in line with the situation, which was supposed to be sort of a semi-crisis being converted to good opportunity for the organization. Over to Manish to take us through a few numbers on the finance and other aspects. Manish, over to you.

Thanks, Ravi. Good afternoon, everyone. So as Ravi highlighted, the quarter volumes for core lubricants were 48,000 KL and AdBlue was at 40,000 KL. And with revenue growth of 32%, revenue crossed INR 1,300 crores at INR 1,320 crores and EBITDA at INR 170 crores. The PAT was also highest ever at INR 127.5 crores, resulting in an EPS of INR 25 plus. So, all around excellent robust performance. And I think this is one of the best performance in the recent years by the company. And we would like to also highlight that in the quarter, which was a very tough quarter from all perspective, especially the supply chain perspective, given the kind of crisis going on in the Middle East and the crude volatility, which impacted the quarter very, very severely from input cost perspective and availability, the crude at one point even touched $120 per barrel, we have been able to manage our inventories well and also proactively engage with our customers, as Ravi highlighted on pricing discussions and price increases. And I think in this period of crisis, even our OEMs, partners, customers, we are also looking for more from a supply security perspective and have been very cooperative. And hence, we have been able to manage our margins in a similar band of around 13%, 12.9%, which in a tough quarter is very, very heartening. Although you can see that at gross margin level, there is some dip still because it takes time to pass on the cost increases to the end customers, and there is a time lag between the same. But eventually, we have been able to manage some of our cost and deliver an excellent quarter. So, we would term it as a volume-led profitable growth for the quarter is what we have been able to achieve with a lot of emphasis on the supply security. With that briefing overall, we would like to take a few questions.

[Operator Instructions] The first question is from the line of [ Esha Chandaliya] from [ PrimeInvestor Asset Manager ]

My first question was how is the mix between OEM and aftersales evolved during quarter 1? And as OEM relationship deepen, how do you balance the volume growth with profitability given that the difference in the margin profile of these both channels?

So as Mr. Ravi highlighted in his opening remarks, all our segments have grown. And even B2C, OEM, B2B, marine segment, every segment has delivered double-digit growth. And that is the reason that our overall mix in terms of our sales mix, customer mix more or less remains the same because B2C and all the segments have delivered an excellent double-digit growth. So for the quarter also, we have been in the similar range of around 45% B2B and 55% B2C sales.

Got it, sir. The next question was, could you please update on the scale and profitability of the agri business? And do you see adjacent business such as EV solutions becoming meaningful contribution to earnings over the medium term?

She is asking AdBlue?

AdBlue?

Yes, sir. AdBlue and EV, yes sir.

So, AdBlue also has been a very strong pillar for us now. We are clearly in the top 3 suppliers of AdBlue in India, and the volumes are now stable at around 38,000 to 40,000 KL a quarter, which we have been consistently now in a position to achieve. This quarter also, we have been able to achieve 40,000 KL of AdBlue. We all know that AdBlue is a product, which is a low realization product with a single-digit margin, but it adds up to the overall volume and gives us that operating leverage and efficiency. At the same time, the entire supply chain process is the same and consumer is the same. So it perfectly fits in the synergy product category. And hence, our focus on AdBlue continues. But this product will always be able to deliver only a mid-single-digit margin. So, this is about AdBlue. Coming to EV, of course, we have been saying that it is a very nascent business for us and for the industry also. But we are seeing the traction happening in EVs in certain segments. And both, particularly in e-buses, there are a lot of government initiatives now and new tenders have come for e-buses. And I think in the next 1 to 2 years, all those tenders will be materialized, based on which we will be able to definitely take the EV business as per our earlier guidance in the range of around INR 300 crores to INR 400 crores in 3 to 4 years.

Got it, sir. And my next question was that given this industry is highly competitive, have you observed any changes on the pricing discipline or promotional intensity during quarter 1 that has affected your market strategy?

No. So, I think the market, obviously, the pricing levels will differ based on the brand strength in the B2C business. I think we are seeing a huge cost increase. So, price increases are happening. And I would say the OEMs, obviously, there's a different structure on pricing and B2B is also competitive led. So, we don't see any change as such. But yes, the price increase, which has happened is quite significant in the industry, quite unprecedented. So, there have been a series of price increases. And I think now we are maintaining our position. In fact, we are in a strong position in terms of our brand. So, we are able to also take a little bit of lead on the price increases in certain segments.

Just a follow-up on that question only, sir. As you said that premium products and premiumization would be a key strategic focus right now. So, could you just quantify like how much of share from the premium lubricants has worked over the last few years? And how much of the future earnings growth do you expect to come from the premiumization rather than the volume expansion?

See, the volume expansion of the industry is predicted to be around 3% to 4% for the next decade or so. And the value increase in the industry is expected to be double of that. So if you see, the value is coming from the higher-end products. Now, higher-end products are synthetics and other advanced products, which are coming, which are semi-synthetic, synthetics and higher specifications. Now as a company, we have got ample room to grow in that. As a percentage, we are obviously not -- we are not getting into details because each segment has a certain level of premiumization. And our endeavor is to premiumize our range because it is also adding value to the industry and us. So, we generally have -- in each of the segments, you have products and you have certain percentages. It's quite complicated to explain. But overall, we are trying to increase our synthetics, our premium and value-added ranges, also environment-friendly products like biodegradable hydraulic oils, et cetera. So as a percentage, this is still, I would say, below 10% overall for us, and we want to take this to a higher level.

Got it, sir. I understood. And just 1 small question.

The next question is from the line of Nitin Tiwari from PhillipCapital India Limited.

Congratulations on very strong set of numbers. Sir, my question actually was with respect to the growth that we have seen in this quarter. So if you can just put it in some perspective, how has the industry growth being in this quarter and also, like what are growth is? And also what led to this strong growth? I mean, was there any element of, like, an anticipatory sort of buying because price increase was anticipated or something like that? And how do we see this number unfolding over the rest of the year?

Yes. So, Nitin, thank you very much. I think industry growth as a benchmark, we said 3% to 4%. As you know, the information is not fully known on the industry growth because you have so many players. But if you were to look at it today, 3% to 4%, there, obviously, the quarter was a -- supplier security, as we mentioned, was a very important thing. So, there was -- definitely, people wanted to secure some supplies. And I would say that, that is an important thing for the industry because a lot of the industries, OEMs are very highly dependent on having these supplies in the pipeline. Otherwise, they would lose their customers. So, that is a very important element and people have definitely looked at how the industry can supply. I think in that, Gulf has done very well. We've been able to get whatever we gauge. We have not only been able to meet the needs of our customers, even our channel distributors require stocks. So, we have a close monitoring system, which shows that we've been able to supply to meet a lot of the expectations, and we have been able to do better than others. So, I would say that some of the growth we have got is definitely due to this efficiency model, which we had in place. And we continue to grow at least 2 to 3x. In fact, 3x is clearly what we feel. Maybe there's a percentage to growth, which has come due to better supplies or maybe more. But the question is also the way that we have been able to go about all our segments growing effectively. That is another key which has happened for us, and I think that augurs well for us. We are definitely -- we will continue to look at this 2 to 3x growth going forward. Of course, as we know that the industry also is going to grow. So, that's a positive thing. And I think some of the growth, yes, this quarter has been due to more supply security, but definitely agility, which we have shown and a lot of our segments doing very well.

Got it. Understood. So, I mean, what I was trying to understand is that is there -- like, I mean, is it going to somewhat norm since second, third quarter you -- and you expect the pace to continue as such?

No, no. See, the July, August, September quarter is a monsoon quarter. Generally, the demand is slightly less. Demand like agri and all goes up. OEMs are continuing to buy. B2C gets slightly less because of monsoon. But I think overall, we will continue with our focus. If the opportunity is there, we are ready for it. But we hope the quarter will be also a positive and a good growth quarter for us.

Great, sir. That's good to know. And secondly, on the pricing front, I suppose as the raw material prices increase, you also undertook price revisions to, like, adjust according to this thing. So, was this price adjustment distributed across the quarter? Or, I mean, was it more towards the end of the quarter? How was it paced, if you can throw some color on that?

Nitin, we lost you. Just can you repeat the question?

So, I was saying that in the quarter, there was -- there would have been an increase in raw material cost. So, I mean, I'm sure there was a price adjustment undertaken to pass on the same. So, I was just trying to understand that was this evenly paced across the quarter? Or was it more bunched towards the beginning or end of the quarter, something like that?

See, it varies. In the B2C market, we have seen close to 3 increases, which has happened starting March end, April beginning, which is practically every month or so. And then B2B, you have formulas and negotiations with all the customers. So it is in a staggered amount, but obviously, it has happened because of the increase in costs. It has happened in stages, so 2 to 3 stages across all customers and markets.

So, B2C was mostly in March and April beginning and B2 was probably....

No, no. Regular period. As I said, it was literally like a monthly sort of increase.

Okay. Got it, sir. Got it. And lastly, sir, if I may ask one more. So what's the road map for Tirex, if you can elaborate in terms of revenue and profitability and how did it stand in this quarter?

Yes. So, this quarter was slightly subdued because a lot of the EV buses, they come up in the depots and all in the government depots. So, that has gone slow this quarter. But as we have mentioned earlier or earlier in our television interviews, the first half, we are expecting the revenue will be positive for us. First quarter has been slightly slow for us, and we are both in AC/DC chargers. So, I think we are looking at obviously growth coming in. But I think most of the growth will come in, in the second quarter now and hopefully, quarter 3. Quarter 3 also will be good growth for us.

[Operator Instructions] The next question is from the line of Sabri Hazarika from Emkay Global Financial Services.

Congratulations on good set of numbers. So, 2 questions from my side. Firstly, your sales volume growth. So it has been uniform across different levels, right, whether it's primary, secondary or tertiary sales?

No. So if you look at the sales across segments, it has been double digit. And definitely, some are, as you said, 17% overall. Secondary, tertiary is more for the retail part and of course, selling in through the distributors. So, I would say, yes, there has been a good uptake across the various primary, secondary and tertiary.

Right. So sir, have we seen some sort of like a natural increase in the amount of like -- I mean, the demand for lubricants overall for the company also or for the sector also as a whole?

Sector, we are looking at the market. Obviously, there has been some -- obviously, when there were supply security issues, there have been stocking up, but there's also been a sell-through. For us, at least we can say that sell-through has been positive as per our primary sales and our sales to the markets. So for the industry, we still have to gauge. But yes, overall, market has grown, we said 3% to 4%. We'll have to -- we really don't have the figure now, but in our market surveys. We will come to know if the market has been slightly better.

Right. And second question is on your margins. So, I think the EBITDA margin has remained sort of within the range, but the EBITDA per liter has gone up significantly because of the price hikes. So right now, is there -- I mean, you maintain this guidance of like 12% to 14% range or given that the EBITDA per liter has gone up almost like 30%, 40%, there is a relook at the guidance -- margin guidance?

See, in the price rising scenario, the top line goes up. And while we are -- our endeavor is to pass on the per liter cost impact to the customer and maintain our per liter margin. The percentage margins are slightly dilutive in these kinds of inflationary environment where prices are really like going up very, very high. And percentage perhaps for the medium term is not an ideal way to look at it because this is -- there is a mismatch between the top line and the per liter EBITDA you can make. But on a long-term sustainable basis, yes, our 12% to 14% guided band is still intact. With that, completely, all efforts on premiumization and all, which will enable us to move to the next band as we have been highlighting for 14% to 16%. But for the time being, I think per liter, managing the margin per liter and trying to improve slightly at that point is our primary task at the margin management -- from the margin management perspective. But we still hope that because the operating leverage will also come in, in the coming quarters, 12% to 14% should also be manageable.

Right. And also, was there any inventory gain impact in the margins?

No. So, we don't play on inventories. So, they are -- like an FMCG, so we -- if there is a cost increase, we pass on. If there is a cost decrease, we have to pass on. So, we don't play on inventory. There are no inventory gains related accounting.

Right. And also just a follow-up. So now if we see -- I mean, there is a sharp increase in base oil prices in the last 3, 4 months. So our raw material right now, I mean, to what extent the transmission has happened already in our raw material cost? Or are we seeing more increase in, say, in these months like July, August?

As we speak, I think we have taken another price increase in retail effective 1st of July, but it is just to -- the B2C pricing takes nearly 1 to 2 months to get fully implemented because there is a pipeline inventory in the channel. But since the input costs have not come down significantly, although the crude is reflecting back. It is from touching high up. Above $100, it has come down to below $85 now. But the base oil pricing so far is not reflecting such decrease anywhere close to that. And rather in some of the grades, the upward movement continues like some of the high-end base oils because of the demand-supply position. So it is very, very difficult to right now predict until and unless the supply side improvement happens, because the crude pricing is one parameter for base oil to move. But equally important is, in these times, the supply-side improvement in the supply of base oils. And that is still very, very difficult. We would say Strait of Hormuz is still like almost shut. So it's very difficult to say how the things will move. Further price increases may need to be taken if required, depending on how base oil moves and how demand supply moves, how long it will take to reopen Hormuz now again. So, there are many factors right now. We have to pay it by the month maybe.

The next question is from the line of [ Ankit ] from [ Devi Ventures Family Office ].

Your volume growth of 32%, I mean, it looks -- it's pretty high, but obviously there is price increases and [indiscernible]. For FY '27, if you were to look at it, what kind of estimate, what kind of volume growth would be sustainable volume? What kind of growth and revenue would be sustainable growth and revenue? And what kind of margin should we kind of [ enroll ]?

Our volume growth for core lubricant is 17% for the quarter. Revenue growth is 32%. And as Ravi just highlighted in the previous question that while there may be some sort of pre-buying or one-offs in this volume, but we have been, anyway, our entire strategy is to keep growing 2 to 3x the market, which means anywhere close to double digit is what we have been growing. Last year also full-year basis, we have grown 11%. So overall, our guidance remains the same that we will continue to grow 2 to 3x the market with the EBITDA band, which we will try to maintain in the range of 12% to 14%. Of course, I have caveated that in the previous question also that in these times, percentage margin may not be a right parameter. Maybe the per liter margin will be a better optics. But having said that, our medium to long-term strategy continues to be ahead of the market growth, keep gaining the market share and keep growing EBITDA on the back of a good volume growth with improved premiumization and eventually moving to the 14% to 16% band.

Okay. And with all the issues that you were kind of talking about with raw material pricing and also in terms of raw material availability uncertainty, I mean, should we be building in a short-term kind of issue for margins ahead? Or do you see any kind of supply constraints even ahead? Or as of now in July, the situation is quite comfortable both in terms of growth and raw materials?

So, so far, we have been able to manage our supplies very effectively. We have long-term tie-ups with some of the refiners. And on the spot market also, we have been very actively pursuing sourcing. It all depends on how the situation remains for how long the situation of Middle East crisis remains. And that will determine whether the supply will further get constrained or get eased out. So it is, at this moment, very difficult to predict. But I think we are geared up. We carry inventory also for at least 30 to 45 days on base oil side. So, this quarter, at least we are not seeing any major disruption, but we have to really see how the prices unfold. And when the Strait of Hormuz normalizes, the things will rapidly improve as well.

The next question is from the line of Dhaval from Choice International Limited.

So last quarter, on the balance sheet, there was a debt that has been raised for the expansion of Tirex plant on the consolidated level that I was able to see. So, now the INR 300 crores to INR 400 crores revenue guidance that is there, is that including expansion of the plant? Or is it -- that is basically the expansion is baked in? Or do we think of it as a higher number? And second question I have is on the demand situation right now. Already a month has gone by. So, do you see still some ad-hoc demand coming through the market? Or is it broadly settled? I also have a third question if that is okay.

Yes, yes go ahead.

Yes. And the third question on the -- so the flood-like situation in Silvassa that one of the other lubricant tier experienced. So is there anything to do with the utilization levels that could be there for the current quarter, provided there was some sort of flood situation in Silvassa?

Yes. Yes. So Tirex, as we have explained is that we have got a new plant. We are going to shift to that in terms of increasing the capacity. And obviously, because we cater to a lot of OEMs and all, it will be a very upgraded facility. So, that is what the CapEx was. And the INR 300 crores, INR 400 crores revenues anyway, this is part of that. That when we are expanding, this will help to meet the need because we have 8% to 10% market share in the DC charger business. So, this enhanced capacity that we are creating is for the future. So it will take care of our needs. Obviously, if that grows more, we have to look at it. But this will take care of our growth going forward in terms of the INR 300 crores, INR 400 crores. The other is, you asked a question on the...

Current July.

Yes. Current July. See, July, August, September, the industry is generally a monsoon quarter. And as we see it, it is obviously going to have a normal trajectory. At the current juncture, while we'll wait for the quarter to get over, it's a month-on-month thing. And we are happy to say that we continue to look at our 2 to 3x growth. Industry at the moment, yes, July, we are seeing, obviously, normal July, normal August, depends a lot on the agri season. So, that seems to be going positively.

I think the third question I will take, which is on the Silvassa side. So, our plant has been operating smoothly, and we have not been impacted on the production side. So, our capacity is in full stream, no problem.

The next question is from the line of [ Prashant ], an Individual Investor.

Congrats on good set of numbers. Sir, my question is regarding what is the status of our ongoing expansion in Silvassa and Chennai plant?

Yes. So, I think Silvassa and Chennai, as we announced 70% increase in capacity. And we had announced quarter 3, quarter 4, where there will be phased increase of production. And we are happy to share that, yes, Chennai is on track. Silvassa, we are also expecting that some of the augmented production will start and that also should be there by the year-end -- financial year end. So it's on line with what we had planned.

So the Chennai plant would be by December and Silvassa would be by end of March commissioning?

Yes. So, there's a lot of commissioning of intermediary equipment, storage and all which happens. So, I think, more or less, that's where the plan is.

So, all the civil work and machinery order, everything is set and [ estimation ] is ongoing or...

That's part of the CapEx expansion, as you are aware.

The next question is from the line of Arya Patel from Emkay Global.

Congrats on a really good set of numbers. So, my question is regarding domestic supply of base oils. So, we know that OMCs are coming up with enhanced capacity. So, how do we expect the domestic supply to go up? And by when are we looking at this?

We are in touch with all the NOCs in India who are producing base oils. And in fact, we keep buying from them as well. So, we are in close touch with them. And whenever they are ready with the additional capacities, we would be happy to connect and get additional sourcing from them subject to, of course, the pricing and quality, which is our norm. So, we are well connected with them.

The next question is from the line of [ Mukund Agarwal ], an Individual Investor.

Sir, congratulations on great set of numbers.

Thank you.

Thank you.