Gulf Oil Lubricants India Limited (GULFOILLUB) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Gulf Oil Lubricants India Limited Q2 FY '26 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. Thank you, everyone, for making the time to attend this post second quarter FY '26 earnings call of Gulf Oil Lubricants India Limited. We have with us members of the senior management from Gulf Oil represented by Mr. Ravi Chawla, Managing Director and CEO of the company; as well as Mr. Manish Gangwal, the Chief Financial Officer of the company. The format will be like calls earlier as well. We will invite the management to make their opening briefing on the results and then get into an interactive Q&A session. So over to you, sir, for the opening briefing.

Thank you, Mr. Sen. Good day, and welcome to all of you to the second quarter calls for Gulf Oil Lubricants India Limited. I'm happy to share that as we had performed in Q1, which is a very good quarter, the second quarter, which is usually a monsoon quarter and has a little bit uneven monsoons having an impact and demand is lower, we have continued our growth trajectory of growing our volumes by 2 to 3x the market and have done a sale in lubricants of 40,500 KL, which gives us a 9.5% growth. This obviously, with the first quarter being also a double-digit growth, we are ending H1 at a double-digit growth of volume, which is a good sign. I think all the initiatives that we have taken, and we are seeing the normal 3% growth in the market. So, it's been a resilient performance. Of course, monsoons in April and May, a little bit uneven, but September, we saw good demand picking up, and we've continued to do that. B2C segment for us, which is a very important segment, showed a strong momentum, healthy double-digit growth in Personal Mobility. Rural markets, of course, we saw a very good response in the agri sector, which really had a lot of encouraging traction during this quarter. And we expect this momentum to continue in the agri sector when the season is there. Similarly, our focus in the B2B segments, we have seen a broad-based growth in industrial, infrastructure, mining. Also happy to share that our OEM where Gulf has a very strong position with franchisee workshops with more than 20 automotive OEMs and more than 45 OEMs in various other segments has recorded the highest ever quarterly volume in spite of the quarter, which is a monsoon quarter. So very happy to share that. And also, we've had some new acquisitions there. So, the quarterly volume for the OEM segment besides the OEM factory fill has been a very good confident growth, which happened. And of course, we have seen other segments which also helped us, which have been really good for us, the agri segment I mentioned, B2B, I mentioned, which are all double-digit growth. AdBlue also in this quarter grew well at 36,000 KL, which is around 24% growth. And we have seen that if you take this in H1 terms, we have seen AdBlue at about a 10% growth, lubes at 10% growth. Revenue, again, for us has been a very good. Manish will cover it later, but excellent growth this quarter, mix also improving in terms of revenue. And we've also had 12.6% revenue growth compared to last year for H1. So that's continued. Our profits EBITDA also grew this quarter by 10.56% and this continues close to double-digit growth for the H1 also. So overall, I think a very good quarter. And as we are progressing with our Unlock 2.0, which is to accelerate across segments, premium products, transform. We've also seen that really helping us to execute and energize. We had a couple of important programs like we had the mechanic program, which helped -- which is called M-Power. So, from July onwards, we have built our brand advocacy, our conversions by launching this program across India. And these M-Power Rangers are now initiating strong one-on-one relationships, driving demand amongst mechanics. We've also done work on our Gulf Duramax, which is a CVO brand to continue to engage fleet owners, had regional events. We are also happy to announce that we have launched new variants of our Gulf Syntrac, a range of fully synthetic, high-performance engine oils for high-end motorcycles, again, focusing on our innovation and premiumization. This is, of course, powered with Ester technology and latest API SP specifications, which will help us to further premiumize our portfolio here. I'm very happy to share that our EV charger subsidiary, Tirex, closed in H1 at -- we did INR 42 crores against INR 24 crores last year, which is 75% growth. And of course, the second half will be even better for this segment as more of the deployment of chargers happen. Happy to share we are now in DC chargers where we have had nearly every third bus is now with our Tirex charger and the share has been even higher in the quarter gone by. And we have also introduced AC chargers for MG Motors and VinFast. So, these are the new ranges coming up with Tirex's portfolio, of course, building our confidence with customers with our product technology and service and quality. So, these are the main highlights I would like to share. But one of the major things we wanted to also share with you, it's not a financial reward, but Deloitte has a reward for the India's best managed companies, which they do in India for the last 4 years and have done it in 150 countries over many years. And this was a 2-month process for us for them to look at our strategy, our governance, our culture, our sustenance in terms of our business models all aspects of business, ESG, how the team works. And this they analyzed with more than 200 companies. And finally, they selected 6 companies. And Gulf is very proud to be part of this, where we won the India's Best Managed Company 2025 by Deloitte India. So, this was, I think, a good end to the quarter. And that's it from my side. I'll ask Manish to fill you in on definitely other details. Manish?

Thanks, Ravi. So overall, as Ravi mentioned, operationally, a very strong quarter with a robust volume growth, 2 to 3x and double-digit revenue growth. The slight impact which we are seeing in the profitability is also because the rupee depreciated sharply during the quarter. As we all know, a 3.5% movement in rupee during 1 quarter is a very -- it's not a very usual thing. It's a very unusual movement. And that resulted in the landed cost of our imported products also going up from INR 85.76 towards June and the rupee closed at INR 88.79 -- nearly INR 88.8 at the end of September. So that had impact on our gross margins, but we are happy to share that we have been -- still been able to manage our gross margins almost in the same range and took selective pricing calls and overall segment mix, product mix helped us to deliver a gross margin, which was similar to earlier quarters. What we are also seeing is that, on our open positions of ForEx, we had a mark-to-market loss because the rupee depreciated sharply towards the end of September as well. And we had a INR 6 crore mark-to-market ForEx loss in our finance cost sitting in this quarter, and that resulted in a PAT of slightly lower growth at 3%, 3.5%. But overall, we see that operationally, very strong quarter, and we believe that rupee, if it stabilizes at the current levels and if crude remains at the levels of $65.70, which it has been hovering for the last many months, then the trajectory going forward should be better. We also are happy to share that the Board has approved additional 14% stake to be increased in Tirex, our DC charger subsidiary, which Ravi spoke about, which shows that our overall strategy, our Board's direction of having Tirex as a growth potential and strategic value going forward is very clear, and we have invested INR 38 crores -- we will invest INR 38 crores when the transaction concludes. And our holding will go up from 51% to 65% in Tirex Transmission. So overall, a very, very strong quarter on operational side with a little headwind of rupee. And we would like now to take some questions from investors, please. Thank you.

[Operator Instructions] The first question is from the line of Varun from Equitree Capital.

A couple of questions from my side. Firstly, what would be the overall EBITDA margin target for the full year? Because this year due to ForEx and all, our EBITDA margin for first half has been around 12.3%. So, do you still guide that it can inch up to 13% by the end of the year? And secondly, on the cash flows, the cash flow generation from operation has been poor this half. So, what has majorly led to the same as compared to INR 131 crores, we have only done INR 24 crores of cash from operations. I see the trade payable days also going down. So, has that impacted? Or if you can give a brief explain the same?

Yes. So, margin-wise, we keep always guiding that our EBITDA margin will be in a band of 12% to 14%. In good quarters, obviously, we are towards the higher trajectory of this band. And in slightly quarters where we have some headwinds, we tend to be towards the lower end. But the band remains still intact. We would -- obviously, as I mentioned in opening remarks, that if rupee stabilizes at the current levels, and we are seeing some downward trend in base oil already happening as we speak, so going forward, margin should improve only from here on. But at this stage, it also depends on crude movement and the ForEx volatility. So, we keep guiding that our margin band of 12% to 14% is still intact. And it will depend on these external factors, how they pan out. Our premiumization efforts are continuing, which Ravi also spoke about that we have launched Syntrac in motorcycle and high-end motor oil. So that also are a long-term to medium-term strategy of improving the margins. Coming to the cash flow generation, I think the second point. This is a seasonally impacted quarter in terms of collections because there are vehicular movement is low, there are construction activities are slower. So obviously, the collection cycle is slightly elongated in this quarter -- in the second quarter usually. We are confident that our cash flow generation as we have been doing in the earlier years on a full year basis, that should continue. Slight increase in working capital because of the -- on the receivable side mainly, but all actions are in place that we'll continue to generate good cash on a full year basis.

Okay. And on the operating level, were there any additional expenses because I see the other expense going up a bit year-on-year. So, was there any additional ad spend or your ad spend remain in line with the 4% target which you have given?

So, ad spends are in the range of 3% to 4%. That's always our thing. But it depends on the segment mix. If the OEM sales are slightly higher, which in this quarter was a very, very robust highest ever OEM sales we have done. So, the OEM royalties go up in those quarters. That's reflected in other expenses also.

Okay. And what would be the volume growth for the first half, the number?

I think we have already declared that the quarter volumes are 40,500 KL for lubricants, core lubes and AdBlue 36,000 KL.

That is for the quarter. For the H1, it is 10.1% in lubes growth and 10.4% in AdBlue.

The next question is from the line of Achal Shah from AMBIT Capital.

Sir, pardon me for asking this very basic question. So, sir, on the consumer side, when we go to a mechanic for servicing our vehicle, and we have many choices and the mechanic pushes for a specific brand or a product versus competitor brand. So, sir, how is -- how are we like pushing the product in that sense that is it the sole choice of mechanic? Or is it something else, sir? Like what is the strategy that side?

No, no. So, it is -- see, lubricants is very mid involvement to low involvement, sometimes high involvement product. So based on the category, if you take, say, motorcycle and car, there is obviously the consumer will have some say. In some cases, consumers also decide, but the mechanic plays a role as an influencer. And sometimes he's like a quasi consumer. So, it just depends on the various consumers. What we obviously have to make sure is that the consumer is seeing us in the awareness set. He understands our product, whatever communication, our quality. We have various other attributes like long drain and other things. We keep advertising, we keep promoting those. Our quality of our product is obviously seen and experienced. OEMs play a role. And then finally, of course, the way the consumer -- if he goes with the recommendation of the mechanic, he will then further decide on a set of brands, which he has seen as brands. And also, brands -- consumers also try to keep the same brand and usage if they're happy with it. So, there's a lot of decision-making that happens. And each one has a role to play. And you could say that mechanics and consumers, they are -- together, they would influence the conversion and usage of the brand. So we have to obviously look at these segment-wise, and we have programs addressed to all these aspects, including the trade, the trade when they stock and they push a particular product. So, it's a 3-way process and mechanic is an influencer. And OEMs also because they use our products, in a way, they start influencing the purchase once they are used in the showrooms, the franchisee workshops.

Got it, sir. So, sir, would it be fair to say that when mechanics are incentivized, like one brand is incentivizing the mechanic more on a specific like 2-wheeler or 4-wheeler set. So, he'll dedicatedly push that product versus the other brands? Or is it like...

No. See, the mechanics are incentivized by a lot of the companies, including us in some way in part of the products, not all the products. So, he's also like a consumer. He also has to make a choice. He would like to push certain brands, which have given him a good response because after all, he is also promoting his service as a quality service. So, it's a combination. It's not like if they get the highest incentive, they'll go. Otherwise, it will be very easy for other people to just increase the mechanic incentives. So, these are complete marketing mix, which makes a play. Product, the brand perception, the brand awareness, the consumer, his own way of looking at a particular attribute and of course, the mechanic playing a role and the trade.

[Operator Instructions] The next question is from the line of Nitin Tiwari from PhillipCapital.

I hope I'm audible. Sir, actually, my question was related to our sales in this quarter. So, can you please provide us like the breakup of sales and growth in respective segments? That would be the first part. And secondly, recently, we had some GST reforms which rolled in and particularly, like, it was also rolled in for like vehicles as such, I mean, where GST was reduced. So, do you expect, like in medium to long-term, this would lead to improved sales in vehicles or -- and therefore, like improved sales in lubricants as well? Or are you seeing any early green shoots of OEM demand picking up for our lubricants from OEM manufacturers because of expected higher demand?

Yes. So, Nitin, I have covered this. Our overall volumes grew by 9.5% this quarter. And I'm very happy to share that most of our key segments like passenger car motor oils, motorcycle oils, if you take even OEM segment with franchisee workshop, agriculture and some of the B2B segments, which are part of our growth, all these segments have grown double digit. So, they are above double digits, so healthy growth. In fact, we -- also AdBlue also grew 24% in this quarter. So, these are the segments we have done. The others are single-digit, which are not mentioned. So that's the way the growth has happened. And as you saw in the GST, it has been a very positive input. If you see the data that is available with us, and we know, while we saw that September and October, there are a lot of good sales in cars, we are seeing that happen, right? The decrease in the GST rate really is good for the automotive sector. Of course, lubricants has been same. But if you look at the decrease in for commercial vehicles, which has come down from 28% to 18%. Similarly, all the others, which are petrol hybrid, 3-wheeler vehicles, motorcycles below 350cc, all have got a 10% reduction from 28% to 18%, plus tractors are down from 12% to 5%. So, all these are obviously going to help in terms of stimulating some demand, and that is visibly happening in the market.

Great. Sir, that's really helpful. Sir, if I may push in one more question, please. So, I also wanted to have your thoughts on the possibility of data center-related demand in the country. If you can give us some sense around what could be a possible size of demand that we can see from that segment?

Yes. So we had earlier put an estimate that out of the total -- if all the new data centers turn into liquid cooling, which is for the air cooling, you will find that there is going to be -- if everything gets converted, which is not going to happen because it's an extremely difficult sort of thing that will happen because it requires a complete change in terms of the technology for cooling. If you look at the global market, obviously, it is showing that it can be a really big market. We're talking about, I think, 10 billion data center cooling market if everything gets converted. But in India, if everything were to get converted, which is very, very small now, this is going to be less than 1% of the total volume, if you take entire automotive industrial, if you take out process oils and transformer oil. So, it's a very small market in India. But what we have done over the last 6 months is that we have developed 2 candidates, 2 products. Now these products have been made in India now with the help of our global technical team. One is a PO-based, one is mineral based. And of course, we are going to test these products for what we call critical material compatibility parameters to be used in data centers. So, we are ready with the product. We are going to do some testing. And then we will look to collaborate with liquid cooling service providers and data center companies. And yes, this product is by a global range, so it can also be made available across the world. And this will be a niche segment. And I think if the conversion happens in a very fast pace, which can only happen when all the data centers really go in for high-speed computing, high-speed, which requires this data cooling, then that's going to be when the conversion will happen. So, we are getting ready for it, but we are also very clear that it's going to be a niche market in India.

So that this basically product would be a coolant, which would be different from lubricants as such, right? So can we have a sense around what percentage of coolant market can this product be? I mean, as you mentioned, I mean, probably less than 1% for the overall lubricant and oils market, but...?

Yes, yes, so if every data center converts to this, it will be less than 1% of the volume of the total industry today of automotive and industrial lubricant in India, which is actually a very -- it's going to be a journey to see that happen.

Right, sir. But any sense around like as a percentage of coolant market, what it could be? I mean, what percentage of... ?

No, we have not done the analysis, but obviously, we'll have to size that, yes.

The next question is from the line of Sabri from Emkay Global Financial Service.

Congratulations on a good set of operating numbers. So I've got 3 questions. Firstly, on this -- you mentioned, I think, a couple of quarters back that OEM was the segment where there was a slowdown due to which your volumes were also like getting affected. Since the last 2 quarters, you've been growing at like close to 10% sort of run rate. So are we like done with the OEM slowdown or it is still the same?

No. So OEM factory fill was down, which we had mentioned…

Yes, factory fill. I meant, factory fill. Yes.

To factory fill, which is the first fill happening, we do for commercial vehicles and some other OEMs. That was a bit slow last year, you're right. And now even that is okay, it's picking up because we mentioned on also GST cuts, commercial vehicle and all that. And what we spoke about this quarter was the OEM franchisee business, which actually was doing well, but I think now we are seeing double-digit growth there, which is also by the agri OEMs, we do business with agri OEMs, we do with car, we do with commercial vehicle, with 2-wheeler. So we are seeing good growth in franchisee workshop for our set of OEMs, which we are doing. So I think that is going very well. And that was also growing last year by the way, FWS, what we call. But factory fill was under strain some quarters ago, but now they are at least growing some single-digit.

Right. Second question is on your base oil pricing. So I think the broader consensus is that it is not falling to the extent it should, how crude prices have fallen. So anything specific, it's because of Russian oil still continuing to affect base oil markets? Or do you think that we are seeing some sort of like a correction in prices? And if crude stays like this, generally 3, 4 months is the lag, which should basically play in terms of base oil pricing. We are like almost there now. Som do you see a sharp reduction in base oil prices in the next 3, 4 months and gross profit margin seeing some uptick from that?

So you're right. In the past, as we have been always talking about that if you plot a long-term chart of crude and base oil, there is a symmetry, there is a lot of symmetry. But in the short-term, the demand supply of each grade of base oil also plays a role. And you are right that so far, we have not been seeing any major impact on base oil of this crude, which was below sub-$70 for now nearly 2, 3 months. But eventually, it has to happen, and that's what we -- as we speak in the month of October, we have seen some reduction. It's not a very sharp reduction we are expecting because there are still global demands supply challenges in base oil. And many of the global major refiners, if they go on shutdown, suddenly, there is a supply constraint, which happens. But as a trajectory, yes, there is some softness in base oil as we speak.

So, the Indian PSU refiners are also like adding base oil capacity. I think that will come probably in the next 1 to 2 years. So, are you like talking to them in terms of like going for some sort of like term contract or anything of that sort? Because I think compared to the imports, it could be cheaper, right?

So, see, when we are already buying from the local companies, whenever there is an availability with them for base oil. So, we buy 20%, 30% of our base oil locally anyway. And if the availability is more from their side, definitely, we'll be happy to look at all the options. And pricing-wise, obviously, they look at both international pricing and the ForEx and the rupee dollar rate and all, and they decide their local pricing. But definitely, if the supplies are available more, our inventory situation can be better because we can then -- the lead time will come down. So some of the improvement in inventory is definitely possible, but availability will let it happen first.

Okay. And on your ForEx losses in this finance cost, so you are not hedging, right?

No. At any point in time, we keep minimum 50% hedged as a Board policy. So, we -- at any given point in time, cover minimum 50% and next 2 months as forward completely. Since there was a sharp sudden rupee depreciation in 1 quarter, 3.5%, the impact was seen. And most of these losses, which we have accounted are mark-to-market. So these are not crystallized losses as of now. If rupee improves from here on, we may see some reversal happening there as well. But as we speak, rupee is in the same range of INR 88.6, INR 88.7.

Okay. So, we'll not have that loss, but adjusted for that, how much would be the finance charge, around INR 5 crores or something of that sort?

For the quarter, the impact was INR 6.2 crores in the finance cost on account of mark-to-market ForEx loss.

Okay. INR 6.2 crores. Yes. So that means INR 7 crores would be the normalized finance charge for the quarter.