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

Ladies and gentlemen, good day, and welcome to Gandhar Oil Refinery India Limited Q3 and 9 Months FY '26 Earnings Conference Call hosted by MUFG Intime Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ayushi Gupta from MUFG Intime Private Limited. Thank you, and over to you, Ms. Gupta.

Thank you. Good morning, everyone. I welcome you all to the Q3 and 9 months FY '26 Earnings Conference Call of Gandhar Oil Refinery India Limited. To discuss this quarter's business and financial performance we have from the management, Mr. Aslesh Parekh, Joint Managing Director; and Mr. Indrajit Bhattacharyya, CFO. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking and may involve risks and uncertainties. For more details kindly refer to the investor presentation and other filings that can be found on the company's website and on the stock exchange. Without further ado, I would like to hand over the call to the management for their opening remarks, and then we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you. First of all, good morning to everyone who is joining us on this call. I'm Aslesh Parekh, Joint Managing Director of Gandhar Oil Refinery India Limited. I'm joined today by our CFO, Mr. Indrajit Bhattacharyya. We appreciate your time and participation as we discuss our financial performance for the third quarter and the 9 months ending 31st December 2025. I'll begin by sharing our perspective on the operating environment and how our business has performed amidst the dynamic economic landscape. The global white oil market continues to exhibit steady structural driven growth. Based on the recent industry estimates, the market was valued at approximately $3.6 billion in 2025 and is expected to be around $4.66 billion expecting a CAGR of about almost 3% over 2025 to 2034 period. This growth is underpinned by the essential role of white oils in regulated and performance-sensitive applications, while consistently safety and compliance remains very critical. Regionally, Asia Pacific remains the largest contributor to the global white oil demand, accounting to over 40% of the total consumption, supported by industrial expansion, rising health care usage and growing personal care adoption. At the same time, developed markets continues to demand higher quality grades due to tighter regulations. This dynamic aligns well with Gandhar's policy and operating strength and reinforces our position within the global white oil value chain. During the third quarter of FY '26, Gandhar recorded a consolidated revenue of INR 1,167 crores, reflecting a healthy year-on-year improvement of 16% and quarter-on-quarter growth of 10%. For the 9-month period ended FY '26, the total revenue stood at around 3,000 -- at INR 3,130 crores demonstrating stable performance despite the challenging macroeconomic environment marked by pricing volatility and logistical disruptions. International market continues to play a very important role in our overall performance with overseas sale contributing to around 45% of the consolidated revenue during the 9-month period. This sustained contribution from global markets underscores the strength of our international customer base and reflects a steady progress we are making in expanding and deepening our global footprint across key geographies. With this, I would now like to hand over this call to our CFO, Mr. Indrajit Bhattacharyya, who will take you through the financials in detail. Thank you, once again, and over to you, Indrajit.

Thank you, Aslesh, and good afternoon to all participants. Let me take you through the financial highlights for the third quarter and 9 months ended FY '26. On a consolidated basis, revenue for Q3 FY '26 stood at INR 1,167 crores, reflecting a sequential increase over Q2 FY '26 and healthy year-on-year growth of 16% compared to Q3 FY '25. For the 9 months ended FY '26, consolidated revenue stood at INR 3,130 crores supported by steady volumes and consistent demand rose across markets. EBITDA for Q3 FY '26 was INR 59 crores. While this represents a moderation compared to the strong performance in Q2 FY '26, it remains significantly higher on a year-on-year basis. For the 9 months ended -- for the 9 months period, EBITDA stood at INR 171 crores, underscoring the resilience of our operational performance. Profit after tax for Q3 FY '26 was INR 34 crores compared to INR 40 crores in Q2 FY '26 and INR 20 crores in Q3 FY '25. For the 9 months ended FY '26, PAT stood at INR 100 crores, reflecting a strong improvement over the corresponding period last year. Our segmental revenue mix for 9 months FY '26 remained well diversified with PHPO contributing 50% followed by lubricants at 26.8% and PIO at 9.5%. The manufacturing gross margin spread for Q3 FY '26 stood at INR 7,271 per kL, underscoring the strength of our manufacturing efficiency and disciplined operating execution. We remain focused on a prudent cash flow management and operational efficiency as we navigate a volatile global environment. With this, I conclude the financial review, and we would now be happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Rohit from ithoughtpms.

So sir, just 2, 3 questions. One was -- so if I look at the history of our company over the last 7, 8 years, operating margins are over between 2%, 3% to about 7%, 8%. And right now, we had about 5% in this quarter. So just from -- to understand, I understand our gross margins are pretty low. So I mean when you look at your business, what is the general operating margin that you would sort of say that this is a normal operating margin for our business. I know it can fluctuate a quarter here and there. But I'm just trying to understand on a normalized basis, how do you see?

So the -- by operating margins, since we're talking about EBITDA, we're looking at EBITDA in excess of about 5%, 5.5% annually. And we expect it to keep going up from now. I mean all other conditions, all of the circumstances remaining the same.

Okay. And -- so we -- I mean, there are some other -- I mean, some of your peers were also listed, and I was trying to sort of compare. So we are more focused on the personal health care -- personal care and health care segment. So any specific reason for that? I mean -- and also if you can sort of comment on where the margins are better, where the sort of customers are more sticky and there are other segments like transformer oil is there, paraffin is there. So if you can maybe just explain what -- if you can give an overview about these other segments and why we've chosen on the performance -- personal care segment.

Sure. See, Gandhar Oil is not only focused on PHPO products, but we also are having other products in our portfolio, including the transformer oil, including the rubber processing oils, including the lubricants. The value share across the value chain, if we discuss, is around 50% of the total contribution is still from the PHPO sector, which is the personal care, health care, performance oil segment. The other businesses are also growing. PHPO as a business, I mean, obviously, last -- say, if you say last 1.5 to 2 years, obviously, the cosmetics and the pharmaceutical industry has not been doing so well because of the domestic consumption. We anticipate the consumption to move up. I mean after discussion with our various FMCG customers, they are also anticipating the pickup in demand post GST rate cuts, post increasing liquidity in the system. So we are highly hopeful that the FMCG sector will turn around very soon. Having said that, most sticky customers are in the PHPO business where the entry to a customer is more than like 7 to 8 years of time frame. And once you are there with the customer, we grow with the customer. That's what we have even experienced. So -- and if you see the other businesses, it's more of a price-sensitive, price-driven business, for example, transformer oil, it's purely a price-driven business. It's a tender business. The margins are pretty low. And even the debtors, even the collection from this segment is pretty high compared to the PHPO segment. So the focus will still be on the PHPO segment. Having said that, we are also not only dependent on our domestic customers, we are also dependent on our overseas business, which is also contributing around 35%, 40% of the total revenue of the company. We are on verge of adding some new products also to the pipeline, and we are very hopeful that our EBITDA margins in the near future will definitely go up.

Got it. So just on this question on the volatility of raw materials. So how does it work, sir, in terms of -- because these are all crude oil derivatives. So base oil pricing, how does it work with your customers?

So see, base oil is the KRM for any of our product mix, where in Europe, we have some contracts with our suppliers for annual offtake of our base oil to service our customers. So with suppliers, we do have pricing formulas in place. With few of our select customers, we do have price pass-through mechanism wherein changes in the raw material price, changes in the ForEx price are passed on to our customers. Only a few of our spot customers, we have pricing on every 15 days, every fortnight mechanism wherein any change in the price is passed on to the customer on a fortnight basis. Having said that, we have more than 4,000 plus set of customers. So the repeat orders from these customers is more than 75%, 80%.

So Rohit, like sticky customers, we have a history of about 70% of repeat customers for the last 3 to 4 years.

So you're saying with few customers, we have pricing contracts and with few customers, we have like a 15-day price change that happened before we change the price?

Yes.

So what share would be where we will have these pricing contracts, where we will have a formula and any change will sort of automatically get accommodative. What percentage of our revenue would be coming from these customers?

Around 35% of the business is on that price pass-through mechanism. The residuals are on the other mechanism.

Got it. And sir, just last question before I fall back in the queue. So if I look at your EBITDA this quarter, it improved both sequentially and Y-o-Y as well, which you explained. But in your presentation, you have given the per kiloliter EBITDA also that you -- that has been broadly in the same range, but the improvement in EBITDA has been much more. So what has led to that? I mean I see that other expenses are significantly reduced both sequentially and Y-o-Y. So just if you can just explain what was that?

So obviously, expense is one part of it, we've been able to handle our finance cost effectively well year-on-year, quarter-on-quarter. Over and above that, obviously, we've been in a position to better sell our products and also efficient buying from our suppliers. So this has been a combination of various factors which has led to it.

The main driver for any change in EBITDA or even PAT is the gross margin of our products because this represents practically 75% to 80% of the gross. So in 1% move here or there has an impact on the bottom line. So that is why we -- one of the main reasons is that we've done better on the gross margins.

Got it. And one thing was that rising crude base oil price is beneficial for you or a falling base oil pricing environment is beneficial to you? On a rule of thumb basis, whatever you've seen in the last 7, 8 years.

Yes. I mean, it's difficult for me to give you a specific comment because we don't play on the raw material price. Our focus is purely customer-driven attitude, wherein we focus on customers and their requirement. And we have a lean inventory of around 40, 45 days at the most. So -- and whatever buying is -- I mean, 80% of the product is presold. So really, I mean unless in a very exceptional situation, like crude oil goes up from $30 to $200 a barrel or vice versa, it may impact. Otherwise, everybody is range bound, it's not a problem.

[Operator Instructions] The next question is from the line of Mr. Ritesh Poladia from Girik Capital.

My question is your manufacturing gross margin from your own presentation, it's like 12-quarter low. So the improvement would not be from this gross margin spread, it would be from other expenses. So if you can elaborate on what has led to fall in the other expenses, that would be very helpful for us.

So if you see quarter-on-quarter or you are going to see year-on-year, the major improvement has happened on other expenses, which has reduced from INR 52 crores in 31/12/24 to INR 37 crores this year. Even finance cost has slightly improved, employee cost is -- no, employee cost has gone up, but the major improvement is on account of other expenses where the major component would be freight.

And where do you see freight now? Is it stable? Or again, it's inching up from this geopolitical situation?

Currently, the freight rates are pretty stable and there is no such unexpected high debt we experienced previous quarters. And just to add the gross margin in quarter 3, in number terms, on a stand-alone basis, for example, has improved from INR 18 crores in FY '20 -- sorry, INR 17 crores in FY '25 quarter 3 to INR 36.3 crores in FY '26 quarter 3. So obviously, there has been an increase in the overall performance of the company. It's just not only the expense reduction, but obviously, including on the performance as well.

Yes. But your per kiloliter gross margin is about 12 quarters low. In fact, if we see from IPO times, it used to be hovering at INR 10,000 per kiloliter. Now it's about INR 7,200. So is it because of the range bound oil prices? Or is there any other reason like increased competition or anything you can elaborate on that?

It's not an increased competition. Yes. I mean if you see pre-IPO, around IPO, obviously these are all COVID -- post-COVID numbers and all that stuff. But post that, if you see last 2 years, majority of chemical, specialty chemicals. I mean, across the industry, there has been a revision in the profitability quarter-on-quarter, I mean, we have been also part of the same cycle. But we tried to level to maneuver around and ensure that the margins of the company are protected and in fact, now we have started improving. If you see last 3 quarters compared to previous year, our profitability has increased. Our gross margin also have substantially increased.

Sir, if you can guide us on our current ruling white oil prices and where do you see this going?

INR 7,000, INR 7,800.

So can you repeat your question? You're talking about?

If you can comment on the current ruling white oil prices during the month of January and where do you see it going?

January.

January. So I mean it's a range bound around the 70,000 to 72,000 -- sorry, around INR 70,000 to INR 80,000 per metric ton. So we anticipate the price to be a little bit going up. I mean, based on the raw material increase and the ForEx increase as well.

Sure. Also, if you can comment on your CapEx, I think there is some delay from the whatever you are envisaging the IPO? Or is it on a time frame, if you can quickly take us through that.

No, no, delay in the CapEx?

I think in the IPO, whatever their plans, is there any delay or all your capital expenditure...

It's all done. It's all done. All the money has been expended and all the CapEx has been put into place. All the other objects have been met.

Okay. So 6 lakh liter is your now -- 6 lakh kiloliter is your capacity which will be there for some time now, right?

In the 3 plants, yes.

Okay. And what will be the utilization for the Sharjah?

Sharjah is currently around 70%, 72%.

Sir, India has about almost optimal utilization, but Sharjah is a bit low. Is there any [indiscernible]?

So Sharjah is basically a new plant. I mean, it got operationalized sometime in 2017 or 2018, okay? Now as Aslesh had explained, getting onboarded with these marquee names or the big players takes anything less -- nothing less than 6 to 7 years. So that process is on. Second is even we had the raw material supplies for Sharjah, are also in the process of being set up. So it will take another 2, 2.5 years for Sharjah to come online or close to 90%, 95%. Till then, this is the normal course of business, the customer accreditation is -- I mean, accreditation by the customers is happening, and the raw material lines are being set up.

Sure, sir. Also, if you -- is there any other expansion plans you are currently going through? Or right now, it's a status quo?

It's difficult for us to comment. But obviously, as you have seen during the Board meeting, the resolutions are now available publicly. We purchased some -- we are planning to purchase some additional piece of land in both our facilities for expansion. So maybe we'll be in a position to give you more clarity in maybe a quarter to come as well with the amount of expansion plan and the quantity and the value of CapEx plan.

And in the CapEx, you will have the regular maintenance CapEx, debottling CapEx, that will happen. And some additional tanks have been put up. So I mean, storage.

But the new CapEx will definitely be coming by maybe end of this year or next year at the most.

Sure. And final last question. What's the status of this Vadhavan port project for you? There was like a nonbinding MOU, but if you can give us some idea of what's happening on that side?

See, the tenders have still not been floated by the government as yet. So we are persuading them and as soon as we have some information, which we need to pass on to our shareholders definitely we will be doing so.

And what kind of investments would be that? Is it for the chemical storage side? Or is it from your own existing operations side?

It will be a combination of both.

The next question is from the line of Mr. Bhavesh Patel from Patel Investments.

Congratulations on great set of numbers. The turnaround is visible and hoping for better numbers going ahead. Also felt great to get the dividend of INR 0.75. Appreciate especially the comment in terms of continuity of quarterly conference call based on the input in last call. So thank you, Aslesh on that. And I like the details provided by both Aslesh as well as Indrajit. I have following a couple of questions. Number one, our company reported record-breaking revenue this quarter. So congratulations on that. Yet the manufacturing gross margin spread, which is INR per kiloliter, contracted from INR 8,662 to INR 7,271. Can you please explain this? And do we expect this situation to be continued?

So this is basically an impact of the raw material prices also and the fact that what Aslesh mentioned that FMCG and Pharma with our regular customers, we've not been able to get the prices which we were getting earlier. So this is the main reasons why the gross margins has been slightly impacted. Going forward, yes, we -- the whole of this year, we've been getting in excess of INR 7, INR 7.5 per liter. Going forward, we would like it to be close to INR 8, but it should stay on INR 7.8, INR 7.9 per liter.

All right. The next question is the Board -- the meeting came out, right, in terms of minutes. It said approved the purchase of 453 decimals of land adjacent to your current factory. Now I really don't understand what is this 453 decimals. Is it in terms of like acres or square meters? And where have you purchased this land? At Taloja, Silvassa, I mean, which place?

So these are lands being purchased at both of our units at Silvassa and Taloja adjacent to our existing factory. Now as regards to decimals, we'll get back to you in the course of this call itself, what does decimal mean. I don't know if that's guntas or .4853 acres. I'll just get back to you on that.

Yes, please, that would be appreciated. So we are saying we are buying at both the lands -- the plant in terms of adjacent land for expansion. Now I know Aslesh mentioned about strategic plans for the time line as well as amount for the further capacity addition. But my question is, without the upcoming capacity expansion with the land that we purchased, are we still continuing with our increasing volume by 10%, 15% over the next 2, 3 years on a yearly basis?

Yes. Next 1.5 to 2 years we will definitely be increasing our volumes quarter-on-quarter even without the existing land.

Perfect. Perfect. The next question final question, in fact, and I really appreciate the way Aslesh, you and as well as promoter picked up at around all-time low price of INR 120 onwards all the way up to INR 155 plus, now are you still looking at increasing your stake? Or it was just to support and give confidence to all of us?

No, no, no. This is skin in the game, sir. The promoters fees the potential of the company to take it further.

Perfect. Perfect. No really appreciate, and that's a great thing giving us confidence to be in together for a longer period. So appreciate. All the very best.

The next question is from the line of Mr. [ Rahil ] S. from Sapphire Capital.

So firstly, the other segments in the lubricants and PIO, what is the outlook there? I mean, what is the current market scenario where you said transformer oil is not doing as well as expected in the market. So any reason for that?

Listen, I never said transformer is not doing well in the market. I told there are delinquencies in better collection in terms of the transformer business because of the power sector, it is associated with. And for the lubricant obviously, it is growing at a stable pace. I mean with the advent of [indiscernible] automotive lubricant demand obviously would come down over the years, but for initial lubricant, obviously, the demand [indiscernible] driving with increasing [indiscernible].

Just to clarify what Aslesh meant that transformer oil is a growing segment with the increase in electrification, with the electricity around. It is something which blocks a lot of working capital because of its [indiscernible].