Gulf Oil Lubricants India Limited (GULFOILLUB) Q3 FY23 Earnings Concall Transcript

Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) Q3 FY23 Earnings Concall dated Feb. 06, 2023.

Corporate Participants:

Ravi Chawla — Managing Director & Chief Executive Officer

Manish Kumar Gangwal — Chief Financial Officer

Analysts:

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Guneet Singh — CCIPL — Analyst

Sweta Jain — ANFL — Analyst

Aditi Chaturvedi — EY — Analyst

Harsh Maru — Emkay Global — Analyst

Keshav Garg — Counter Cyclical PMS — Analyst

Hemal — Individual Investor — Analyst

Sabri Hazarika — Emkay Global — Analyst

Chirag Fialoke — RatnaTraya Capital — Analyst

Sahil Kamdar — Individual Investor — Analyst

Babita Chetwani — Individual Investor — Analyst

Rahul Chandra — Sunidhi Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Gulf Oil Lubricants India Limited Q3 FY ’23 Conference Call, hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nitin Tiwari. Thank you and over to you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you, Mike. Good day, ladies and gentlemen. On behalf of YES Securities, I welcome everyone to Gulf Oil Lubricants India Limited’s Third Quarter FY ’23 Earnings Call. We have the pleasure of having with us today, the MD of Gulf Oil Lubricants, Mr. Ravi Chawla; and the CFO, Mr. Manish Gangwal.

I will now hand over the call to Mr. Chawla for his opening remarks, which shall be followed by a question-and-answer session. Over to you, sir. Operator, can the management hear us?

Ravi Chawla — Managing Director & Chief Executive Officer

Sorry, we were on mute.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Yeah.

Ravi Chawla — Managing Director & Chief Executive Officer

Thanks, Nitin. Good day, good evening to all of you.

Let me start by wishing all of you a very happy New Year. So this is the first time we meeting in the New Year, and hope all of you are well. This is the quarter three call for the investors. I’d like to start off by sharing our delight that we’ve had of all round good Q3 and many milestones achieved, but let me start with revenue, which has grown year-on-year by 30%.

We’ve also seen crossing INR90 crores for the first time with the 17% growth and backing all this up, we have seen a double digit 10% growth in volumes, which definitely for us has been a good achievement from the team, and where we saw an environment where we had some subdued demand from the rural especially Motorcycles segment, there were continued cost pressures and some of the key inputs and the iron ore was depreciating. But we have seen excellent all round efforts and which really shows that we have a strong brand and business model. We continue to deliver three to four times the market growth. And definitely we are gaining market share.

And distribution again, it’s growing well, double digit growth in distribution, a lot of efforts on the ground both with the ATL, BTL, we investing in our brand. And really this sets us up well for the future growth trajectory. While we saw cost being going up in some ways, it has steadied, but margin management will continue to remain a key focus area and we’ll use a balancing approach of volume versus margins, as we have seen some stability in the base oil cost and definitely we are looking at reviving growth in agriculture, two wheeler, and rural demand, which as you saw in the budget, a lot of good things coming in.

So I think given all this, and of course, last quarter, we saw the commercial vehicle oils doing very well and we also saw the B2B segments oil is going — demand for oil is going up. And definitely this is really good for us. The overall B2C, B2B ratio in Q2 was 58, 42, there was some slowness we have mentioned in MCO agri. But really, we have seen all of the segments doing very well, excellent growth. We’ve also seen that a lot of the initiatives we have taken in terms of our distribution are coming off distribution, we are estimating now has gone up to 80,000 as compared to 70,000 earlier.

And we are definitely looking at opportunities to grow our market share further in the passenger car, motor oil segment, where we have seen again good demand coming in. Overall, I would say that, you know, lot of the programs we have put in are giving us results. Demand should be good in the coming quarter and we should be able to manage our margins. To add a bit on the EV fluids, we are happy to share that we tied up the three OEMs and we’re looking at other two OEMs where we can supply EV fluids. We also definitely have look at certain things in the EV value chain like about Indra chargers, which we are now piloting to see how we can localize it and working with our partner electricity to get more customers.

Some more decisions on the EUV will be discussed at Board level. So that should be some more moves into that. Ask Manish to come in with a few more details and then we’ll later on happy to take questions from all of you. Thank you.

Manish Kumar Gangwal — Chief Financial Officer

Thanks, Ravi.

So, yeah, I think as Ravi mentioned, it was a very good quarter in terms of overall profitability with EBITDA approaching INR90 crores and we have seen us slight sequential improvement in the EBITDA margins as well. At the same time, during the quarter, we have seen that gross margins also stabilized at around 37% QoQ in spite of an higher AdBlue offtake during the quarter also. So that’s also giving us a signal that the input cost side pressures are stabilizing. Also we would like to highlight that, during the quarter, we had good improvement on the working capital side. And our overall working capital has improved by nearly 10 days in the gross working capital cycle. So from last quarter, September quarter, 114 days to we are nearly at now 100 days. So which is a very good improvement I would say. And with that, our cash flow from operations for the nine month period is INR880 crores. So which is a fantastic sign I would say.

Overall finance cost continues to remain high because of the volatile iron ore versus dollar, because we import a lot of raw material, which are in dollar denominated. So during the quarter also out of INR10 crores of finance cost, nearly INR4.5 crores is the forex impact of mark-to-market. But other than that, I would say, overall we have seen an improvement in the profitability at PAT, PBT level also.

Overall for the nine months period also, we have our revenue has grown at 42%, EBITDA growth at 30% and PAT growth at 15%. So overall, these are good numbers. I would say, also during the quarter and recently, last 10 days ago, we have been awarded with the Plaque award for the Best Excellence in Financial Reporting from the Institute of Chartered Accountants for our annual report ’21, ’22 in the category of 500 to 3,000 crore companies, which is a very, very hardening thing for the entire team here, and of course, it gives a confidence on our financial reporting statements and the disclosures. So that is also, I would say, I want to highlight.

Yeah, over to Ravi, again. He wants to add few more points.

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah. So as we have seen the Motorcycles segment, which I mentioned is seeing some — sometimes different demand coming in rural. We have introduced — we’ve seen consumer shifting to brands which are definitely at the lower end. To address this, we revamped our economy segment brand called Gulf Zipp. And we’ve had two offerings, which have been launched at different price points. So this will help us to cater to the rural markets and some of the lower end market. So two brands like Gulf Zipp Smart and Gulf Zipp Plus. So hopefully this will help us to definitely get the growth back.

Rural demand, which has also been subdued — the company believes in long drain oils, as we’ve been talking about. Our flagship brand Gulf XHD Supreme Plus has been now improved further. And we had launched it with a longer drain interval with a campaign with MS Dhoni. Basically the industry leading benchmark has been set by this XHD Supreme Plus at 1,000 hours, which is the drain interval came on this product and that is the highest in the industry today. So happy to share these two launches, which have happened and will help us to further grow and gain market share in these two segments.

Yeah, Manish.

Manish Kumar Gangwal — Chief Financial Officer

So we can go now to the Q&A.

Ravi Chawla — Managing Director & Chief Executive Officer

Yes. Over to Nitin for Q&A, please.

Questions and Answers:

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Sure. Thank you, sir. [Operator Instructions] We have the first question from the line of Guneet Singh from CCIPL. Please go ahead.

Guneet Singh — CCIPL — Analyst

Hi. Thank you for this opportunity. I have couple of questions. Sir, firstly, I am bit new to the company. So I would like to understand, what would be the impact of EVs on the company in the long term into the lubricants space? So what would be impact of EV? Secondly, I would like to know if we would be having any buybacks in the future in the coming quarters or maybe next financial year? And thirdly, in view of this EV impact, what are the diversification plans of the company? Are we planning to takeover some other firms or are we planning to diversify into new EV specific products or anything like that? So these are my three questions.

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah. So I think, Manish and me will try to answer this question, Mr. Guneet Singh. Basically as we’ve been briefing all of you, the lubricants, as we look at it and also the exports, which is client and others have seen. India is the third largest market of lubricants. And as we see the penetration of vehicles is still going up, whether you take two wheelers, commercial vehicles, tractors, and of course, industrial segment is also going up. So with the growth that we have and the anticipated EV penetration, which will happen mainly in two, three wheelers and buses, cars and the data that we have and we estimate, based on all this for the next 10 to 15 years, we see the lubricant demand continuing to grow at 2% to 3% and that also the exports have given that opinion.

So there is going to be an increase in commercial vehicles, IC engines and all segments. Of course, we are seeing that the two wheeler segment, three wheeler segment, the bus segment, the car segment, you will see EV going to different levels every five years you could take that is there. And that will have some impact. But overall the growth of core lubricants is going to continue for more than a decade. So this is our reading. And we have estimated, even the exports have backed that up.

We are diversifying, as I mentioned during my opening remarks. We have looked at investments in the EV value chain where we can leverage our brand, our distribution and we have various solutions with B2B customers, OEMs. We have announced and invested in a global company, whose into car charges, Indra, and those charges have been tested in India in terms of the performance and we’re looking to bring those in.

And the second investment we have made is in software as a service company, the brand name, ElectreeFi and we are working closely with them to expand our customer base. We have also got a few other areas, we are identifying and we’ll come up with those plans shortly, we had discussion, and we are working on those. So on these two areas, I would like to share this.

And Manish, maybe you can comment on the buyback and add to whatever area.

Manish Kumar Gangwal — Chief Financial Officer

Yes. So see, we have been following distribution policy. We have announced dividend policy as well. Company has — if you see the track record of last 7, 8 years, company has been distributing 35% upwards of the profits back to shareholders, either by way of dividend or last year, we announced the buyback as well. And in fact with the buyback, the payout was apart of 60%. So company is looking into as Ravi mentioned, a lot of investment opportunities in the allied activities in terms of electric vehicles, EV value chain. We are also going to deploy — continue to deploy resources, our capex in our current business of lubricants as it is growing double digit continuously and we foresee the same to continue in terms of growth. So overall, the Board has a no utilization of cash policy and they deliberate and decide on the way forward. So it’s basically, we will not be able to comment on buybacks, but we have a very strong gas distribution in the past, which we can clearly say, which is roughly in the range of 40%.

Guneet Singh — CCIPL — Analyst

All right. Thank you very much.

Ravi Chawla — Managing Director & Chief Executive Officer

Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Sweta Jain from ANFL. Please go ahead.

Sweta Jain — ANFL — Analyst

Hi, sir. Thank you for giving this opportunity. I might have two basic questions, because I’m attending this call for the first time as I’ve recently started talking your company. Sir, my first question is, if you could even give us the revenue and the volume breakup segment wise for [Technical Issues] And my second question is if you could help us understand the margin —

Operator

This is the operator here. Your voice is breaking up in between. If you could go off the speaker phone.

Sweta Jain — ANFL — Analyst

Yeah. Am I audible now? I’m so sorry.

Operator

Yeah.

Sweta Jain — ANFL — Analyst

Yeah. So I needed the revenue breakup and the volume breakup segment wise for Q3 and nine months? Then, if you could help us understand the margin that we have in B2B and B2C? And if you could give us the cash and the receivables number for December? And my last question is, sir, you mentioned about investments in two companies, right, Indra and ElectreeFi, if I’ve got that correct. If you could help us understand, how much investments have we made? And what does ElectreeFi do? And how these two investments are going to help us overall in a EV strategy? So what are we thinking on the EV side on a long term basis? And just if you could explain the industry, like how much are the fluid required for the EV and how does the overall industry? Do you think on the EV fluids is going to shape up, when the EV penetration increasing? Thank you, sir.

Manish Kumar Gangwal — Chief Financial Officer

Yes. So maybe I will start with the revenue breakup and all. So if you’ve seen our press release, we have achieved close to INR2,200 crore of top line for the nine month period. And for quarter three, it was INR781 crores. Typically, our ratio of B2C, B2B sales is 60-40. So 60% is B2C and 40% is B2B. In this quarter, it was 58% B2C and 42% B2B versus last quarter 57%, 43%. So there is a slight improvement in the B2C versus last quarter. But overall, because of the slowdown in retail — in rural and certain segments like agri and motorcycle, we have a scope to further improve our B2C ratios back to 60% in the coming quarters.

On the overall product classification side, roughly 40% of our sale is diesel engine oils. Personal mobility, which is including motorcycle and car oils are in the range of 20% to 22%. Then we have industrial products around 15% and other automotive products are around 25%, which are gear oil greases, Adblue, etc. So all — this is the product break up I would say.

Overall, our gross working capital is around 100 days this quarter at the end of December. And as I mentioned in opening remarks, we are a net debt free company. And close to INR200 crore of net cash is there on the balance sheet. So I think we have covered your financial side. On the EV slide, maybe we can take and explain.

Sweta Jain — ANFL — Analyst

Sir, just volume break up would you able to give?

Manish Kumar Gangwal — Chief Financial Officer

So for the quarter, we had 34,000 KL volume of core lubricants. And Adblue, which is a category which is doing well for us now. That was 21,000 KL for the quarter. So total volume was 55,000 KL.

Sweta Jain — ANFL — Analyst

Okay. Thank you.

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah. On the investments we have made, Indra is an investment by our parent company, Gulf Oil International and us. So we are — we have invested in that and we’ve got in terms of our investment there is about INR30 crores in Indra so far. Of course, our parent company is also investing. And they are in two charges for Destination charging in — at for cars. And we are looking at that product being brought to India.

And in the case of ElectreeFi, this is a company which has software as a service. They provide the software, which connects the vehicles to the whole charging system, to the battery systems, and they provide this platform for many companies. In fact, 40%, 50% of lot of the segments are on this software service. They are expanding now. And we have invested 26% as our stake in their company. And we are helping them grow the customer base.

The way we see this is that, Gulf with its brand, its distribution, and of course, as a mitigation strategy, the EV value chain presence a number of opportunities. So we are started with this, but this is definitely one of the things to take ahead for us. So we’d be coming up with specific areas we’ve been investing and we’ll also look at how we can leverage our brand, our touch points, our distribution, our B2B relations, both in India and in few global markets. So we have done a study and we are going to come up with that shortly.

On EV fluids, currently, we are supplying to switch mobility which is into electric buses, Piaggio, it is into three wheeler EVs, and also Altigreen, which is into three wheelers. We are also given our products for many of the OEMs who are both traditional OEMs and expanding to EV and new OEMs bring in EV. Basically, electric vehicles will not have an engine. So they not have an engine oil. So the consumption is much lower than what an IC engine has, but they would require fluids for transmission break or cooling and those kind of fluids would be required, grease, etc.

So the market is not going to be very large in terms of volume, but it is an important element and we’re being part of the environment here with a good share of lubricants in all these segments. So it would be an actual extend to give EV fluids and it is to be a segment where the product would evolve in terms of the thermoelectric properties that are required in an EV. And that’s really where we have a global portfolio and we are working on expanding that as the business develops. It’s not going to be very large in terms of volume. In terms of the overall — so as I mentioned in my remarks, the core lubricant segment continues to be a segment going in India, which is the third largest market and that continues to give us both revenue and we continue to increase market share there.

Sweta Jain — ANFL — Analyst

Right. Okay. Thank you, sir. I will join again if I have any follow up.

Ravi Chawla — Managing Director & Chief Executive Officer

Thank you, Ms. Jain.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Aditi Chaturvedi from EY. Please go ahead. Ms. Aditi, can you hear us?

Aditi Chaturvedi — EY — Analyst

Yes. Sir, thank you for giving this opportunity. I had a question with respect to the volume. If you can give a breakup with respect to the B2B and B2C? So, yeah, Adblue you have already given. So if you can see.

Manish Kumar Gangwal — Chief Financial Officer

So Ms. Aditi, I think, we have mentioned already that overall lubricant volume is 34,000 KL for the quarter and 21,000 KL is Adblue. And within that, roughly 40% is diesel engine oils. And the personal mobility is around 20% to 22%. Industrial oils are around 15% and others are around 25%. So that’s our usual break up.

Aditi Chaturvedi — EY — Analyst

And can we know the percentage of ASPs in terms of the turnover? And any battery turnovers as of now?

Manish Kumar Gangwal — Chief Financial Officer

This quarter our battery turnover is around INR20 crores. And YTD met around INR60 crore, INR61 crore in terms of our batteries. Rest all is lubricants. Lubricants and Adblue put together.

Aditi Chaturvedi — EY — Analyst

Okay. Thanks, sir.

Manish Kumar Gangwal — Chief Financial Officer

Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Harsh Maru from Emkay Global. Please go ahead.

Harsh Maru — Emkay Global — Analyst

Hello, can you hear me?

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Yes.

Harsh Maru — Emkay Global — Analyst

Yes. So sir, my question is on Adblue. So what do we see the addressable market size for Adblue? And what is our outlook for FY ’24? So that could be on first question. And there is, have we seen translation of cool off in base oil as well as additive prices like improving margins for the current quarter? Is that trend of cost versus cooling off reflecting in the margins? If you can throw some light on that.

Manish Kumar Gangwal — Chief Financial Officer

So we will take the second question first. Basically, you know, we have seen some sort of a stability base oil pricing which is key raw material for us in line with crude. But this has been partly offset by the depreciating rupee. As you see every quarter, the rupee has been on a depreciating mode. If the rupee continues to remain in this range, which is there today and crude also is in the range of around $85. We see stability in the input cost. Although the additive costs, which are another key critical components of the entire process. It continue to remain very high. And other inputs are quite stabilized now, I would say. The packaging cost, the freights, all those have stabilized. So as long as there is no dramatic movement in crude or rupee, we should see stability in the inputs input cost, going forward, which we have seen already partly coming in quarter three as well.

So now on the Adblue market. Ravi, over to you.

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah. So Adblue basically is being used in all BS6 vehicles, mainly heavy duty trucks, passenger cars, medium duty trucks, buses, light duty vehicles, and of course, now with some non-road mobile machinery also. So Adblue normally these BS6 and some BS4 also started using Adblue. So technology, which basically the emissions that come out, it is this liquid that is mixed urea, automotive urea and specialized water, which is spread into it and the emissions they reduced the Nox, and therefore it is a better, it controls the emission levels and you get something which the environment is friendly with. Roughly 3% to 4% of the diesel consumption is used here. And our estimate is that this is about 500 million liters. In 2023, it will be around 500. And there’s an increase happening probably 30%, 40% increase every year, which will happen and that’s the volume this market will have.

And Gulf is well placed because when we’re very strong in the commercial vehicle segment, as you know, we also are present in all the other segments, the light duty vehicles, and we have also been a pioneer in making Adblue, we started our plant many years ago and now we are well poised with our brand distribution and OEM tie ups to leverage this and we are growing along with it. It is definitely a price sensitive segments. So the margins are single digit, but we continue to grow on this. So we would expect that 30%, 35% increase of the market size every year, but we’ll have to basically see how we can further grow in this. And we are well poised to use this opportunity, because it is synergistic with our commercial vehicle and other segments.

Harsh Maru — Emkay Global — Analyst

Thank you so much for the detailed answer and all the very best.

Manish Kumar Gangwal — Chief Financial Officer

Thanks.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead.

Keshav Garg — Counter Cyclical PMS — Analyst

Sir, I wanted to understand that as per drain interval of new engines keep on increasing. So the first fill keeps on getting more and more important and maybe eventually a stage will come, where it will be only first fill, and it might last almost for the whole life of the vehicle. So in that case the industries basically shifting from B2C to B2B. And since B2B margins will be a fraction of the margins in B2C, so then how do we deal with this adverse situation?

Manish Kumar Gangwal — Chief Financial Officer

Yeah. So, Mr. Garg it is not like that, because a lot of the vehicles, whether you take trucks, cars, two wheelers, tractors, the factory fill what you have is generally based on a period and kilometers, after which it has to be changed. So what you’re talking about is highly synthetic lubricants will go into some special applications which are lifetime. And certain cases, you do have products which are very expensive products. So, I would say 98% of the market is still going to be lubrication required chain, based on the kilometers used, and the period of use. So you will continue seeing that the lubricant requirement will continue as the cycle.

Just to give an example, if you have a truck and you’re using a lubricant for 50,000 kilometers or so you will change your lubricant, because the lubricant will then be required for bucking the engine, cooling the engine, making sure the lubrication is fine. So there is going to be a cycle. Normally, what you see is, the vehicle growth in India is 60% an average overall. And lubricant demand is going 2%, 3%, because the lubricants are getting better in terms of their long drain and their usage. So that’s generally how the industry is going to 2% to 3% every year. But you will see this continuing in terms of consumption.

Keshav Garg — Counter Cyclical PMS — Analyst

So, sir let’s say that five years back, approximately what was the bifurcation between B2B and B2C? Now, you said that 60%, 40% is B2B, what was this five years back approximately?

Manish Kumar Gangwal — Chief Financial Officer

We said our split, Gulf split.

Ravi Chawla — Managing Director & Chief Executive Officer

That is Gulf is split is what we spoke about.

Keshav Garg — Counter Cyclical PMS — Analyst

Right, sir. So today it is we are selling 40% to B2B customers. So five years back approximately this must be lower, must be like 30% or even lower, right?

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah. So because our focus has also been on improving our industrial portfolio and there we have seen high-double digit growth over the last five years and we continue to remain quite focused on growing our industrial portfolio as well, because we still have a comparatively lower market share in our industrial less than our overall market share. So we want to grow our both portfolios, automotive and industrial. So the mix is also because of our mix is also shifting rightly because our B2B is also growing.

And when I say B2B, we are also — it is more a route to market. So the product it split for us continues to be around 85% being automotive products and 15% on the our core industrial products. So even B2B customers buy a lot of automotive products those with large fleet where we directly supply. For B2B, for us is where we are directly supplying, including the OEM first fill, factory fill is also a B2B products. We classified that way.

Keshav Garg — Counter Cyclical PMS — Analyst

Right, sir. And sir, also wanted to understand that, all the new fluids that you are selling to your customers. So on a per vehicle basis, how much is the contribution? I mean, let’s say, if it is INR100 for a IC vehicle and for UV vehicle, that is how much? Is it INR15, INR40, INR20, like a ballpark?

Manish Kumar Gangwal — Chief Financial Officer

Well, it depends on the segment. Basically, the engine oil is not going to reuse. Engine oil is definitely more than 50%, 55% of what the consumption of the vehicle. So that will go away, because EVs will not require engine oil.

Keshav Garg — Counter Cyclical PMS — Analyst

So sir, I understand that. Sir, I’m saying, let’s say for INR10 lakh passenger vehicle. If it’s the IC vehicle and we are selling INR100 worth of lubricants for that. Instead of that, INR10 lakh EV of the same segment, how much will be the value of the fluid that we are selling? I mean, I understand that there is no engine oil that we sell to EV, but whatever —

Manish Kumar Gangwal — Chief Financial Officer

Yes. As I told you, engine oil will be roughly 55% plus. So that will go away.

Keshav Garg — Counter Cyclical PMS — Analyst

Okay. So basically, let’s say, so only —

Manish Kumar Gangwal — Chief Financial Officer

It could be even higher for motorcycles. So obviously, when there is an EV vehicle, it will only take transmission oil, brake fluid, grease, some coolants, so these are not — engine oil is the major component in a vehicle.

Keshav Garg — Counter Cyclical PMS — Analyst

Okay.

Ravi Chawla — Managing Director & Chief Executive Officer

Also we have to see that the vehicle population of EV right now is too small to see how much of the vehicles need a replenishment of the EV fluids, and what drain interval. So this is a very evolving area and we need to be continuously monitoring the data for next two, three years to understand this very clearly.

Manish Kumar Gangwal — Chief Financial Officer

And as mentioned earlier, in a few times, the growth in lubricants is going to continue 2% to 3%, which it is today. Because the number of IC engines will continue growing and using this. So we don’t see that the demand for lubricants will come down, even with the EV penetration that is going to happen for the next 10, 15 years.

Keshav Garg — Counter Cyclical PMS — Analyst

Right, sir. Understood. And sir, lastly, just wanted to touch upon one issue, and sir, especially in the light of what you are saying that we are not in a dying business and this business will continue to grow for more than a decade. So, sir it becomes more pertinent to appreciate that our stock price is back to 2014 levels, whereas the business has grown many points. And our price to earnings ratio has also fallen from a peak of almost 40 times in 2017 to less than 10 times today.

Sir, so a share buyback makes more sense when the share is undervalued, so that we can buyback and capitalize on the lower share price to extinguish higher number of shares and increase our earning per share permanently. Sir, so instead of the generous dividend that you’re distributing, if that point can be diverted towards the share buyback, sir, so shareholders will gain a lot and also it will be far more tax efficient. Sir, so kindly consider that solution.

Ravi Chawla — Managing Director & Chief Executive Officer

So, the Board will obviously look into all aspects as you’re suggesting, while deciding the payouts.

Keshav Garg — Counter Cyclical PMS — Analyst

Right, sir. Thank you very much, sir, and best of luck.

Ravi Chawla — Managing Director & Chief Executive Officer

Thank you.

Manish Kumar Gangwal — Chief Financial Officer

Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Hemal, an Individual Investor. Please go ahead.

Hemal — Individual Investor — Analyst

Thank you for the opportunity, and congratulations on the award and on the working cycle production also. I have — actually, you mentioned gross working cycle. If you can provide some basic on networking? What is that networking is also close to a 92 days or 100 days. What is the —

Ravi Chawla — Managing Director & Chief Executive Officer

So networking capital usually is around 55 to 60 days.

Hemal — Individual Investor — Analyst

Okay. Thank you. Now I have another question basically on this cost. I think you — cost of raw materials. You did mentioned everything remain as this $180 to $285 oil and the cost pressures out. What is — and for moment if you remove Adblue, right, for whatever reasons assessing those margin. Are you expecting the margins to be back to the normalized 15% of the last time, as you had mentioned 12% to 14% is what we should look at overall. But if you remove these Adblue volumes that are increasing, are we back to the normalized? You expect this quarter four to be back to the normalized 14%, 15% margin for our core lubricant business, that these two have?

Manish Kumar Gangwal — Chief Financial Officer

So I think, Hemal and for your benefit and for the benefit of everyone, you see the prices have gone up multiple. I mean, nearly 30%, 40% increase in the prices over the last one year period in terms of passing on the input cost. So that increases the top line, while not necessarily the per liter margin remained similar. You pass on the per liter cost increases to the end consumer to recover.

Our per liter margins are back to the range of around INR24, INR25, which has been banged. In some of the quarters, we have made even INR27, but mostly in the range of INR24, INR25, we’re back to that level. So we have been able to protect our per liter margins. But as a percentage, these are looking weaker because of the top line growth which has happened.

And as we mentioned in the earlier questions, that input cost is stabilizing. While we remain cognizant of the competitive pressures as well, because in a competitive environment, we have to be pragmatic in terms of our margin management. So we’ll continue to follow both in terms of chasing volume and having a decent margin management.

Hemal — Individual Investor — Analyst

Sir, do you expect any price decrease? Have we ever — is that is that even in the ballpark, that it’s weak for competitive pressure for anything, give it our volume and balance strategy. Is there any price declines that have already started this quarter, or I mean, price increases? Or if you can shed some light on that, it would be very helpful.

Ravi Chawla — Managing Director & Chief Executive Officer

We are not seeing any price increase now, but definitely you see, there is the trade and the bazaar market and other places there are schemes which people would give competition. So we have to react to certain schemes segment wise, which we continue doing on a normal basis also, plus in terms of our B2B and OEM business, there are price variation clauses. So there are built in clauses is the base oil is coming down. There will be a pass on. So you have to manage this, and as Manish said, it’s a balance between volume.

We are hoping that we can improve our margin also through mix, but I think as we have been saying, we would like to be ideally in a 14 to 16, but as Manish explained to you that though our rupee has come in, or the top line has gone up by 30%. So then the percentage comes down. So we would like to do both, improve our margin, improve our percentage. But I think it’s a journey. We’re hoping we can — like this quarter, we improved our EBITDA margin to — from 11.1% to 11.5%. 40 basis points we have taken it up. So I think this is part of the balancing. And we are also gaining market share. So we are happy to gain market share and keep a balanced approach in terms of margin versus volume gain. We’re hoping we can do better, but we do want to also be competitive.

Hemal — Individual Investor — Analyst

No. The reason where I was coming from is, if a working cycle is improving and our margins will go in the right direction, I think the market is not giving our company appropriate valuation, right? Alright, I hope you will agree with. And what — I would love to hear your all viewpoint as to, what is your viewpoint as to how the market value — see, buyback and all our things that one and both can result. But what should be the valuation and how do we improve fundamentally from the business perspective? Gaining market share, gaining volumes, these are you have been a fantastic job as always I said that revenue growth has always be consistent. But there is something that is not working out from a valuation perspective.

So would love to understand your perspective as to how do you believe as management you will be able to highlight that to the market and grow it? It may be a combination of several things, right? Like, it’s just not the growth, but its gross margin, cash flow from operations, buyback, and that could potentially explain that we’re in the right direction. That’s where if you can share your views and that will be fabulous.

Manish Kumar Gangwal — Chief Financial Officer

So, Mr. Hemal, as a management, we would not like to comment on the market valuations. What we can comment on is the company’s performance, in which I am sure, you and everybody on this call will appreciate that we have been continuously outperforming. We have grown our volumes too much ahead of the market, and two to three years minimum of the market growth rate we have been able to deliver our volume growth.

We have been continuously gaining market share. We have also been able to deliver good EBITA growth, good PAT growth, we have continuously been generating good cash flows, our ROC, ROE are at a quite decent — number quite decent in terms of our industry. We have also been investing in the new as the EV wherever we are finding opportunity and we are looking at more in terms of what we can play the role in EV value chain. We have been giving consistently 40% plus dividend payouts. We have announced last year a buyback as well. So from the perspective, the company is on the right track in terms of performance and gaining market share and continue to outperform. Beyond that we’ll not try to comment on the values.

Ravi Chawla — Managing Director & Chief Executive Officer

So Hemal, just to add to that. As a strategy as Manish rightly said, we have also built our brand, our brand investments over so many years and we are today — we believe we are on the top three brands. Also some of our internal data shows we are amongst the top two as brand recall and brand consideration. So one of the things is to increase our distribution with which we are focusing on in the B2C market, and we are continuously obviously innovating on products with the long drain and other things.

So our strategy is to grow and as I’ve been highlighting in the call earlier, lubricant industry is set to grow in spite of all the challenges we see with EV, it is set to grow 2% to 3% over the next decade and more, which is very clear. And you will see that from the capacity is being built up and of course, the interest in the Indian market. So that is continuing to be a sunrise industry, I would say, to grow and definitely that is something which we would also like to keep communicating that the growth is in the core lubricants and, of course, we are doing things in the EV which will leverage our brand, our distribution and of course, these are — this is our strategy, which we can communicate and assure you that we are working very hard on this.

Hemal — Individual Investor — Analyst

Thank you, sir. Thank you.

Ravi Chawla — Managing Director & Chief Executive Officer

Thank you, Hemal. Thank you so much.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Sabri Hazarika from Emkay Global. Please go ahead.

Sabri Hazarika — Emkay Global — Analyst

Yeah. Good afternoon, sir. So, sir I just have a conceptual question. So regarding your long drain interval oils that you keep launching. So the net value of these oils, they are like overall accretive for the company, right? I mean, in terms of margin, basically meeting up with whatever the volume decline could be because of long drain. Is that the right way to answer this?

Ravi Chawla — Managing Director & Chief Executive Officer

So we have been pioneering long drain oil since more than 15 years, both in commercial vehicles, we give double drain interval. So I think that helps us to get customers to see more value in Gulf, and definitely we get a good price for that. And they moved our price positioning also up due to this impact of these some of these products. And I think that is where we believe that in certain segments, long drain is an important delivery, like especially diesel engine oils. And we even in our motorcycle, we’ve had products which signal quality based on the drain interval. So, I think these are the some of the segments we have chosen where we position the product as a market leader product. And we’ve also seen that other products have come up from other players in terms of drain interval. So we are a pioneer here, and I think that’s been one of our hallmark strategies.

Sabri Hazarika — Emkay Global — Analyst

So logically, net-net, it is like revenue neutral or probably revenue accretive, right? It is not like —

Ravi Chawla — Managing Director & Chief Executive Officer

Definitely. You are adding more value and you are able to also get more value out of it.

Sabri Hazarika — Emkay Global — Analyst

More returns. Okay. And sir, second question is relating — I mean, has there been any update on manufacturing batteries in India or you are just like fine with this local sourcing model right now?

Manish Kumar Gangwal — Chief Financial Officer

No. So we are very close to finalizing the local manufacturing — I think we are in the process. So as soon as we are through to it, we will be able to announce to you.

Sabri Hazarika — Emkay Global — Analyst

And this is also targeted, let’s say, 14%, 15% sort of a EBITDA margin only, right, for the company?

Manish Kumar Gangwal — Chief Financial Officer

Yeah. That’s what we believe we can do once we do the local manufacturing and streamline that.

Sabri Hazarika — Emkay Global — Analyst

Okay, sir. Fair enough. Thank you so much and all the best.

Manish Kumar Gangwal — Chief Financial Officer

Thank you.

Ravi Chawla — Managing Director & Chief Executive Officer

Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. [Operator Instructions] We have the next question from the line of Chirag from RatnaTraya Capital. Please go ahead.

Chirag Fialoke — RatnaTraya Capital — Analyst

Hi, good evening. Thank you so much for the opportunity, sir. Just two questions. One, could you just help us understand the interest cost component? I believe there is an FX mark-to-market on that. Just help us understand the movement of that a little bit more? And also, if there is any ability for you to sort of guide us on what that would look like in the future? And for the nine months, if possible, could you share an advertising spend number either as a broad percentage of sales or a number? It would be very helpful. Thank you so much for the opportunity.

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah. So, thank you. I think, as I mentioned in the opening remarks, out of the INR10 crores of finance cost, nearly INR4.5 crores is towards forex impact for the quarter. As you see — as I mentioned, we have been importing our base oil in some of the additives and other input costs on which we follow a hedging strategy, which is to the tune of 50% to 75% depending on the market. And on the open portion, whatever is the impact of rupee movement during the quarter is accounted accordingly. So that’s on the forex side. And what was the second question? Can you repeat the second question, please?

Chirag Fialoke — RatnaTraya Capital — Analyst

That was on advertising. But I’ll just come back to the first question — just the first question a little bit. So essentially for 25% to 50% of our purchasing exposure, whatever that movement was for the quarter in rupee, I believe a percent or close to that. That translates into INR4 crores for us. Is that what you’re saying? Is that broadly how I should understand this?

Manish Kumar Gangwal — Chief Financial Officer

So it is also depending on the fund, the way we fund our working capital, we do take bias credit for our imports and this forex loss is mainly on account of the buyers credit exposure to the tune of around 35 to 40 million exposure which we have. So it’s not per se. I mean, indirectly it’s a raw material. But it is converted to buyers credit, and then the forex impact comes on that.

Now, second question was on the A&P side. I think we are close to 3% now in terms of our overall revenue, in terms of ad spends. Of course, it has come down, but this is on the higher revenue because of the price increases as well. So there’s a combined effect of both higher revenue, — to some extent, we have moderated our A&P spent over the last two, three years, because of the COVID and market situations. Overall, earlier we have been spending close to 5%.

Chirag Fialoke — RatnaTraya Capital — Analyst

Thank you so much, sir.

Manish Kumar Gangwal — Chief Financial Officer

Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Sahil Kamdar, an individual investor. Please go ahead.

Sahil Kamdar — Individual Investor — Analyst

Thanks for the opportunity. I would like to congratulate management for achieving EBITDA of INR90 crores. I have two questions. First is, I would like to understand what is the current capacity utilization? And is there any capex plan that you would like to share with us? And the second question is, like you said your lubricant growth is 2% to 3% in medium to long term. I would like to understand, what kind of sales growth we can assume in long term, because we are now talking about market share gain. So what kind of a growth we should expect? Thank you.

Ravi Chawla — Managing Director & Chief Executive Officer

So our capacity utilization putting both plants put together is around — and we are at roughly 90%, but when we say this, we usually mean on two shift basis, we can always increase the number of sales and increase the capacity in terms of our actual production. Capex guidance we have given in the past and we continue to remain in the same trajectory that annually our capex spend is in the range of around INR20 crores to INR25 crores, because we need to keep augmenting the new filling lines, keep adding some tankages, keep investing in IT. Some of the IT and digitalization initiatives. So overall, our capex is usually in the range of INR20 crores, INR25 crores every year. So that’s on the capex side.

Manish Kumar Gangwal — Chief Financial Officer

Yeah. So Mr. Kamdar, on the demand and growth side, the lubricant industry both automotive and industrial. We are — our estimates and they’ve actually been also estimates from the exports like client. Indian industry, which is the third largest industry is growing 2% to 3%, sometimes it will go slightly more percentage. And as a strategy, we’ve been trying to go 2 to 3 times, that means if industry is going 2% to 3%, we would like to at least grow 6% to 9% and that is what we have been striving for.

And as we explained, we see the same outlook, going forward and we would like to grow. Our CAGR growth in volume, just to give you an estimate, not estimate, actual fact that we have more than 10% CAGR growth for the last many, many years, more than a decade. And this year also we have grown, as you can see, we have explained that quarter three was a 10% plus growth. And definitely we are looking at growing in all segments that we are focused on both B2B and B2C, we see rough scope for market share.

And the year-to-date, this year just to give you one more fact, we have been growing at more than 18% exactly, or maybe slightly higher, but so we are growing ahead gaining market share in the segments. Some segments, definitely we see rural demand and all, which was slightly subdued, but we are still gaining market share even in those. So that’s the background. Outlook it would be to grow, continue to grow 2 to 3 times the growth, next year should be about 3%, 4% growth. So we should look at double digit growth again.

Sahil Kamdar — Individual Investor — Analyst

Okay. Thank you very much.

Manish Kumar Gangwal — Chief Financial Officer

Thank you, Mr. Kamdar.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Sweta Jain from ANFL. Please go ahead.

Sweta Jain — ANFL — Analyst

Hi, sir. I just have a follow-up question. Just wanted to understand, what kind of quarterly run rate in terms of revenue is expect for next six to eight quarters? And what kind of margin would you like or would you suggest or give guidance too for next six to eight quarters? I mean, our margins likely to move up to 13%, 14%, 15% kind of a bank, but they will remain in 11% to 12% kind of a bank of six to eight quarter. Just how do you think about it?

Manish Kumar Gangwal — Chief Financial Officer

I think, Sweta, we just answered this question. We have just answered this both questions in the previous questions in terms of what is our expectation. We have — as Ravi just now mentioned, we give a volume guidance that we will be growing two to three years the market growth rate, which translate to roughly double digit in the coming quarter and year.

And in terms of EBITDA percentage and margins also, we have mentioned that, depending on the market scenario, the competition, the input costs, crude movement, there are many variables in terms of gross margin and EBITDA margin. But as a trajectory, we always look forward to going up to our previous band of 14% to 16%. Before that we have to move to the next trajectory of 12 to 14, and then we will look for further improvements.

Sweta Jain — ANFL — Analyst

Okay. Thank you, sir.

Manish Kumar Gangwal — Chief Financial Officer

Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. We have the next question from the line of Babita Chetwani, an Individual Investor. Please go ahead. Ms. Babita, can you hear us? This is the operator, can you hear us?

Babita Chetwani — Individual Investor — Analyst

Hello, can you hear me now?

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Yes, we can hear you now.

Babita Chetwani — Individual Investor — Analyst

Yeah, thank you. Thank you for giving the opportunity, sir, and congratulations for the great results that you have shown now, as we have every time. So I just have one question. So we have heard a lot about the revenue, but on the cost of materials or COGS as we say, what are the three major components? And are you — is the company also impacted by the rising inflation in those? And what would be the percentage in terms of the cost proportion and how are we setting up with the rising inflations in those as well, like we know, base oil had been on a declining trend in this quarter, but how are the other components performance?

Manish Kumar Gangwal — Chief Financial Officer

So, we’ve again answered this question earlier that, base oil while it has been stable to downward trajectory following crude, other input costs like additives, etcetera are is still at a very high level, elevated level. And rupee also remains in a band of 81 to 83, which is a higher band of nearly 10%, 11% depreciation during the last nine months or a year. So all these have impacted the input costs. So inflation linked cost or more, I would say, from freight perspective, which are not very significant proportion of overall cost, but these also do impact overall numbers. But overall, I think the major impact is always on from base oil additives, etcetera, packaging.

Babita Chetwani — Individual Investor — Analyst

Okay. So base oil I understand better. On the additive part, is the Company taking any specific measures because, there are no clear guidelines on how and when the additive are opposed to move, right? Are there any clear measures on it?

Manish Kumar Gangwal — Chief Financial Officer

So there are specific formulations, which are based on a specific additives. And these are developed over a very, very long period of trial and based on the recipes. So it’s not very easy to keep changing on the additive side. So there is a sort of stickiness to additive. And there are a few major global supplier. But, as a trend, they also follow their cost spends and they look at various chemical indices and all. But, of course there has been a very significant increase in additive over the past one year. But we believe that we may see some sort of stability there as well now.

Babita Chetwani — Individual Investor — Analyst

Okay. Thank you, sir.

Manish Kumar Gangwal — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question line of Rahul Chandra from Sunidhi Securities. Please go ahead.

Rahul Chandra — Sunidhi Securities — Analyst

Hello. Yeah, this is Rahul. And congratulations for the good set of numbers. Sir, I have two questions majorly. Can you give the revenue percentage of Adblue, because see, I’ll try to link the question which is, like your raw material cost per liter on the basis of your volume has significantly decreased on quarter-on-quarter basis around 8%. So I feel that you’re increasing percentage in revenue of Adblue is impacting your realization per liter. So can you guide me like what percentage of the revenue would be Adblue? And relating to Adblue, do you need any additional capex or any capex in terms of plants or can you guide me for that particular thing?

Manish Kumar Gangwal — Chief Financial Officer

So we have mentioned that the Adblue volumes have been 21,000 KL during the quarter. We usually do not give the revenue guidance on the Adblue separately.

Rahul Chandra — Sunidhi Securities — Analyst

No. I don’t want the revenue guidance, but I wonder the revenue breakup of Adblue as a percentage?

Manish Kumar Gangwal — Chief Financial Officer

So, that is not because Adblue again is supplied through various channels. It will be very difficult to give you a number on the revenue. But overall, you can — it’s a low realization product as you have rightly picked up the — and accordingly the cost also is very low compared to the normal lubricants. So because of the effect of combined effect, you see the realization as well as the cost of goods sold, both seeing a drop on per liter basis. So while the percentages are different, but I can give you one data [Technical Issues]

Operator

Ladies and gentlemen, the line for the management has dropped. Please stay connected, as we reconnect them back again. Ladies and gentlemen, we have the management reconnected. Sir, over to you.

Manish Kumar Gangwal — Chief Financial Officer

Yes. Hello?

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Yeah, we can hear you.

Manish Kumar Gangwal — Chief Financial Officer

Yeah. So basically, I was saying that from the gross margin perspective, also this is a lower gross margin product as compared to lubricants.

Rahul Chandra — Sunidhi Securities — Analyst

You were going to tell me something.

Manish Kumar Gangwal — Chief Financial Officer

Capex, we need to have some capex on this, but again that will be within the overall capex guidance of INR20 crores, INR25 crores. The capex requirement of Adblue will also be met.

Rahul Chandra — Sunidhi Securities — Analyst

So you increase your ad volumes — Adblue a base effect of 40% on quarter-on-quarter basis. So the capex of INR25 crores surprised that volume growth, if I’m not wrong.

Manish Kumar Gangwal — Chief Financial Officer

Yes. So we don’t any significant major capex coming because of Adblue.

Rahul Chandra — Sunidhi Securities — Analyst

Okay. And then my last question is, can you share the percentage of additive in your raw material cost if possible?

Manish Kumar Gangwal — Chief Financial Officer

It’s very difficult, because again there are different type of additives and going into diesel engine oil, we’ll have a different additive competition versus motorcycle oil or it high end passenger car oil. So it’s very difficult to give you a percentage.

Rahul Chandra — Sunidhi Securities — Analyst

Okay. Thank you.

Nitin Tiwari — YES Securities (India) Ltd. — Analyst

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

Ravi Chawla — Managing Director & Chief Executive Officer

Yeah, thank you.

I think we’ve been tried our best to answer most of your questions and share with you what we’ve been in terms of the details. But what I would like to leave you with is that, definitely we are seeing good momentum in the business. Our business model is surely giving us market share gains. We are focused on automotive and also looking at improving our market share in industrial, in Passenger Car Motor Oils. And hoping that rural demand will pick up with the budget and the things we have seen overall on the macro environment. Margin management remains a key focus area and definitely we believe our retail sales will grow well, help us to deliver even better performance, while we also look at EV, increasing our industrial market share, getting into EV initiatives. And we are very confident that we’ll be again able to deliver two to three times the industry growth rate.

And thank you everyone for your support. Look forward to catching up with you soon. Thank you.

Operator

[Operator Closing Remarks]