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

Good evening, everyone. Thanks for joining the call. And from the management, we have Mr. Ravi Chawla, Managing Director; Mr. Manish Kumar Gangwal, CFO; and Mr. Vinayak Joshi, the company Secretary. We thank the management for providing us the opportunity to host the call. I will now hand over the call to the management for the opening remarks, post which we can open the floor for Q&A. Over to you, sir.

Yes. Thank you. Good evening, ladies and gentlemen, and welcome to the Q3 call for Gulf Oil Lubricants India Limited. I would be happy to share with you that despite the slowdown in the market, we are happy to report that we have grown our business positively in all our core lubricant segments, and you may have seen the results that we have reported. There has definitely been a challenge in the market. And whatever estimates we have, the market has actually looked at a minus 4%, minus 5% growth. In fact, some competitors are talking about higher degrowth. But given that this would be environment around us, we put in a lot of initiatives where we were able to look at all our core segments, except factory fill, which is directly impacted by lower production with OEMs, and factory fill is about 10% of our overall volume. We are happy to share that each and every core segment that we have focused on has grown positively. And this quarter, 8% growth has been achieved in -- overall in these core segments. And that has really helped us overall in terms to grow our market share. And as we have been saying, we grow 2 to 3x the industry. That's a very good performance. And of course, we continue all our efforts in terms of marketing, brand building, and some of the key highlights, which I'd like to share is that our focus on the passenger car motor oils has also picked up even in the environment where we saw demand slowing down, and that has grown more than 25% year-to-date. And this quarter has been particularly very good in that with all the initiatives on distribution below the line. Even above the line, we have continued to promote our motorcycle range with the new campaign, Pick-up Your Dream, which has started off with a dance competition with the movie Street Dancer and now we'll go on to cricket and football. We've also seen a positive growth trajectory for our diesel engine oil, and this is a positive because in the last 2 quarters, we had -- obviously had that as a challenge area. So that is again getting into single-digit growth for us, a lot of initiatives there with products which go into the Tata segment, we are strong with the Ashok Leyland segment. So these are initiatives which have paid off. And another highlight for this quarter is that our diesel engine oils for the tractor segment has seen a substantial increase because we had a number of activations done across India in terms of service camps. Our industrial distributor business has again gained momentum and positive double-digit growth and another thing that worked very well is that we saw that COGS was pretty steady in terms of base oil. And therefore, our margin expansion also happened, and we've reported 18.4% EBITDA margin overall. So I think the -- the quarter has been challenging. And for us at Gulf Oil, we continue to relentlessly work towards a number of our core strategies, whether it is distribution building or getting more customers. And of course, this quarter, we have also seen the introduction of the BS VI ready lubricant range, which has entered the market from our side, even AdBlue, which we make that has gone to new OEMs. Two other highlights, of course, is the Piaggio business, which we had signed on, has been announced. That is starting to give us results, and that will actually give us 3% to 4% growth going forward in the next year and starting Jan. And lastly, I would like to talk about one of the innovative innovations we did is that we have looked at the Construction Equipment segment, and we had a major EXCON exhibition in Bangalore, which is Asia's biggest exhibition. And we took our brand ambassador Mahendra Singh Dhoni there, and we have got a very good response from the construction OEMs and hopefully, we'll be announcing a few new tie-ups. So overall, a challenging month, a challenging quarter, challenging times, but we are happy to share that 8% core volume growth, which is YTD is about 10%. So again, these numbers show that the strategies and the efforts from the organization is paying off. I'll now hand over to Manish for some financial highlights.

Thank you, Ravi. Good evening, everyone. So as Ravi mentioned, it was a challenging quarter, but on the gross margin side, we have been able to expand significantly during the quarter and during 9-month period as well. And considering that the input costs were stable and the rupee was also stable during the quarter, we have seen one of the highest gross margins in the history of Gulf Oil over the last many, many quarters and years. So the gross margin above 50% is something which is for the first time, I think, in the recent history, we have achieved. And that also translated into improvement in EBITDA, which is at 18.4%. And that also is the highest in the recent many quarters, and that's very -- we are very happy about that. Also on the working capital side, we have seen improvement during the quarter. And as I mentioned in the previous quarter, we were at around 110, 112 days of gross working capital days, which has come down and now it is around 103 days. So there is a good improvement in the working capital again in these tough challenging times we all know. So overall, on the financial side, also there is a good improvement and we are continuing to invest in brand. So there's no major cutbacks on the investments on brand and manpower and system processes, which we have been trying to develop in the organization. So that continues as of now. Now we are happy to take the Q&A. Thank you.

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

Actually, wanted some more details on this volume growth breakup. So you -- if I compare the reported numbers, so there's a 13% Y-o-Y decline, but that actually included an institutional order last year, Q3. That's right.

Yes, that's right.

And if we remove that institutional order, then the decline is something like 3%. But you said that even this 3% -- but you said that the main decline, which came was in the OEM category. And if we remove this OEM, then we are actually at an 8% growth. Is that right?

Yes. So 8% is the quarterly growth, and this is YTD around 10% if we take out the factory fill.

So if we take out the factory fill out of it. Okay. And considering now if I look into your net realization, so your net realization was around INR 153 per liter. And that has actually fallen from INR 153 to INR 140 per liter. So as per my understanding, if my OEM volumes are down, then the net realization should be having a positive impact because OEMs are like anyways low margin, low realization business. So have you gone for some price cuts or anything because of which your sequential net realization is down or anything on this?

You see our factory fill was down even in September quarter. So it's not that this is the first quarter where we are seeing the impact. So this was down in September quarter as well. And this particular quarter, the realization drop is because of 2 things. In the composition itself, there is a mix of B2B B2C, which is there. And in B2C, we have seen some sort of discounts -- aggressive discounting being on quarter end for many of the MNCs also year-end. There have been some discounting in the retail, which has happened. And we had also launched some aggressive consumer promotions, which have resulted in a lower realization in this quarter.

So overall, as a trend, it happens because, obviously, when you have a quarter end or a month end or year-end, there would be certain discounts pushed, and we do it 2 ways. One is to give a trade discount. The other is to have a consumer offers like some product free with certain products. So that has obviously impacted the B2C business. But overall, as you see, we've still been able to grow our margins.

Right, sir. And second question is on the industry scenario for the quarter. So -- so what has been the -- I mean, if I can compare your growth say if I'd be using the OEM also and if I say if your growth is something like a 3% decline Y-o-Y. Then what could be the comparable industry growth during this period? I mean Q3 what could have been...

We don't have the figures of the -- whatever figures we have is -- if you take the Bazaar segment. And we have earlier -- I earlier told you the industry is minus 4, minus 5, though some people are talking even higher minus. The Bazaar market, we have actually grown positively. And the rest of the industry, the few players that we have got information, they are down single digit, even some are down double digits.

And also for the benefit of you and everybody, I would like to add that we also -- we are talking of the core lubricant volume growth of 8% positive in the quarter, excluding factory fill, which means we are also excluding AdBlue, which we had -- you will remember, we were marketing -- manufacturing and marketing, and that has also degrown nearly 40% in the quarter. So we have to exclude these both to arrive at a comparable figure.

Okay. So this 4% to 5% industry degrowth compares with your 8%, is that right?

Yes, yes. No, you can say we are flat without that if we exclude that.

So you were flat and then the...

Not 100% it is flat.

Right, sir. And just 1 last question on the outlook. So how do you see the coming year in terms of growth as well as in terms of realization margins, oil prices are down. So -- so do you think that if the industry remains challenging, then you'd be like open to increase margins? You have done that this year also. So next year also you are like open to that. So how do you see the margin and volume profile going forward?

So we have already seen November, December, Jan, some businesses looking at some positive growth in the market and others. So we are hoping that things, of course, BS VI is going to be 1 big challenge. So looking at that, we continue our strategies of distribution, looking at 2 to 3x market growth. And also I mentioned to Piaggio, Piaggio new business will get us about 3%, 4% growth. And we have seen our diesel engine oils going up to a positive territory. We continue to do very well in PCMO. Motorcycle, yes, there is some stress in terms of that. But overall, we continue to look at double-digit growth as we go forward.

From whatever the adjusted number is for this year, actually, so double-digit growth from there. And this is including factory fills, right?

Yes, overall, now that the base has come down. If you take next year's plans, the market will improve. We feel optimistically though some of the auto guys are talking about second half because that's all new vehicles. but we still have a market which is consuming lubricant, and we are seeing that things are picking up. So second -- and again next year, as we plan, we look at our normal growth range, which we've had for many, many years.

Right, sir. And you said that Piaggio will be adding like around whatever a normal if we consider say 9% to 10% growth another 3% to 4% you are saying we could add up if Piaggio venture scales up well.

Yes, 3% to 4% is the definite number for Piaggio.

The next question is from the line of Aditya Makharia from HDFC.

Just wanted to know what is the quarterly volume data which you provide in kiloliters. Could you give us the number?

28,500 kl.

Okay. And last year was 32,700. So how much was the institutional? Was it 20% of that or?

Last year, the institutional order in this quarter was 3,500 Kl.

Okay. Got you. And...

AdBlue also, which is there as a part of this 28,500.

Okay. Also, any update on the battery business? How is that faring?

So we are growing volumes at 20% plus in batteries, like the last year and continuously getting ground there. At the same time, we are also looking at multiple options in terms of sourcing or localizing of the product. So that efforts are also on. But as of now, what we are seeing is that 20% volume growth, and we are now at close to 1.5% of the retail market share in terms of batteries.

Okay. This is mainly on the motor bike side, right?

Yes, yes, replacement market, we don't do anything for OEMs because obviously, but we're increasing our distribution footprint and continuing to focus on that.

The next question is from the line of Nitin Tiwari from Antique Stock Broking.

So sir, if you can just help us understand your distribution reach for the 9-month period, how far have we grown in terms of adding our dealers and distributors and -- that is the first question. And secondly, are we looking at any CapEx or capacity expansion going forward from here? And if that is going to happen, would that happen at Silvassa or at Chennai?

Mr. Tiwari, I'll cover the distribution. So as we have been always saying that we try to take a 10%, 15% target in terms of our distribution touch points. So happy to share with you that whatever data we have, the distribution has kept with that pace. And what started off as around 67,000 is now at about 75,000 in the last 9 months. So we continue to increase our penetration with the car stops, which is a focus again on our PCMO segment, the branded independent workshops, bike stops, which we had held back for some time is, again, we have picked up a lot of extra points there in terms of retail servicing points. We also had our rural network, which we have expanded. So that has also seen actually one of the highlights, I think, in the press release also we mentioned is our rural business picked up very well. So we continue to go into this mode of infusing our touch points and what we call as Gulf rural stockist has also grown very, very well. And the other retail has also picked up positively. So we are expanding not only our base with our own Gulf retail, but also now targeting specifically some of the larger counters of competition because then it helps us to get market share. So all these initiatives are backed by a number of interesting mobile apps data analysis, even now we are using mechanics to kind of find out how the products are moving and how they can buy more. So really, the rural -- the distribution thrust is accompanied by a lot of below-the-line support and activations and mobile apps, which can help us to make it sharper.

Sure, sir. So 75,000 touch points includes everything, retail shops and car stops, bike stops everything, rural stockist. And secondly, sir, my question around capacity expansion because you are practically growing at anywhere between like 10% to 15% on a normalized basis. So we are -- like is there any plan to expand capacity at the existing plants because in 2 or 3 years' time, practically, you will be running at more than 90% if this is a rate of growth?

Yes. So we have currently 140,000 tonnes and in both plants together. And we have a scope to increase the Chennai capacity by another 30,000 tonnes by putting in extra filling line section and we have sufficient blending if we run for [ 3 sales ]. So up to 170,000, I would say, 160,000 to 170,000, we do not need any major CapEx or a new lubricant plant for that matter. And these new plants should be sufficient with some CapEx on the augmenting overall resources and filling lines.

So by extension, like what is the CapEx guidance for the coming financial year? And what is the CapEx that we have done in this year so far?

So we have guided that the CapEx overall will be around INR 10 crores annually. And that is next year slightly going to around another INR 5, INR 6 crores extra because we are putting in a lot of new IT, et cetera. And that's taking, so roughly anything between INR 15 crores to INR 20 crores. And if we go for a battery plant, whether a greenfield or somewhere, then there can be an additional CapEx, which we had earlier indicated that a greenfield CapEx battery plant can be in the range of around INR 70 crores, INR 80 crores, but that's not yet decided.

[Operator Instructions] The next question is from the line of Prayesh Jain. Please go ahead.

Sir, on the margins front, I wanted to understand the crude prices have come up. And so how has been the base oil prices tracking right now? And do you think that your gross margins, which are at 50% plus can see further improvement in the quarter ahead?

You see base oil actually was stable throughout the year. And -- it has been actually towards these lower ranges for what we have seen in last few years. So it was towards the bottom end of it already. So from here on, we are not seeing any major significant downward movement in base oil further because then the refineries have the option of switching over to other products if it is not viable. So from that perspective, we are not seeing any major downside further. But at the same time, considering the global economic situation, we do not see any major upward movement also at this moment in base oil. So we feel it will be stable going forward for at least the foreseeable future.

Okay. And sir, can you share the breakup of the Bazaar segment in terms of motorcycle diesel engine oil and your PCO?

It is a similar proportion as last quarter.

Okay. Okay. And finally, sir, what would be the trigger point for you guys to take a call on the battery plant?