Gulf Oil Lubricants is likely to post double-digit growth in FY23; margins expected to be 14-16% range: Ravi Chawla, MD & CEO

Ravi Chawla, MD & CEO, Gulf Oil Lubricants India Ltd., talk about Smart EV Charger, plans for EV space, stakes in Indra Renewables, the impact of surging crude prices, Russia-Ukraine crisis, product pipeline, growth targets and business outlook for FY23 among others during a candid chat with Swati Khandelwal, Zee Business.

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Edited Excerpts:

Q: The company is set to launch a Smart EV Charger in India. Tell us about the product and your plans related to EV space?

A: We are seeing that there is an acceptance in the electric value chain and the electric vehicles. Amid this, we are looking towards the part of the value chain in the global and Indian markets where we can apply. Although our core lubricant business is supposed to grow for the next 10-15 years in the Indian market. Thus there is a growth in our core lubricant business and we will try to take a 2-3 times market growth in the same and increase our market share. But in the emerging EV value chain, we have invested in a UK-based Smart Charging company Indra Renewable. We have invested globally as well as from India in it. These Smart Charges have been tested in India. Now, the next step will be to localise it and present it in India. So, we have entered into one part of the value chain and expect that we will be able to play in this hardware charger segment as the will EV develop in the future. At the same time would like to say that the lubricant market is growing well and 95% of our lubricants go into replacement, we are seeing a very strong tailwind in it because it is predicted that the economy including the commercial and other vehicles will grow well. This is our first move in the EV value chain.

Q: Can you please tell us about the timelines by when you will participate in it and launch the EV charges? Also, how much revenue do you expect from this EV charger and are any Plans to manufacture this in India only?

A: Indra Renewable is a four-wheeler charging company and for this purpose, we will tie-up with the OEMs because they are coming with different models. We also have some car stops outlets, branded outlets and how can we play in it. We also have to develop the things that are developing including the hardware and the field of charging. However, charging is in hardware and we can import the product that we have and are also working on localisation of the same because localisation will help us to launch it at a price point. We have also started talks with OEMs and are also localising these. We have also tested a few models by importing those. So, we are working on both fronts.

Q: What are the timelines by which it will be launched? The Company has also launched EV fluids. Can you tell us about your tie-ups with OEMs?

A: As far as EV fluids are concerned, we have a global range and are selling it in Europe. However, the EV cars are not coming in huge quantities and the same lubricant is being used in the bikes. So, the lubricant is ready and we are in talks with the OEMs but the market is quite small. So, there is availability and we will announce to the OEMs that we are coming because a lot of things are developing in the segment. We have the products. We are thinking of commercialising Indra charges in the next few months in India.

Q: What would be the starting capacity and what is your view from pricing points? Also, how much stakes do you have in this company and can it be increased in the future?

A: No. The stakes of our parent company Gulf Oil International and us are the same. It is not a majority stake but it is a significant stake. The market is nascent in India but a lot of tenders are coming and if we are successful in those tenders then our market share will rise. So, I can just say that discussions are on and its results will be seen in the next few months after which it will be announced.

Q: With whom will it compete in the market if we make a like-to-like comparison?

A: There are many hardware suppliers which are being imported. So, there are imported players as well as localisation is also happening within India. These are not big names but are present in accessories.

Q: With Crude oil prices now over $100. How much is it impacting your company and are you able to pass on the increase in raw material prices both in B2B and B2C segments?

A: A stability was reached in it till December 2021 but after that, there was a change in the global situation leading to an increase in crude prices. I have explained earlier that after the crude there is a lag time in the base oil derivative and the last two years we have seen that there are different base oils and there is also pull and push in it as well. So, the price goes in a linear direction but can move up and down as well. So, we have seen that there is a rise in it including many chemicals like additives because there are global supply chain constraints. As far as pass on is concerned, there has been a price movement in the B2C market in the last 15-20 days and we have also done it. So, it is applicable in the B2C market while B2B is generally formulae-based and there are negotiations with big customers. But there is a trend of price increase in the market at present and I will say that we have seen its impact in the industry in the last two to three weeks and the prices are moving up. We can pass on it in the B2C category but it takes a month or two months in B2B. So, there is a trend of price increase, we don't want to increase the prices but there is a situation where raw material prices have gone up.

Q: What would be the quantum of the price hike and by when?

A: It happens in a phased manner but currently it seems that there will be an impact of $ 15-20 cents because many of the products are imported. So, there is an impact and it is likely to go up in the coming days because there is an inflation in chemicals, additives and other raw materials as well in plastic packaging and other packaging items. So, I will say that there will be a phased increase although we do not wish for it there is a trend where the prices will increase.

Q: Is it likely to happen this month or the next?

A: It has been announced in the B2C market and many other players have announced it.

Q: It means B2B is not going to happen now?

A: It will also happen in a phased manner.

Q: There are supply chain concerns due to the Russia-Ukraine issues. Have you seen its issues in your business as well in terms of supply chain mismatch?

A: Generally, we take base oil in India as well and manufacture locally. We do not have enough supply from there but indirectly there can be some constraints in the overall scenario but it will not impact a lot in terms of base oil. However, amid the global situation, there are many constraints for some products in chemicals among others. But overall, I feel, the situation is not alarming that the product raw material supplies will be draped.

Q: Last time when we spoke to the company, it highlighted rural stress and the same was highlighted in the conference call after previous results. What is the situation now?

A: Rural was impacted a lot during the third wave and agriculture was also down a bit. Now, we are seeing that the demand is normal and the agriculture season is about the began we are quite optimistic about it and the signals are also good. So, I would like to say that the rural demand has picked up in the last two-three months. Commercial vehicles picked up last year itself and we highlighted it in the Q3FY22 results as there was good growth. In B2B manufacturing is also very good. So, I will say that many of the segments have bounced back and the tailwinds will be our GDP growth and the open markets. We have an optimism that this tailwind will be available next year in form of industry growth. As I have said earlier, we grow two to three times more percentage-wise than the industry in the Gulf. So, the demand conditions are looking better. At the same time, there will be a growth in the commercial vehicle as production has picked up in automotive OEMs and the base has fallen.

Q: The Company is also present in Battery Segment. Do you have any plans to foray into the EV Battery segment? 

A: A lot of developments are going on in this area at present. We are in traditional batteries and have increased our market share in the two-wheelers batteries in the last 5-6 years. I would say that we are among the top five players in the segment. We also have a 3-4% market share in replacement batteries because the market is with main players. Our products are available at 12,000 outlets and we also have structures for service, maintenance among others internally. So, we will have to see the area in which we can create value in the EV value chain. If it is possible then, it will take some time because the battery that goes in electric vehicles, especially a single battery is used in the two-wheelers. If there is an opportunity then we will have a look at it but at present, we will focus on our core battery business and see the ways to grow it and double the Rs 75-100 crore.

Q: Update us about your product launch pipeline for FY23?

A: We are seeing that the acceptance of synthetic grades is increasing in the car and industrial segments. Also, the BS-VI range has arrived and is going well in the market. In the value addition, we are trying to come up with more products that can provide more life and performance. At the same time, a lot of development is happening in the CNG space. I would like to add that in the value-added range, we are looking at ways to bring new products and the work is on it. There are times when new specifications for cars and the two-wheeler segments and we will upgrade the same. So, a lot of things have been planned and we expect that we will on the forefront of the trend of technology and will continue to do so.

Q: The way FY23 is panning out and the demand prospects are looking. What are the targets of the company in terms of the top line, bottom line and margins? What kind of CapEx has been lined up and how the marketing and advertisement spend has been lined up?

A: Since the last decade, we have grown almost two to three times the market growth. So, if there is a 2-3% growth in the market then we would expect a double-digit volume growth and even more. We have a major focus on a few segments like the B2C segment where the outlet distribution has been uneven in the last two years due to closures. So, we will have a focus on getting back that distribution and better the growth in B2C. In the last two years, as COVID waves were there the activations were below the line and advertisement spending was also low but we are bouncing back. Recently, we made a campaign on our products in the South along with Chennai Super Kings with whom we have a tie-up. We are going to improve our investments above the line and below the line for our brands, which are strong brands and developing brands. In other segments like B2B has grown well last year. B2B industries, manufacturing and OEM will pick up. So, OEM factory fill has a 5% sale and it will pick up next year. So, we expect that the industry will have a 2-3% or 3-4% growth then we will have double-digit growth. Our margin used to stay in the 14-16% band but last year there were price increases, which impacted the B2B and B2C ratio resulting in a decline in our margins for a few quarters as there were challenges on the cost. Now, I will say that we will try to get back to the same 14-16% band and also try to improve the mix if it is possible.

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