Con-call highlights
Volumes
In Q4FY21, all segments delivered double-digit growth yoy, with OEMs (incl. factory fill), B2B and exports also doing well. March base effect was there. B2C-B2B share was 60-40 as some parts of West India started suffering from Covid second wave in March 2021.
Industrial volume share rose by 1-2% qoq. Industry growth in Q4 was stable (10-15%).
Gulf Oil Lubricants India (GOLI) FY21 lube volume was 115mn ltr. The industry declined in double-digits, while GOLI grew by some points, thereby gaining market share. GOLI gained share in 2W-4W and agri oils. Only first 2-3 months of FY21 was severely affected by Covid and national lockdown. DEO and 3W took time though.
Q1FY22 saw the second wave affecting demand conditions (last 2-3 months), but management expects a sharp bounce-back once lockdowns are lifted as seen last year.
Lube is in the semi-essential category and anticipates an uptick in sales from Jun’21. OEMs are looking at good growth in next one year and are coming back in a good way. PM preference went up in Q2-Q3-Q4FY21 and more personal vehicles will be used. Maintains 2-3x of industry growth guidance.
There was 5% gross margin erosion in Q4 due to the jump in base oil prices. It was operating leverage from strong topline which lowered the opex impact. The company did cost optimization and travel was also not there. The situation is challenging but would try to manage EBITDA margins in the 16-18% guided band. The company took 2-3 different price increases across categories in the bazaar segment in last 4-5 months.
It has taken price hikes in response to increase in raw material costs and has covered for recent increases. Q2FY22 will see the full impact of price hike on realization as it flows into channel inventories.
OEM pricing is a standard process and is formula-based with 3-6 months frequency, but B2B is negotiation based. The upward trend in base oil prices now on may not be as steep as it is stabilizing at higher levels. Refineries are increasing runs globally with improved travel and fuel demand which should mitigate base oil supply issues.
No drastic change in competitive scenario was there in the market, and pricing was more or less in line among players. GOLI calibrates its pricing with the market.
GOLI has been adding retail outlets with 70,000+ now and focus remains on expansion.
Bikestop was same yoy at 8,000+ as it requires extensive BTL activities, which was affected by Covid. Rural stockists have increased. GOLI is 2nd-3rd in terms of brand position. The battery business did well in FY21 with Rs800mn in revenues and a positive bottom-line.
Cash flow from operations was strong in FY21 at Rs1.95bn, or 95% of PAT. Dividend was healthy. Capex-CWIP in FY21 was on plant relating to tankages, peripheral infra etc. done annually.
Ad activities included Gulf Pride with Dhoni, IPL etc. A&P spends stood at 4% of sales in Q4. Lots of Covid-related CSR activities were also done. Lube requirements in EVs is very low as there is no engine oil. There will be other oils such as transmission, gear and coolant. The company is looking at the EV value chain.
GOLI expects lube demand in India to grow for two decades with EV impact very less now.
It will start from cars and 2W. GOLI is looking into EV fluids. It has launched globally though not yet brought to India. It did investments such as Indra (home battery charging) as GOLI does not have retail fuel pumps.
It has single-digit volume share in synth-semi synthetic. So aims to grow multiple times of 2-3x normal market target. The focus is on mineral and semi within PCMO, etc. The company wants to increase market share.
Industry’s share of synth-semi is 4-5% as per internal estimates, and GOLI’s share is also similar. Pure synthetics are expensive and are for high-end vehicles. Management is not sure if the Indian market is ready as it is still a niche. The company is learning from other countries but has to manage local sentiments in synthetics.
Performance-wise, BS 6 lubes are also better despite being mineral-based. The market will move to BS 6 more and more. It is low on ash and sulfur emissions. It is a new product, so more costly and hence priced higher. BS 6 can be used in BS 4 engines also and will give higher life. The price difference between BS 6 and BS 4 engine oils vary from high-single digits to double-digits.