Gulf Q1 Profit Unscathed by GST


Gulf Q1 Profit Unscathed by GST

Gulf Oil Lubricants India Ltd. reported a 13 percent jump in its first quarter net profit, compared to 2016s first quarter, thanks to higher other income. Revenue, however, rose only marginally as the countrys new Goods and Services tax system disrupted retail sales in June.

The Mumbai-headquartered company posted a standalone net profit of Rs 34.2 crore (Rs 342 million or U.S. $5.3 million) in the quarter ended June 30, up from Rs 30.3 crore in the same period last year, according to a regulatory filing last week.

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Gulfs other income category jumped nearly 82 percent to Rs 8 crore, while finance costs declined about 28 percent to Rs 2.9 crore. Total expenses rose 3 percent to Rs 282 crore. Net sales for the company, which sells a wide range of automotive and industrial lubricants and greases, increased 3.5 percent to Rs 326 crore.

Gulf Oils sales volume grew around 7 percent to 18,400 metric tons from around 17,250 tons a year ago, Chief Financial Officer Manish Kumar Gangwal said on a conference call with analysts and investors on July 25.

This positive volume growth has been achieved in the quarter, despite GST-related uncertainties in the retail channel which led to lower offtakes and some inventory reduction by trade partners towards the end of the quarter, the company said in a statement.

Sales volume growth of several Indian lubricant companies is likely to have taken a hit in June as distributors and retailers went on an inventory-reduction-spree ahead of the July implementation of GST, said Gulf Oil, whose competitors in Indias 2.4 million metric tons per year finished lubricants market include Castrol, Hindustan Petroleum Corp., and Bharat Petroleum Corp.

The GST-related uncertainty in the retail channel was also felt by us in June, Managing Director Ravi Chawla said during the call. He said that the company grew by double-digit rates in April and May, but growth reduced to 7 percent in June, primarily due to distributors and retailers destocking and reducing inventory.

Gulf recorded double-digit sales volume growth in its motorcycle engine oil business and high growth in the infrastructure and industrial segments. The lubricant makers growth momentum also continued across various product categories in the original equipment manufacturer segment, including the newest additions to its OEM clients portfolio: two-wheeler and tractor dealerships.

Photo: Joe Beeton / Lube Report Asia

The company achieved higher growth in the diesel engine oil segment through a campaign targeted at the trucking community across 29 cities and more than 40 trucking centers during May and June, Chawla noted.

The passenger car motor oil segment sales volume, however, was negative during the quarter. It was a very low, single-digit negative, because this is a high-value item and obviously towards the end of June, when consumers and everyone knew that the [tax] rate would come down from 28 percent to 18 percent, there was some postponement of purchases, Gangwal explained.

Price increases in May helped Gulf Oils realizations during the quarter, Chawla said, adding that the company had already begun passing on the benefits of GSTs lower taxes to consumers.

Chawla said Gulf expects some recovery in August and September as distributors and retailers restock, and that business should be normal by the end of the third quarter of Gulfs financial year, which began April 1.

The company, a part of Hinduja Group, is studying the impact of GST and will reduce the number of depots going forward. Once the study is done internally, we will start executing, and there should be some positive impact of that on the cost, Chawla noted.

Construction of the companys new blending plant in Chennai is progressing well, with all major civil and fabrication works near completion, he said. Gulf is investing about Rs 180 crore to build the 50,000 metric tons per year plant. It has spent around Rs 90 crore on the project so far through internal accruals and expects to incur the same amount between now and December, Gangwal said. The company had close to Rs 140 crore net cash surplus on June 30 and plans to meet the entire capital expenditure for the plant through internal accruals only, he noted.

The plant [is expected] to be up and running from the middle of third quarter of this financial year and fully stabilize from the fourth quarter, Gangwal said.

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