Operator: Ladies and gentlemen, you have been connected to Gulf Oil Q2 FY27 earnings call. Please stay connected. The conference will begin shortly. Ladies and gentlemen, good day and welcome to Gulf Oil Q2 FY27 earnings conference call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note, this conference is being recorded. I now hand the conference over to Mr. Probal. Thank you, and over to you, sir.
Probal Sen: Yeah, thank you so much. Thank you to everyone for making the time to attend this post-Q2 result discussion call for Gulf Oil Lubricants. As always, we are joined by the members of the senior management of the company, Mr. Ravi Chawla, who is the Managing Director and CEO, and Mr. Manish Gangwal, a whole-time director and the CFO of the company. The format will be as always, Ravi sir and Manish sir will give their opening brief on the results, and thereafter, we can get into an interactive Q&A session. So without further ado, I will hand over to the management. Ravi sir.
Ravi Chawla: Yeah. Thank you. Good afternoon, everyone, and thank you for joining our Q2 call. We would like to start off by obviously passing on our festive greetings to all of you in advance, the coming season. Very happy to share with you that the Q2 for us has also been a very robust quarter. We have continued the strong lubricants volume growth, which obviously we saw in Q1. Q1, I would say, was also a quarter where there were supply issues, and we showed agility, and we grew more than three, four times the market. Q2, again, kind of is a testimony to our strong business model, which is very robust and consistent. So the 16% growth in a quarter in which we expected the monsoon being a low seasonal quarter would play its role.
Ravi Chawla: But really delighted to share with you that the team has come up with these results, which are again, I think, industry-leading with 16% growth. Despite a tough situation internally in terms of cost challenges and also West Asia crisis, we are seeing obviously the costs remaining what they were. I think for that, it has obviously been a very, very good all-round show by all segments. So each and every segment of ours has been able to grow. Even the B2C segment has obviously shown that we have been able to get primary, secondary sales. Definitely the two segments which came out very well, as we have given in our press release, is the OEM franchisee workshop. Even OEM factory fill picked up for us, double digit. In fact, OEM franchisee workshops, high double digit.
Ravi Chawla: The B2B industrial segment also was a very good segment for us in this quarter, again, going into high double digit. We continued our focus to also look at new customers. I think some of the B2B industrial customers that came in, nearly third of the incremental growth is from new customers. So very happy to share that. We have a large number of OEM franchisee workshops, about 7,000 numbers with OEMs with whom we have been with us, and we have a very good portfolio of OEMs, right from the commercial vehicle to the car OEMs, to the tractor OEMs, to industrial OEMs, right across India. So that has really been a very good positive for us. We have been able to really show the agility continued in a challenging environment.
Ravi Chawla: Manish will talk a bit more later about some of those things, but I think our calibrated price increases have also been able to really give us a good return overall, given that there were lots of challenges in the market, as we are seeing. We also are happy to share that during this quarter, we started the biggest investment ever in the history of Gulf in terms of an advertising campaign, with our campaign for our Gulf Pride product, and also our repositioning on Born to be Behad, what we say, "Kuch Behad Kar," that is actually performance beyond limits. So that was the start of our motorcycle campaign. Our mechanic engagement BTL activities continued with greater vigor, and we also continued to focus on premiumization as part of our strategy, and continued to gain momentum in these.
Ravi Chawla: We also had the Chennai plant, as you know, working towards a lot of ESG and environment initiatives. The Chennai plant was awarded the IGBC Platinum Certification, and really, that is a significant milestone, again, showing our strong commitment to sustainability. I think overall, a very good quarter for us, and given what we are seeing, the monsoon quarter, a very good result for us. Definitely, there are challenges, but as we see, our growth engines are going very strong, and one of the key is the agility in execution, strategic pricing interventions, effective opportunity conversion supported by customer acquisition and growth. I will now hand over to Manish to give a bit of granularity on a few things, and of course, we will be happy to take your questions after that. Manish.
Manish Gangwal: Thank you, Ravi. Good afternoon, everyone. As Ravi mentioned, we had a very strong quarter. On the back of a strong Q1, back-to-back, we have delivered another quarter of growth momentum, where our volume grew by nearly 16% and revenues grew by 44%. This has been, I would say, a robust volume-led profitable growth, where our EBITDA also, in line with our volume and revenue growth, have delivered a strong 37% growth on quarter-on-quarter basis, YoY. Also, at the same time, it is important to note that we have been able to maintain our margins in more or less near to the guided band of 12% to 14%. The margins for the quarter are 11.8%, which is very close to our guided band.
Manish Gangwal: On the per-liter basis, which we have been highlighting in our previous call also, in these inflationary environment situations, it is better to look at per liter, which we have been able to protect our per-liter margins, which means the cost increases have been passed on to customers, consumers on per-liter basis. That is in such a challenging environment where the supply security was important for our customers, our consumers. We have been able to deliver every single liter which our customers and our partners, our OEM partners, were looking forward to. As Ravi mentioned, it has been a very agile performance in the environment, given outside environment was very challenging. Cost increases were happening, price increases were taken on timely basis, and the result is that we have delivered one of our strongest quarter, which is Q2.
Manish Gangwal: Overall, our core lubricant volume was 47,000 KL versus last year, 40,500 KL, which means we have added 6,500 KL during the quarter, and that gives us 16% growth. AdBlue and YTD 95,000 KL, which means over last year H1, we have grown 17% in volume roughly. AdBlue in this quarter has been, we all know that this was a monsoon quarter, so there were some lesser movements of vehicles during this quarter, especially the truck movements are slightly lower because of monsoons in various parts of India. That results in slight lower consumptions also in certain categories. One of the reason why our AdBlue, which is 33,000 KL in this quarter, there was slight sort of a lesser volume, we would say, as compared to our usual. But on the H1 basis, we are almost flat on the AdBlue.
Manish Gangwal: We have delivered close to 73,000 KL, which is flattish kind of AdBlue delivery. But on the core lube size, core lubes volumes, we have done exceptionally well. Clearly, 3x to 4x of the industry growth, we have been able to deliver in H1. I think with this, we would be happy to take questions. Thank you.
Operator: Thank you, sir. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and 1 on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pankaj from Avis Capital. Please go ahead.
Pankaj Kumar: Yeah, very good afternoon. Thank you for the opportunity, and congratulations for the great set of results. I have a quick question. First question is on working capital. Our inventory days and debtor days have meaningfully increased in H1 if we compare it with FY2026 numbers. So just wanted a little more color and clarity on that. Is it a normalized kind of working capital requirement we have kind of done in H1, or are we looking forward to see some improvement in coming times?
Manish Gangwal: Well, you see, as we mentioned that there have been significant cost increases and price increases. So both inventory values and receivable values have gone up, which are reflecting in the working capital increase. While in terms of number of days, we are still in the usual, our band of gross 95 to 105 days. In terms of number of days, we have not seen any meaningful increase. But yes, absolute values have gone up here because of the pricing, which has been tremendously high.
Pankaj Kumar: The working capital historically has been at a kind of sub-80 levels. Are we expecting that to increase to, say, 100-odd days level? Is that what the guidance for the coming times is?
Manish Gangwal: See, it all depends again on the pricing situation. If the prices remain at these levels, we have to support our customers, we have to support our distributors with slightly increased working capital because their working capital requirement in turn also goes up. We have to be very pragmatic in that. But in terms of overall number of days and all, we would say the trajectory that we have, the amount which we have reached should be one of the near to peaks. From here on, if the prices are not escalating further significantly, we should see some moderation.
Pankaj Kumar: Okay, thank you. My second and last question is, we recently had a fire incident at Valsad. What is the quantum of loss, and is it all covered by insurance, or are we expecting something to come hit our P&L also?
Manish Gangwal: No, so the stocks are covered under insurance, and obviously the entire fire has been since doused, and we see that close to 4, 5 days of equivalent of production has been lost in terms of inventory, which we are going to run some extra shifts in both our plants. Plus, we also have both our plants are running fully, and all over India, other 25 warehouses which we have are fully operational, and if required, we will shift some material from other places also. So we don't anticipate any sort of disruption to our customer supplies.
Pankaj Kumar: Okay, great. Thank you, and all the best.
Manish Gangwal: Thank you.
Operator: Thank you. Next question is from the line of Mukul Agarwal from BMC Advisors. Please go ahead.
Mukund Agarwal: Hello, sir. Thank you for the opportunity, and congratulations on the great set of numbers. Hello? Am I audible?
Manish Gangwal: Yeah, please go ahead.
Mukund Agarwal: Sir, I wanted to know how does H2 look like compared to H1?
Manish Gangwal: Sorry, in terms of which parameters you are asking?
Mukund Agarwal: In terms of sales.
Manish Gangwal: Sales?
Mukund Agarwal: Yes.
Ravi Chawla: Sorry, what's the question?
Manish Gangwal: How does H2 look like?
Ravi Chawla: So, you see, for us, Q1 has been very good growth, 17%. We mentioned there that supply security was also an added element, but obviously we did very well. Q2 has come at 16% growth, which again a good robust quarter. If you look at normally, H2, when the festive season comes in October, November, December, and then January, February, March is also, H2 is normally having good conditions. We are expecting that H2 will be good, but because you see, H1 has also had a bit of a, I would say, because of the supply issue, we expect H2 to have the normal 3% to 4% growth in the industry. 3% to 4% growth which lubricant industry takes in terms of average lubricant growth, and we will do 2 to 3 times that.
Ravi Chawla: That is the way we look at H2, and we are hoping that, of course, the situation for us is always better because we have been able to push some other segments. There is little bit weak demand coming in from the agri season as we look at this month, and that is, of course, something which we will have to factor in. But we will obviously try to push to get that 2x to 3x growth, which will take us close to double-digit growth in the H2 in volume terms, in lubricants.
Mukund Agarwal: Oh, okay, sir. And also, if the crude prices from here rises, will it be possible for us to pass on the price to the consumer and maintain the same margin?
Manish Gangwal: We have to actually have a very close watch on the crude movement. As we all know, and we have been briefing our investors on many earlier occasions, base oil, which is our key raw material, which is a derivative of crude, has a time lag in terms of the crude effect coming to base oil. We have to wait and watch. So far, we are not seeing any major change in the base oil pricing of the recent crude rally, which is from $100 to $115. But we have to clearly keep watching that very, very closely. If required, we will have to take calibrated actions on pricing. But as of now, we are not seeing that in the base oil. We carry inventory also for at least 45 days to sometimes 60 days of base oil, which are there.
Manish Gangwal: Not immediate one, but if the crude sustains at these levels and rise further, we may have to take certain actions to pass on further price increases.
Mukund Agarwal: Okay. And sir, also, like in the multiple con calls mentioned before, we have been saying that right now we are targeting a margin of 12% to 14%, but in the coming time, we will target it to 14% to 15%. By which year do we start expecting those kind of margins?
Manish Gangwal: Our trajectory in the medium to long term is to go to that 14% to 16% band, which we have been highlighting earlier also. We have to also factor in that what has happened in the last 6 months is a quite inflationary situation, where our top line has gone up significantly, whereas our endeavor is to protect our per liter margin. That is why we have been guiding our investors to focus more on per liter, because if your top line and bottom line goes up by the same amount, you know the percentages drop. That is where we are seeing that this time also we are at 11.8%, although per liter-wise, perhaps we are slightly higher than our even previous years.
Manish Gangwal: Our endeavor is to protect per liter, and whenever there is an opportunity and the prices stabilize, we will again start our journey towards 14% to 16%. But it is on a medium to slightly medium-term basis. It is not going to happen in 1 to 2 quarters.
Mukund Agarwal: Okay. And sir, this year also, will we be passing on similar dividends compared to last year, like the percentage-wise, in terms of profit?
Manish Gangwal: Over the years, we have been increasing our dividend payouts, and last year, I think we had around close to 65% to 70% dividend payouts. And obviously, we are looking at utilization of cash, which we carry on the balance sheet very, very closely. We keep looking at our other strategies to be implemented in terms of M&A, et cetera. And if there are opportunities to invest money in terms of our existing business or adjacencies around the businesses which we are looking at in terms of M&A, we will be prioritizing that. And if we continue to generate cash, obviously, we would like to return the cash to shareholders based on our past trends whenever we are surplus and we do not have an immediate utilization of cash.
Mukund Agarwal: Okay, sir. Thank you. That is all from my side, sir. Thank you.
Manish Gangwal: Thank you.
Operator: Thank you. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. Next question is from the line of Dhaval from Choice International Limited. Please go ahead.
Dhaval Popat: Thank you for the opportunity, and congratulations on great set of numbers. My first question is on revenue for Tirex for H1, if it is possible for you to provide any color on that. Second, if possible, sorry if I have not been on the forefront, but B2B, B2C share that you have right now as a part of the revenue, and where do we expect the B2C share to be probably 1 year down the line, if you can provide some color on that?
Ravi Chawla: On Tirex, Manish will add, but we have had a good quarter. I think Tirex is 78% growth in revenue. Of course, the bases are low, but still we have done, I think last year was INR 18 crores, now we have done about INR 33 plus. As you can see that EV cars are selling more, we also see the buses going up. So, requirements both in terms of the OEMs, the kind of CPOs also we have started talking to. I think for us, Tirex is, as we also announced, we are going to take the capacity up to 3,000 chargers, and that will happen sometime end of this year. Clearly for us, Tirex with a good portfolio in the DC market, buses, we are now obviously also looking at expanding the product portfolio.
Ravi Chawla: So, good quarter to look at how the EV requirements in terms of chargers are going up. So, a positive thing, and of course, we are also looking at some segments like mining and some construction equipment who are going to use this. A lot of synergy with our software as a service company, ElectreeFi, is going to materialize, and we are seeing we are adding new OEMs there. Also, glad to share that a lot of private buses and construction equipment is also now looking at options. So, a good quarter, Q2 for Tirex, and we will also be having the expanded capacities which will come and new products which will be in the pipeline. I think the second part you asked on B2C. On B2C. So, B2C business is also dependent on our brand and, of course, our distribution and distributors.
Ravi Chawla: Happy to share that distribution growth is going well. We used to talk about 90,000 outlets, but that is growing by about 10% to 15% quarter. Every quarter, we try to take it up over previous year, and we have seen a 16% growth in terms of our number of outlets. Also, given our brand is number 2, we need to obviously create more touch points. We are investing back with the mechanics, et cetera. We expect that our B2C growth will at least be close to that requirement of 2 times the market growth rate. In fact, we want to exceed it. But given last quarter, there were some challenges on that, and we will focus on getting at least 2 times growth to the market in terms of the B2C segment for ourselves. We are in the right direction there.
Ravi Chawla: H1, we have seen 2 times the market growth rate in B2C, just to clarify to you.
Dhaval Popat: Okay. That is helpful. Thank you.
Ravi Chawla: Thank you.
Operator: Thank you. Next question is from the line of Arya from Emkay Global. Please go ahead.
[Analyst] (Emkay Global Financial Services): Thank you for the opportunity, and congratulations on a good set of numbers. My question is regarding the future outlook as to the base oil prices are still elevated, and with base oil prices moving with a lag of almost 1 month or 2 months, the incremental uptick in the base oil prices is yet to be seen. So, how do we see our Q3 and Q4 from the cost point of view? Also, are we looking at any price hikes or any other price hike planned for the upcoming quarters? That's it. That was my question.
Manish Gangwal: Well, I think we replied just in the previous question. Some participants asked for this similar thing. We have already replied to this question. But just to reiterate, we are watching very closely the crude movement and its impact on eventually base oil. Some of our other cost components like additive, etc., have been strengthening further in terms of cost, and additive companies have been taking some prices hikes. But we have to wait and watch for the sustainable rise in crude, because the short-term movements in crudes are really not impacting base oil, because it has a time lag, and by the time it absorbs the increases, there is sufficient time to recalibrate. So, if crude sustains at an elevated level and it impacts base oils in a down-the-line 40, 50 days, we may have to look at price hikes segment-wise.
Manish Gangwal: But again, we have taken enough price increases so far to pass on the current impact and protected our per-liter margins. Our endeavor will be to continue to do that and keep recalibrating based on the movement in base oil and other input costs.
[Analyst] (Emkay Global Financial Services): Sure, thank you. That was my question.
Manish Gangwal: Thank you.
Operator: Thank you. Next question is from the line of Dhwani from Equitree Capital. Please go ahead.
Dhwani Nemavat: Hello, am I audible?
Manish Gangwal: Yes, please.
Dhwani Nemavat: Sir, first of all, congratulations on good set of numbers. First, I wanted a clarity on Tirex revenue of INR 33 crore. Was this for the quarter or was it for the H1?
Manish Gangwal: This is for quarter two.
Dhwani Nemavat: It is for Q2. Thank you, sir. The question that I have is, what is the cumulative price increase taken across our lubricant portfolio since 25 September? How much of the input cost inflation have you passed on, and is further pricing action expected?
Manish Gangwal: So again, Dhwani, we have just replied in the previous question, the same.
Dhwani Nemavat: Can you quantify it or something?
Manish Gangwal: We just want to again highlight that we operate in many segments. We have our B2C, we have OEM businesses, we have B2B businesses, industrial businesses. So, each segment demands different pricing actions. To give you an idea, in channel business, which is our B2C, we have taken three price increases so far. In OEM businesses, which is a good part of our business, we have quarterly price variation clauses, and we are in a position to pass on or pass back depending on how the input costs move. Of course, in these times, last six months, most of the OEMs have been helping us with monthly price variations. Because the movement in raw material costs was so fast and swift that we had to re-approach them with monthly requests. So, it is different.
Manish Gangwal: B2B, you have to do a bit of negotiation, and you have to work with the customers and understand and explain our price increase rationale. That takes slightly longer time. Overall, different segments have different pricing actions and pricing levels, and they operate at different price points also. Depending on that, we are calibrating. Our endeavor at the end, we keep reiterating, is to protect per-liter margins.
Dhwani Nemavat: Okay, understood. And sir, have we gained any market share recently?
Ravi Chawla: Yeah, so we have been actively growing 2x to 3x the market, I think, over the last many, many years. So, Dhwani, if we are continuing that with just 17%, 16%, I think we are gaining market share quite well in terms of overall market. I think we are 7% to 8% total market share. So, if we are growing 2x to 3x the market, we would definitely be gaining that market share year on year, quarter on quarter.
Dhwani Nemavat: Okay, sir. Thank you. All the best.
Ravi Chawla: Thank you.
Operator: Thank you. Next question is from the line of Hardik from ICICI. Please go ahead.
[Analyst] (ICICI Securities): Thanks for the opportunity, sir. Couple of questions. Number one, if you can just help us in giving a guidance for the AdBlue volume for rest of the year and for next financial year. Secondly, on the pricing part, if you look about the blending pricing versus Castrol, what would be the pricing gap between us and Castrol? Thirdly, if you can just help us understand, as you mentioned that our share would be 7% to 8% and we are growing at 2x to 3x of the industry. By what percentage OMCs' share would have dropped in last 6 to 12 months?
Manish Gangwal: Coming to AdBlue, you see, this quarter has been slight dip, as we have highlighted earlier, and being a monsoon quarter, the volumes are usually lower. But going forward in H2 as well as in the coming years, our endeavor is to now grow AdBlue volumes near double digit. We focus on growing because AdBlue is only applicable to BS6 vehicles, and as the population of BS6 vehicles goes up, we see the demand going up. But that will be now, it will not be exponential the way it used to be last 5 years. It will be now calibrated in line with the market growth and the vehicle population of BS6. We estimate that we should grow our AdBlue volumes by double digit, 10% to 15% is what our guidance has been in the past. We stick to that going forward.
[Analyst] (ICICI Securities): Okay. What about the pricing gap between Castrol and us?
Manish Gangwal: We can comment on us. Our price point based on various strengths in our product categories. In case of, for example, we have a very strong brand in terms of our two-wheeler motorcycle range and in terms of our diesel engine oils, which are really strong products with a lot of USPs in the market. Our pricing positioning is quite good in those categories. There are certain categories where we have to keep working and increase our brand position and keep taking pricing actions accordingly. Pricing depends on various segments and product categories. We will not be comparing with anyone, but we have our own price monitors and price positioning where we operate.
Ravi Chawla: Yeah, just to give you one more input. As a brand, we believe we are the top 2, top 3 in the categories, most of the categories, overall close, joint top 2. Based on that, the positioning can change, and of course, it aligns to it rather not change. That is really where we pitch ourselves in terms of the bazaar market.
[Analyst] (ICICI Securities): Okay. In terms of what market share the OMCs would have lost in last 12 months?
Ravi Chawla: We don't have that data right now. As you look at the industry, these are all estimates. In terms of gaining market share, that's really not available right now.
[Analyst] (ICICI Securities): Okay. Sure. That's really helpful. Thank you, sir.
Operator: Thank you. Next question is on the line of Varatharajan from Antique Limited. Please go ahead.
Varatharajan Sivasankaran: Thanks for the opportunity, sir. Look at the freights and other incidental costs of trade these days. Are we also seeing similar kind of a thing in terms of procurement of base oils? Apart from the quoted prices, is there a significant escalation in the freight, insurance, and the other incidentals?
Manish Gangwal: Mr. Varatharajan, I think the freight rates have gone up, sea freights have gone up because everybody is recalibrating their supply chain, including the refiners where from we are buying most of our base oil. Everybody is facing those elongated periods of vessel movements when the Strait of Hormuz is not operating fully. Obviously, those prices reflect in the overall base oil cost. We have our most of the purchases on CIF basis. All these are built in the base oil cost or the global price indices. There is no additional incremental impact which we see because our prices are always CFR, CIF basis.
Varatharajan Sivasankaran: Got you. Thanks a lot.
Operator: Thank you. Next question is from the line of Raghav from BMC Advisors Private Limited. Please go ahead.
Raghav Agarwal: Yeah. Congratulations on the good set of numbers, sir. My question is, over the last two quarters, we have seen an unusually significant change in inventories in the consolidated P&L, with inventory adjustments of approximately INR 109 crore in Q1 FY27 and INR 88 crore in Q2 FY27, compared with relatively insignificant amounts in the preceding four quarters. Sir, can you give a reason for that?
Manish Gangwal: No. Prices have gone up. As we have been highlighting that the prices have gone up always because of the pricing being higher for end products, whether it is for our lubricant business or for our charger business. There also the copper prices, et cetera, have gone up significantly. Overall, these inflationary impacts are there. Plus, we have had certain extra buying to secure supplies, because sometimes when we get a cargo and we want to secure for future, we have been trying to buy those tactical buying also. The combined impact is that you see elevated values. But if the situation comes back to normalization, whenever it comes, we will see moderation in these too.
Raghav Agarwal: Okay. Thank you, sir.
Manish Gangwal: Thank you.
Raghav Agarwal: Thank you.
Operator: Thank you. Next question is from the line of Devang from Sameeksha Capital. Please go ahead.
Devang Bhatt: My question was on the EBITDA to CFO conversion, which has been low for last H1 and as well as this H1. Has some seasonality come into our cash flows, how they are generated between H1 and H2?
Manish Gangwal: There is no particular pattern about it. It is that this H1 has been really about this crisis which we have been explaining in earlier questions, that the prices have gone significantly higher and we had to deploy that additional working capital. Mostly you are seeing this because of the additional working capital requirements. Yes, last year also H1 somehow had a similar pattern, but there is no particular seasonality which comes into effect here. It is just that it is coincidental that both H1 have been similar. But this particular H1 had a clear situation where globally the prices have gone up and we had to support our customers also with additional receivable days or amount.
Devang Bhatt: Till the time crude and base oil prices remain elevated, our working capital will also remain elevated?
Manish Gangwal: No. So as we are seeing that the current cost dynamics we have factored in already in the H1 cash flows. So from here on H2, if the prices remain at these levels or trend or in this range, the incremental cash generation should be all added to the cash flows, rather than going into working capital. We are pretty much close to the peak of the working capital, if things remain at the current levels.
Devang Bhatt: Got it, sir. That is all for me. Thank you.
Manish Gangwal: Thank you.
Operator: Thank you. A reminder to all the participants, anyone who wishes to ask a question may press star and one on their touchtone telephone. Next question is from the line of Dhaval Popat from Choice International Limited. Please go ahead.
Dhaval Popat: Yeah. Thank you, Aparna. I just wanted to have more color on the cash deployment. Already about INR 1,200 crores, and I understand this will just keep growing with time. So, if you can provide some color on how would we deploy this and at what pace or something?
Manish Gangwal: Mr. Dhaval, again, we have just answered this point in the previous question, that we have been cognizant of the fact that we carry INR 1,200 crore of cash on the balance sheet. And the plan is to clearly have a war chest for M&A opportunities within the lubricant space, within our current business, adjacencies around that, where we are focusing very clearly on industrial segment as a big driver of growth for the Indian economy, as well as for the lubricant sector in the coming years or decade. Plus, we are looking at mobility as a big driver of Gulf Oil's next growth phase. And we keep looking. We have done some investment, as you all know, and we are exploring opportunities in and around those EV businesses and the value chain. And also, we keep ourself open to looking at M&A opportunities.
Manish Gangwal: So, that's how we have been watching the space. And also, in the interim, we have increased the dividend payouts as well. Wherever there was a need that we felt that we don't have an immediate need of the cash, we have increased the payouts to now close to 65% to 70% as well.
Dhaval Popat: Okay.
Manish Gangwal: Mr. Dhaval, hope you got your answer.
Dhaval Popat: Yes, sir. Thank you. Thank you so much.
Manish Gangwal: Thank you.
Operator: Thank you. Next question is from the line of Prashant from Gulf Oil. Please go ahead.
[Analyst] (Gulf Oil): Hello, sir. Thank you for the opportunity. Can you please update us about the ongoing CapEx plan and the progress on the ongoing construction?
Manish Gangwal: Yeah. So, the expansion at Chennai is on track, and we should be able to have the increased capacity by the end of this quarter. Silvassa capacity expansion is progressing well, but we see that there can be some 1, 2 months of delay, and the spillover may happen to Q1 of next year in terms of readiness, as against our earlier target of March 2027. So, maybe we should be ready by Q1 of next year. In the interim, we are running third shift at both the plants wherever required to fulfill our needs.
[Analyst] (Gulf Oil): Okay. And sir, how much is the capital outgo for this ongoing CapEx for both plants included?
Manish Gangwal: We were estimating INR 55 crore earlier, which was announced, and we see that there is an incremental need of INR 5 to 7 crore, which the board has sanctioned recently. So, now the total CapEx for expansion is around INR 60, 62 crore.
[Analyst] (Gulf Oil): Okay. Thank you very much, sir. That is it.
Manish Gangwal: Thank you.
Operator: Thank you. Next question is from the line of Ankit, an individual investor. Please go ahead.
[Shareholder] (Private Investor): Good evening, sir. Congratulations on a very good set of numbers.
Manish Gangwal: Thank you.
[Shareholder] (Private Investor): I have two questions. One is on the personal mobility front, or overall Lubes front, if you can just mention the split of B2C and B2B channel. Within the Lubes segment, what will be our exports contribution?
Manish Gangwal: B2C, B2B ratio has been in and around 55/45. 55 being B2C and 45 being B2B, roughly.
[Shareholder] (Private Investor): Okay.
Manish Gangwal: In this quarter, it was slightly around, let's say, around 50/50, I would say, where B2C, B2B were 50/50. But in general, if you take historically and going forward, it will be in the range of that 50, 55%, which is B2C. That's our range, because we have a very fast-growing industrial business as well. That's the ratio we are looking at going forward. In terms of personal mobility, Ravi, you may want to add.
Ravi Chawla: Yeah. Personal mobility, we are quite strong in about 21% of our volume comes from personal mobility, but we have a large motorcycle, both with the Bazaar and the OEMs. Our market share in PCMO, passenger car, is less than 5%. That is where we are making a lot of investments. We are looking at new independent workshops with a program called Gulf Car Stop. While we don't want to lose sight on our motorcycle, we've just launched the Pride campaign. I think passenger car, we want to make further inroads, and I think there, again, there is a lot of focus. Ideally, we'd like our personal mobility to go up by at least 3, 4%, with a large part coming from the passenger car.
[Shareholder] (Private Investor): Sure. Noted, sir. Just one more clarification. On the 45% that you mentioned for B2B, that includes the industrial bit, or is it industrial is separate from this?
Manish Gangwal: No, it is including industrial.
Ravi Chawla: Yeah. Ankit, just to add, in terms of our motorcycle range and car range, we are moving towards a lot of high-end synthetic products. Just to tell you, that is another endeavor which hopefully in the H2 we will see definitely some traction. Yes, this is a range which we want to, over a period of next three to four years, make it synthetic range about 10% of our portfolio.
[Shareholder] (Private Investor): Sure, sir. Noted. And sir, will it be safe to assume that the exports should be around 9% to 10% of the overall lubes business?
Manish Gangwal: Yeah, in the last six months, exports have gone up because of the global supply situation as well, supply-demand situation. We have been able to export even higher amount. As we speak currently, it is in the range of around 10%.
[Shareholder] (Private Investor): Sure. Thank you so much, sir. That is it from my side.
Manish Gangwal: Thank you.
Operator: Thank you. Next question is on the line of Mohit from NDM Investments. Please go ahead.
Mohit Mirchandani: Hello. Congratulations on a good set of numbers, sir. My question is on other expenses. It is now INR 283 crore this quarter versus INR 321 crore last quarter. Could you please explain the rationale for this reduction?
Manish Gangwal: Look, there are many elements in that other expenses. The big components, I would say, are freight, OEM-linked royalties. It depends on the OEM sales, how much is the percentage of OEM sales to the total sales, that also determines. And the AdBlue volumes have been lower, so that reduces the freight cost. Overall, these are the two major factors. A&P, of course, remains in the similar level to slightly higher because we had a mega campaign, as Ravi was highlighting, on our Gulf Pride range of, which is a motorcycle product. But there are these two, three major items which impact, which are, some of them are linked to volumes, some of them are linked to the mix where we sell.
Mohit Mirchandani: Got it. Thank you.
Manish Gangwal: Thank you.
Operator: Thank you. Next question is from the line of Probal Sen from ICICI. Please go ahead.
Probal Sen: Yeah, thank you for the opportunity, sir. Excellent set of numbers. I just wanted to understand the margin profile and the outlook. Just your thoughts on, obviously right now it is a fairly challenging environment. One understands even with price increases, one cannot really hope for a margin expansion. Just in terms of the other aspect, Ravi sir mentioned about the OEM franchisee workshops driving volume growth, particularly in this quarter and probably in the last couple of quarters as well. Is there a sort of move back to a more B2B kind of a share, also sort of maybe driving a little bit more muted margin profile in the current environment?
Probal Sen: If one were to really look at the next 2 to 3 years, assuming B2B or OEM relationships continue to drive volume growth, should we then expect margins to maybe stay at the lower end of your target band, or does that not really have any relevance? Just your thoughts on the whole scenario.
Ravi Chawla: No, so it is a competitive field. We have a segment-wise strategy. As you rightly said, we have OEM, franchisee workshop, and bazaar. The strategy is obviously to go to a higher margin band. The current last 6 months have been very challenging. If you look at our UNLOCK 2.0, it is about acceleration, premiumization, transformation. We have been talking about that in some forums. When you saw premiumization, it is premiumization in all our businesses, including OEM, franchisee workshop, even if you look at our bazaar business. And bazaar business is where we believe the brand being number 2, and we continue to invest in the brand. A distribution needs to be obviously at a higher level. So I think for us, and I spoke about some of the motorcycle products like Gulf Syntrac. If it was an ideal world, then premiumization would have kicked in the margin.
Ravi Chawla: But as we know, the challenging environment is there. We are not trying to increase more in a particular segment, but if we get business, we will not say no. So if we get business, we will go for volume and the margin we are making, and each segment will make their margin. So I think that's been our philosophy. So obviously, we want to grow in B2C, we want to grow in high products, but if we get more OEM franchisee workshop and it is going to be profitable, we will not say no to it. But there is no attempt to go after that and change the sort of way we want to approach this. As Manish was also saying, it's 55-45, B2C, B2B.
Ravi Chawla: We would be happy that all go up together, and wherever there's an opportunity in the segment, we would go ahead because the market is going to be dynamic.
Probal Sen: No, just sir, I appreciate the fact. I was only referring to the fact that if the ratio were to remain in the current zone, is it fair to then assume that, I'm not saying that we are necessarily targeting that kind of thing, but if that is the kind of mix that happens, given how challenging the environment is anyway, looking at, or rather as analysts, we should be factoring in maybe the slightly lower to mid-range of the margin guidance rather than factoring in expansion.
Manish Gangwal: No, so I think as we have been highlighting in some of the earlier questions also, that the percentages in these short-term inflationary environments are slightly optically looking lower, whereas, as a per liter, our margins have been very stable to rather grown. If you see over the last year, H1 or over the last year, Q2 year-over-year basis as well, even sequentially. Even from Q1, if you see, our per liter margins have gone up. So, what we are trying to say here is that our endeavor is threefold. Even if the mix remains, the bases are slightly different. If our B2C grows at a certain percentage, let's say, 2x the market, and our B2B grows at 3x the market also, the margin profile is so different that that 2x growth will be higher, much higher in terms of margin contribution than the balance.
Manish Gangwal: Even if we protect this range of 55% to 45% and grow our volumes faster in both categories, 1x, 2x, and 1x, even 3x, our margin profile should go up. With the incremental volume, the operating leverage, which we keep talking about, obviously always kicks in, and that should add up to the percentage in margins at the EBITDA level. I think we are very confident that our eventual trajectory of targeted 14% to 16% will happen. Plus, as Ravi highlighted in earlier question, that focus on synthetic products, high-end products, continues to be very strongly driven within the company. As and when the percentage of that contribution goes up, our margin profile will keep further improving. With that, I think over a medium term, we are confident of going higher in that trajectory.
Probal Sen: Got it, sir. If I may ask just one last question. From a market perspective, have you seen any difference in the way that the OMCs have been basically operating in the lubricant market? I ask this only in the context of their priorities being to supply essential fuels in the market, prioritizing LPG production at the cost of even petrochemicals and so on. Has that also had an impact in your view of whatever you are seeing in terms of their momentum or aggressiveness in the lubricant market in the last 6 months?
Ravi Chawla: Well, you see, the OMCs, obviously, they form 30% to 35% of the market. In fact, they are expanding their base oil capacity to obviously have less imports and also use the base oil to manufacture again. They were also augmenting the capacities for looking at making more products in-house. I think that's one way. I think the market is quite attractive, and everybody is obviously having a certain market share based on their workings. In terms of a pattern, I do not know, because the question is obviously going to be, they have a lot of other businesses besides lubricants. The focus is going to be multifold. I think for us, it is to focus on what we believe we are good at, and that we have continued to do for the last 15 years, as you know, and we will continue further.
Ravi Chawla: There is no change in that particular way we are looking at things. Of course, we want to see the base oil supplies might actually improve for us, because if they are offering us. On the lubricant side, I think it's more or less similar to what we have been seeing them in the past decade and more, even more.
Probal Sen: Got it, sir. Thank you so much for the detailed answers. Back to you, operator.
Operator: Thank you. That was the last question for today. I now hand the conference over to the management for closing comments.
Ravi Chawla: Well, before we come to the comments, I would like to share this news with all of you. Some of you may know that Gulf as a brand was born in 1901, and that was in USA as one of the seven oil sisters. So, we are completing 125 years on 10 November this year. So, we have announced, obviously kicked off our celebrations yesterday on the 125th year. But we are a young brand. With the Hinduja Group, it's been there more than four decades. We had a kicking off the celebrations just yesterday, where we had our chairman, we had brand ambassadors, MS Dhoni and Smriti Mandhana, and we had a kickoff of the celebration. So, happy to share with you.
Ravi Chawla: The theme of this launch, not launch, the celebration than launch was to talk about our new brand positioning, which is "Kuch Behad Kar" for India, which is in line with our global positioning of together we are unstoppable. It's also to define performance beyond limits. The theme yesterday was Born to be Behad. So, we believe that we have always set a limit and set a limit beyond what is happening and the limits we have crossed, like our long-drain oils, like our 2 to 3x growth in the market. Just to share with you, happy to celebrate. Not many brands reach that far, but very proud of that, and thank you for all your support. In terms of outlook, we continue to look at our, always been our strategic and operational executional priority to grow 2 to 3x the market.
Ravi Chawla: We see that as continued momentum, which you have seen in Q2. In fact, Q1, Q2 have been well ahead of that. We continue to have agility in our execution. We are looking at, obviously, timely interventions in terms of making sure that we get the per liter margin, as Mr. Manish Gangwal has been talking about. Obviously, have a sustainable EBITDA margin band. One of the changes we are making from our master brand is to look at category brands, which will help us to increase further market share across categories. We are quite strong with OEM franchisee workshops, B2B. We will continue doing that. We will continue trying to gain customers, and definitely focusing on that. The coming quarter is a festive quarter.
Ravi Chawla: Except the agri, which I mentioned, we see all other things to give us the growth that the market has been giving, 3% to 4%, and where Gulf has been able to grow ahead of the market. In Tirex, as I mentioned to you, hope we will get our plant expansion done in this coming quarter, and hopefully start the changeover to having higher production, which will give us an opportunity to leverage it. Also, our software as a service company is also gaining traction in terms of the whole EV environment, where India is seeing decent traction in cars. Just to give you an example, the number of cars, EV cars sold in the H1 are nearly equal to what was sold in the full year last year. More models coming in.
Ravi Chawla: So, a good sort of core and, I would say, transformation in terms of looking at this mobility segment. Again, synthetics premiumization, we will continue to focus on that. So, we look forward to catching up with you. Again, as I started with greeting you for the festive, I leave you with the same thought that happy Diwali to all of you and your families, and look forward to catching up with you again. Thank you so much.
Operator: Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
