Gulf Oil Lubricants India Limited — Q2 FY25 earnings call

Call held 7 Nov 2024

Management summary

Gulf Oil Lubricants India Limited delivered a strong Q2 FY25, marked by robust 9% volume growth, significantly outperforming the market. Profitability remained healthy with a 100bps gross margin improvement and 12.6% EBITDA. Strategic investments in brand campaigns and the EV charging business (Tirex) are showing promising early results, with Tirex's H1 revenue tripling year-on-year. The company maintains a positive outlook, aiming for continued market share gains and long-term margin expansion.

Highlights

  • Overall volume growth of 9% in Q2 FY25, outpacing the market's 3-4% growth.

  • Core lubricant volume stood at 37,000 kl and AdBlue volume at 29,000 kl for the quarter.

  • Gross margin improved by nearly 100 basis points, with EBITDA at 12.6%, within the guided range of 12-14%.

  • PAT grew by 15% in Q2 FY25 and 22% for H1 FY25, indicating strong profitability.

  • Tirex, the EV charger manufacturer, reported INR14 crore revenue in Q2 FY25 and INR24-25 crore for H1 FY25, tripling H1 revenue YoY.

  • Cash flow generated in H1 FY25 was INR147 crore, an increase from INR140 crore in H1 last year.

  • Exports now contribute 6-7% of total portfolio, up from 3-4% previously.

Key financials

  1. Core Lubricant Volume 37,000 kl
  2. AdBlue Volume 29,000 kl
  3. Volume Growth 9%
  4. Gross Margin Improvement 100 bps
  5. EBITDA 12.6%
  6. PAT Growth Q2 FY25 15%
  7. PAT Growth H1 FY25 22%
  8. Cash Flow H1 FY25 ₹147 Cr

What they filed

Q1 FY27: revenue up 32.5%, net profit up 32.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue849 905 915 996 957 +13%998 +10%1,040 +14%1,320 +33%
EBITDA107 122 124 127 118 +10%130 +7%135 +9%170 +34%
Net profit84 98 92 97 87 +4%77 −21%90 −2%128 +32%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Diesel Engine Oil
    39% Volume Mix8% Market Share
  • Personal Mobility
    22% Volume Mix
  • Industrial
    18% Volume Mix
  • Motorcycle
    8% Market Share
  • Battery Segment
    ₹20 Cr Turnover Q2 FY25
  • Tirex (EV Chargers)
    ₹14 Cr Revenue Q2 FY25₹25 Cr Revenue H1 FY252× H1 YoY Growth

Guidance & targets

Volume

  • Overall Volume Growth Volume · ongoing · High confidence 2-3x market growth
    We are continuing to look at two to three times of that [market growth of 3-4%]

    — Mr. Ravi Chawla, Managing Director and CEO

Profitability

  • EBITDA Margin Profitability · ongoing · High confidence 12-14%
    Our EBITDA has also been in the guided range of 12% to 14%, coming at 12.6% for the quarter after investments.

    — Mr. Manish Gangwal, Chief Financial Officer

  • Gross and EBITDA Margins Profitability · next 1-2 years · Medium confidence higher trajectory
    over a longer-term trajectory, over the next one to two years, obviously, our endeavour is to increase our gross margins and increase our EBITDA margins to the higher trajectory.

    — Mr. Manish Gangwal, Chief Financial Officer

Tirex Revenue

  • Tirex Turnover Growth Tirex Revenue · next 3-4 years · High confidence double every year
    We will be obviously aiming to double the top line every year at least for the next three, four years.

    — Mr. Manish Gangwal, Chief Financial Officer

  • Tirex Top Line Tirex Revenue · next 5 years · High confidence INR500-700 crore
    we want to take this company at least to INR500 crore to INR700 crore top line in the next five years.

    — Mr. Manish Gangwal, Chief Financial Officer

Tirex Profitability

  • Tirex EBITDA Tirex Profitability · current year · Medium confidence neutral to positive
    they should be EBITDA neutral to EBITDA positive, marginally in the current year itself.

    — Mr. Manish Gangwal, Chief Financial Officer

Marketing Expense

  • A&P to Revenue Ratio Marketing Expense · ongoing · High confidence 3-4%
    our usual advertisement is in the range of 3% to 4%, as Ravi highlighted.

    — Mr. Manish Gangwal, Chief Financial Officer

Market Share

  • Market Share Growth Market Share · ongoing · High confidence 2x where strong
    we want to grow by 2x where we are strong.

    — Mr. Ravi Chawla, Managing Director and CEO

Dividend

  • Dividend Payout Ratio Dividend · ongoing · High confidence 55-60%

    Previously 35-40% → 55-60%

    our trajectory has been to maintain it and as I mentioned in one of the earlier questions, if the use of cash is not quite visible in the near future, it can be increased also.

    — Mr. Manish Gangwal, Chief Financial Officer

Lubricant Industry

  • Volume Growth Lubricant Industry · next decade · High confidence 3-4%
    we are clear that, in spite of EV, we are going to see 3%-4% volume growth and double of that in terms of value growth.

    — Mr. Ravi Chawla, Managing Director and CEO

  • Value Growth Lubricant Industry · next decade · High confidence double of volume growth

    — Mr. Ravi Chawla, Managing Director and CEO

Risks & concerns

  • Crude oil price volatility and its impact on base oil prices

    medium

    Base oil rates are linked to volatile crude movement; elevated crude prices in April/May had a lag effect, but current $75-$80 range is comfortable for gross margins.

    Management acknowledged

  • Increased competitive intensity in the lubricant market

    medium

    While input costs are stable, competitive intensity is increasing, making short-term margin expansion challenging despite lower crude prices.

    Management acknowledged

  • Seasonal impact on AdBlue volumes

    low

    AdBlue volumes saw a slight decline in Q2 due to monsoon season impacting truck/CV movement, but YTD growth remains double-digit.

    Management acknowledged

Areas of evasion (1)

  • specific dealer margins

Q&A highlights

2 direct
AdBlue growth outlook and seasonal impact Direct
We have grown AdBlue over the last two years significantly, nearly 600%, 6x from FY '22 base... However, this was a seasonally impacted quarter as Ravi highlighted already. During monsoon season, obviously, the movement of trucks and CVs, which is the large consumption segment is relatively lower... on a YTD basis, we are still on a double-digit growth.

Clarifies the temporary nature of AdBlue's Q2 weakness and reiterates strong long-term growth driven by BS VI adoption and new segments.

Asked by Probal Sen

Tirex's path to profitability and future investments Direct
We will be obviously aiming to double the top line every year at least for the next three, four years... Then obviously, at the EBITDA margin level, we believe that they should be EBITDA neutral to EBITDA positive, marginally in the current year itself... At this stage, we do not see any need to put more money for the growth of the business.

Provides clear revenue targets and a timeline for EBITDA neutrality for the nascent EV charging business, while reassuring investors about no immediate further capital infusion.

Asked by S. Ramesh

EV fluids as a material business component Partial
If you track the EV penetration today, whatever numbers we have, as I told you, 3-wheelers is 50%. All the others are low single-digit penetration of new vehicles... It can go up to double maybe next two years. So once it is a sizable side, we are anywhere there with the OEMs... I think it's going to be still single-digit volume even if it goes to its maturity.

Highlights the long-term, gradual nature of EV fluid market development, indicating it will remain a small part of the overall business even at maturity, tempering expectations.

Asked by Probal Sen

2 min read 6 chapters

Detailed narrative

Strong Volume Growth Outperforms Market

Gulf Oil Lubricants reported a robust 9% volume growth in Q2 FY25, significantly outperforming the overall market growth of 3-4%. This growth was broad-based, with double-digit expansion in the motorcycle category, agri channel retail segments, and the B2B segment. Core lubricant volume for the quarter was 37,000 kl, while AdBlue volume stood at 29,000 kl, despite a seasonal decline in AdBlue due to monsoon effects.

Healthy Profitability and Cash Generation

The company demonstrated strong financial performance with a nearly 100 basis points improvement in gross margin. EBITDA for Q2 FY25 was 12.6%, comfortably within the guided range of 12-14%. PAT grew by 15% in Q2 FY25 and 22% for H1 FY25. Cash flow generation remained strong, with INR147 crore generated in H1 FY25, surpassing the INR140 crore generated in the same period last year.

Strategic Investments in Brand and EV Business

Gulf Oil launched its largest-ever 360-degree campaign, 'The Unstoppables,' in Q2 FY25, leading to a slightly elevated A&P expense (50-75 bps higher than the usual 3-4% of revenue). The EV charging business, Tirex (51% owned), showed significant progress with INR14 crore revenue in Q2 FY25 and INR24-25 crore for H1 FY25, effectively tripling its H1 revenue year-on-year. Management aims to double Tirex's turnover annually for the next 3-4 years, targeting INR500-700 crore in 5 years, with a goal of achieving EBITDA neutrality to positive in the current year.

Market Share and Segment Focus

The company holds 8-9% market share in diesel engine oils and motorcycles, while other segments are below 5%. Management emphasized its strategy to grow 2x in segments where it is already strong and to increase penetration in rural areas through initiatives like bike and car stops. The B2B segment, despite having less than 5% market share, is growing at a double-digit rate, benefiting from India's expanding manufacturing base.

Dividend Policy and Capital Allocation

Gulf Oil has increased its dividend payout ratio to 55-60% in the last 2-3 years, up from 35-40% previously. This reflects strong cash generation and efficient capital allocation, with annual capex for the lubricant business remaining modest at INR20-30 crore. The company indicated that if cash utilization for future investments is not immediately visible, the payout ratio could be further increased.

Long-Term Outlook and Transformation Strategy

The company is pursuing an 'Unlock 2.0' strategy focused on acceleration, premiumization, and transformation. It anticipates the Indian lubricant market to grow 3-4% in volume and double that in value over the next decade, driven by premiumization. The transformation pillar includes digital infrastructure, brand investments, and a focus on the EV ecosystem, leveraging government incentives like the PM e-drive for charging infrastructure.

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