Gulf Oil Lubricants India Ltd

NSE:GULFOILLUB

Earnings Call Transcript 2023-Q3

[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, analyst]

Thank you, Mike. Good day, ladies and gentlemen. On behalf of YES Securities, I welcome everyone to Gulf Oil Lubricant 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.

[Ravi Chawla, executive]

Yes. Thanks, Nitin. Good day. Good evening to all of you. Let me start by wishing all of you a very Happy New Year since the first time I'm meeting in the new year, and hope all of you are well. This is the quarter 3 call for the investors.

I'd like to start off by sharing our delight that we've had a 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 EBITDA crossing INR 90 crores for the first time with a 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 motorcycle segment, there were continued cost pressures in some of the key inputs and the INR was depreciating. But we've seen excellent all-round efforts and -- which really shows that we have a strong brand and business model. We continue to deliver 3 to 4x the market growth, and definitely, we are gaining market share.

And distribution, again, is growing well. Double-digit growth in distribution, a lot of efforts on the ground, both with ATL/BTL. We're investing in our brand, and really, this sets us up well for the future growth trajectory.

While we saw costs 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, 2-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 segment's oils going -- the demand for oils 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 mentioned in MCO, agri, but really, we have seen all other segments doing very well, excellent growth.

We've also seen that a lot of the initiatives we had taken in terms of our distribution are -- coming of 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 a 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 with 3 OEMs, and we are looking at other 2 OEMs where we can supply EV fluids. We're also -- definitely have looked at certain things in the EV value chain like our Indra chargers, which we are now piloting to see how we can localize it, and working with our partner, ElectreeFi, to get more customers. Some more decisions on the EV will be -- are being discussed at Board level, so that should be some more moves into that.

I'd ask Manish to now come in with a few more details, and then we'll later on -- happy to take questions from all of you. Thank you.

[Manish Gangwal, executive]

Thanks, Ravi. So, yes, I think, as Ravi mentioned, it was a very good quarter in terms of overall profitability, with EBITDA crossing INR 90 crores, and we have seen a slight sequential improvement in the EBITDA margins as well. Our -- at the same time, during the quarter, we have seen that gross margins also have stabilized at around 37% Q-o-Q, 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 have [ done ] 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 9-month period is at INR 180 crores, so which is a fantastic sign, I would say.

Overall, finance cost continues to remain high because of the volatile INR versus dollar, because we import lot of raw material which are in -- dollar-denominated. So during the quarter, also out of INR 10 crores of finance cost, nearly INR 4.5 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 9-month 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 INR 500 crore to INR 3,000 crore companies, which is a very, very heartening 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, we want to highlight.

Yes. Over to Ravi again. He wants to add a few more points.

[Ravi Chawla, executive]

Yes. So, as we have seen the motorcycle segment, which I mentioned, is seeing sometimes different demand coming in rural, we have introduced -- we've seen consumers shifting to brands which are definitely at the lower end. To address this, we revamped our economy segment brand called GulfZipp, and we have had 2 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 2 brands like GulfZipp Smart and GulfZipp 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 have launched it with a longer drain interval with a campaign with M.S. Dhoni. Basically, the industry-leading benchmark has been set by this XHD Supreme Plus at 1,000 hours, which is the drain interval claim on this product, and that is the highest in the industry today. So happy to share these 2 launches which have happened, and will help us to further grow and gain market share in these 2 segments. Yes, Manish.

[Manish Gangwal, executive]

So we can go now to the Q&A. Yes. Over to Nitin for Q&A, please.

[Operator]

[Operator Instructions] We have the first question from the line of [ Gurit ] Singh from CCIPL.

[Unknown Analyst]

I have a couple of questions. So firstly, I'm a 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 take over some other firms, or are we planning to diversify into new EV specific products or anything like that? So these are my 3 questions.

[Ravi Chawla, executive]

So I think, Manish and me we will try to answer this question to, Mr. [ Gurit ] Singh. Basically, as we've been briefing all of you, the lubricants, as we look at it and also the experts, which is Kline 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 2-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 2, 3 wheelers, in 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 is -- so the experts have given that opinion. So there is going to be an increase in commercial -- in vehicles, IC engines, in all segments.

Of course, we are seeing that the 2-wheeler segment, 3-wheeler segment, the bus segment, the car segment -- you will see EV going to different levels every 5 years, if you 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 experts 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 who is into car chargers, Indra, and those chargers have been tested in India in terms of their performance, and we're looking to bring those in. And the second investment we have made is in a Software-as-a-Service company, the brand name, ElectreeFi, and we are working closely with them to expand their customer base. We have also got a few other areas we are identifying, and we'll come up with those plans shortly. We are -- it is discussion, and we are working on those. So in these 2 areas, I would like to share this. And Manish, maybe you can comment on the buyback and add to whatever I [ had ]. Yes.

[Manish Gangwal, executive]

Yes. So, you see, we have been following distribution policy. We have an 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 upwards of 60%. So company is looking into, as Ravi mentioned, 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 utilization of cash policy and they deliberate and decide on the way forward. So specifically, we will not be able to comment on buyback, but we have a very strong cash distribution in the past, which -- we can clearly say which is roughly in the range of 40%.

[Operator]

We have the next question from the line of [ Sricha Jain ] from [ ANS Well ].

[Unknown Analyst]

I might have 2 basic questions because I'm attending this call for the first time, as I have recently started tracking your company. Sir, my first question is, if you could give us the revenue and the volume breakup segment wise [Technical Difficulty]?

And my second question is, if you could help us understand the margin...

So I needed the revenue breakup and the volume breakup segment-wise, Q3 and 9 months. Then, if you could help us understand the margins 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 the investments in 2 companies, right, Indra and ElectreeFi, if I've heard that correct. If you could help us understand how much investments have been made? And what does ElectreeFi do? And how these 2 investments are going to help us overall in our 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 fluids required for the EV? And how does the overall industry you think on the EV fluids is going to shape up with the EV penetration increasing?

[Manish Gangwal, executive]

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 INR 2,200 crores of top line for the 9-month period, and for quarter 3, it was INR 781 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% to 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 automobile products are around 25%, which are gear oil, greases, AdBlue, et cetera. So all -- this is the product breakup, 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 INR 200 crores of net cash is there on the balance sheet.

So I think we have covered your financial side. On the EV side, maybe Ravi can take and explain.

[Unknown Analyst]

Sir, just volume breakup would you be able to give?

[Manish Gangwal, executive]

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.

[Ravi Chawla, executive]

Yes. On the investments we have made, Indra is a investment by our parent company, Gulf Oil International and us. So we are -- we have invested in that, and we have got -- in terms of -- our investment there is about INR 30 crores in Indra. So far, of course, our parent company is also investing. And they are in 2 chargers for destination charging 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 a 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 presents a number of opportunities. So we have started with this, but this is definitely one of the things to take ahead for us. So we'll 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 which is into 3-wheeler, EVs, and also Altigreen, which is into 3-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'll not have engine oil. So the consumption is much lower than what an IC engine has, but they would require fluids for transmission, brake or cooling, and those kind of fuels will be required, grease, et cetera.

So the market is not going to be very large in terms of volume, but it is an important element, and we are being part of the environment here with a good share of lubricants in all these segments. So it would be a natural [ extension ] to give EV fluids. And it is to be a segment where the product would evolve in terms of the thermos and electric 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 growing in India, which is the third largest market, and that continues to give us both revenue, and we continue to increase market share in that.

[Operator]

We have the next question from the line of Aditi Chaturvedi from EY.

[Aditi Chaturvedi, analyst]

I had a question with respect to the volume. If you can give a breakup with respect to the B2B and B2C? And -- so yes, AdBlue, you have already given, so, if you can, please?

[Manish Gangwal, executive]

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, analyst]

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

[Manish Gangwal, executive]

So this quarter, our battery turnover is around INR 20 crores, and YTD, we will be at around INR 60 crores, INR 61 crores in terms of our batteries. Rest all is lubricants and AdBlue put together.

[Operator]

We have the next question from the line of Harsh Maru from Emkay Global.

[Harsh Maru, analyst]

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 would be my first question.

And the other 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 like trend of cost prices cooling off reflecting in the margins, if you can throw some light on that?

[Manish Gangwal, executive]

So we'll take the second question first. Basically, we have seen some sort of stability in the base oil pricing, which is a 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. We -- 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, 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 input cost going forward, which we have seen already partly coming in quarter 3 as well.

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

[Ravi Chawla, executive]

Yes. So AdBlue basically is being used in all BS 6 vehicles, mainly heavy-duty trucks, passenger cars, medium-duty trucks, buses, light duty vehicles and of course, now with some nonroad mobile machinery also. So AdBlue, normally, these BS 6 and some BS 4 also started using AdBlue. [ It's a ] technology which -- basically the emissions that come out, it is this liquid that is mixed urea, automotive urea and specialized water, which is sprayed into it, and the emissions, they reduce 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 million. 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 we -- 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 segment, so the margins of single-digit we have [ seen ]. But we continue to grow on this. So we would expect a 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.

[Operator]

We have the next question from the line of Keshav Garg from Counter Cyclical PMS.

[Keshav Garg, analyst]

Sir, I wanted to understand that, as the 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 industry is basically shifting from B2C to B2B, and since B2B margins will be a fraction of the margins in B2C, sir so, then how do we deal with this adverse situation.

[Ravi Chawla, executive]

Yes. So, Mr. Garg, it is not like that because a lot of the vehicles, whether you take trucks, cars, 2-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 which go into some special applications, which are lifetime. In certain cases, you do have products which are very expensive products.

So I would say 98% of the market is still going to be lubricants, which will require [ change ] based on the kilometers used and the period of use. So you will continue seeing that the lubricant requirement will continue in the cycle. Just to give you 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 a lubricant will then be required for working 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, say, 7%, 8% an average overall, and lubricant demand is growing 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 growing 2% to 3% every year. But you will see this continuously -- continuing in terms of consumption.

[Keshav Garg, analyst]

Sir, so, let's say that 5 years back approximately what was the bifurcation between B2B and B2C? Now you said that 40% is B2B. What was this 5 years back approximately?

[Ravi Chawla, executive]

For us -- for our -- we said our split, Gulf split.

[Manish Gangwal, executive]

That is -- Gulf split is what we spoke about.

[Keshav Garg, analyst]

So today it is -- we are selling 40% to B2B customers. So 5 years back, approximately, this might -- this must be lower, must be like 30% or even lower, right?

[Manish Gangwal, executive]

Yes. So because our focus has also been on improving our industrial portfolio, and there, we have seen high double-digit growth over the last 5 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 [ tightly ] because our B2B is also growing. And when I say B2B, we are -- it is more a route to market. So the product split for us continues to be around 85% being automotive products and 15% only our core industrial products. So even B2B customers buy a lot of automotive products, those with large fleets where we directly supply. So B2B for us is where we are directly supplying, including the OEM first fill. Factory fill is also a B2B for us. We classify it that way.

[Keshav Garg, analyst]

And sir, I also wanted to understand that, all the EV fluids that you are selling to your customers, so on a per vehicle basis, what -- how much is the contribution? I mean, let's say, if it is INR 100 for only -- for a IC vehicle, and for vehicle, that is how much? Is it INR 50, INR 40, INR 20, like ballpark?

[Ravi Chawla, executive]

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

[Keshav Garg, analyst]

So sir, I understand that. Sir, I'm saying, let's say, for a INR 10 lakh passenger vehicle, if it's a IC vehicle and we are selling INR 100 worth of lubricant for that, instead of that, to a INR 10 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'll sell to EV, but whatever...

[Ravi Chawla, executive]

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

[Keshav Garg, analyst]

So basically, let's say, only...

[Ravi Chawla, executive]

It could be even higher for a motorcycle. So obviously, when there is -- it's 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.

[Manish Gangwal, executive]

And also, we have to see that the vehicle population of EV right now is too small to see how much of the vehicle need a replenishment of the EV fluids, at what drain intervals. So this is a very evolving area, and we need to be continuously monitoring the data for next 2, 3 years to understand this very clearly.

[Ravi Chawla, executive]

Yes. 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, analyst]

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 buying business, and this business will continue to grow for more than a decade. Sir, so, it becomes more pertinent to appreciate that our stock price is back to 2014 levels, whereas the business has grown many folds and our price-to-earning ratio has also fallen from a peak of almost 40x in 2017 to less than 10x today.

Sir, so, a share buyback makes more sense when the share is undervalued so that we can buy back and capitalize on the lower share price to extinguish higher number of shares and increase our earning per share permanently. Sir, so, instead of your -- the -- instead of the generous dividend that you are distributing, if that funds 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 suggestion.

[Manish Gangwal, executive]

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

[Operator]

We have the next question from the line of [ Hemal ], an individual investor.

[Unknown Attendee]

I have actually -- you mentioned gross working cycle. If you can provide some basic on net working -- What is the net working -- is it also close to 90, 80 days or 100 days or what is the...?

[Manish Gangwal, executive]

So net working capital usually is around 55 to 60 days.

[Unknown Attendee]

Now I have another question basically on this cost. I think you -- cost of raw material. You did mention if everything remains as -- this $80 or $82, $85 oil and the cost pressures are out -- what is -- and for moment, if you remove AdBlue, right, for whatever reasons that's a single margin, are we 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? Do you expect this quarter 4 to be back to the normalized 14%, 15% margin for our core lubricant business that these 2 have?

[Manish Gangwal, executive]

I think Hemal and -- for your benefit and for the benefit of everyone, you see the prices have gone up multifold. I mean nearly 30%, 40% increase in the prices over the last 1-year period in terms of passing on the input cost. So that increases the top line, while not necessary the per liter margins remain 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 INR 24, INR 25, which has been the band -- in some of the quarters, we have made even INR 27, but mostly in the range of INR 24, INR 25. We are 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 you -- as we mentioned in the earlier questions that input cost is stabilizing. While we remain cognizant of the competitive prices 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.

[Unknown Attendee]

So do you expect any price decrease? Have we ever -- is that even in the ballpark that it's weak for competitive pressure of anything, given our volume and [ balance ] strategy? Is there any price declines that have already started this quarter or any price increases? Or if you can shed some light on that, it would be very helpful.

[Ravi Chawla, executive]

No, 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. If 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 idly in 14% to 16%. But as Manish explained to you that, though our rupee has come in, our 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 are hoping we can -- like this quarter, we improved our EBITDA margin to by -- 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 are hoping we can do better, but we do want to also be competitive.

[Unknown Attendee]

The reason where I was coming from is, if our working cycle is improving and our margins go in the right direction, I think the market is not giving our company appropriate valuation, right? I hope you will agree with me. And what -- I would love to hear your viewpoint as to -- what is your viewpoint as to how the market value -- see, buyback and all things that one -- and the Board can decide. But what should be the valuation? And how do we improve fundamentally from the business perspective, gaining market share, gaining volumes? These are -- you are doing a fantastic job as always. I said that the revenue growth has always been consistent. But there is something that is not working out from a valuation perspective. So would love to understand your perspective as to how 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 growth, margins, cash flow from operations, buybacks, and that can potentially [ play ] in that -- [Technical Difficulty] in the right direction. That's where if you can share your views, that'll be fabulous.

[Manish Gangwal, executive]

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 much ahead of the market. And 2 to 3 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 EBITDA growth, good PAT growth. We have continuously been generating good cash flows. Our ROC, ROEs are at a quite decent -- as a number, quite decent in terms of our industry.

We have also been investing in the new age 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 will not like to comment on the valuation.

[Ravi Chawla, executive]

So, Hemal, just to add to that, as a strategy, as Manish has 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 3 brands. Also, some of our internal data shows we are amongst the top 2 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 capacities 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, this is our strategy which we can communicate and assure you that we are working very hard on this.

[Operator]

We have the next question from the line of Sabri Hazarika from Emkay Global.

[Sabri Hazarika, analyst]

So 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 assess this?

[Ravi Chawla, executive]

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 move our -- we've moved our price positioning also up due to these -- 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 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, analyst]

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

[Ravi Chawla, executive]

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

[Sabri Hazarika, analyst]

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?

[Ravi Chawla, executive]

No. So we are very close to finalizing the local manufacturing, I think where the -- we are in the process. So as soon as we are through to it, we will be able to announce [ this ].

[Sabri Hazarika, analyst]

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

[Manish Gangwal, executive]

Yes. That's what we believe we can do, once we do the local manufacturing and streamline that.

[Operator]

[Operator Instructions] We have the next question from the line of Chirag from RatnaTraya Capital.

[Chirag Fialoke, analyst]

Just 2 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, is there any ability for you to sort of guide us on what that would look like in the future? And for the 9 months, if possible, could you share an advertising spend number as a broad percentage of sales or a number? It would be very helpful.

[Manish Gangwal, executive]

Yes. So I think, as I mentioned in the opening remarks, out of the INR 10 crores of finance costs, nearly INR 4.5 crores is to our ForEx impact for the quarter. As you see -- as I mentioned, we have been importing our base oils and 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, 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 1% or close to that, that translates into INR 4 crores for us. Is that what you're saying? Is that broadly how I should understand this?

[Manish Gangwal, executive]

So it is also depending on 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 million ] 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 [ biostatic ] and then the ForEx impact comes on that.

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 depends. Of course, it has come down, but this is on the higher revenue because of the price increases as well. So this is a combined effect of both higher revenue because of price increases -- And to some extent, we have moderated our A&P spend over the last 2, 3 years because of the COVID and market situations. Overall, earlier, we have been spending close to 5%.

[Operator]

We have the next question from the line of Sohail [ Kamdar ], an individual investor.

[Unknown Attendee]

I would like to congratulate management for a changing EBITDA of INR 90 crores. I have 2 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 regarding -- 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 taking -- talking about market share gain? So what kind of growth we should expect?

[Manish Gangwal, executive]

So our capacity utilization, putting -- both plants put together is around -- we are at roughly 90%. But when we say this, we usually mean on 2 shift basis. We can always increase the number of shifts 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 INR 20 crores to INR 25 crores because we need to keep augmenting the new filling lines, keep adding some tankages. keep investing in IT -- some of the IT and digitization initiatives. So overall, our CapEx is usually in the range of INR 20 crores to INR 25 crores every year. So that's on the CapEx side.

[Ravi Chawla, executive]

Yes. On -- So, Mr. Kamdar, on the demand and growth side, the lubricant industry, both automotive and industrial, we are -- our estimates -- and they have actually been, I would say, estimates from the experts like Kline -- Indian industry, which is the third largest industry, is growing 2% to 3%. Sometimes it will go slightly more -- percentage more. And as a strategy, we've been trying to go 2 to 3x times. That means if the industry is growing 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 and volume, just to give you an estimate -- not an 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 3 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 enough scope for market share.

And 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 would be to grow, continue growing 2 to 3x the growth. Next year should be about 3%, 4% growth. So we should look at double-digit growth again.

[Operator]

We have the next question from the line of [ Sricha ] Jain from [ ANS Well ].

[Unknown Analyst]

I just have a follow-up question. Just wanted to understand what kind of quarterly run rate in terms of revenue can expect for next 6 to 8 quarters? And what kind of margins would you like or would you suggest or give guidance to for the next 6 to 8 quarters? I mean, are margins likely to move up to 13%, 14%, 15% kind of a band or they would remain in 11% to 5% kind of a band for 6 to 8 quarters? Just how do you think about it?

[Manish Gangwal, executive]

I think, Sneha, we just answered this question -- Sricha, sorry. Sricha, we have just answered this -- both questions in the previous question in terms of what is our expectation. We have -- as Ravi just now mentioned, we gave a volume guidance that we will be growing -- 2 to 3 is 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 cost, crude movement, there are many variables in a -- 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%, 16%. But before that, we have to move to the next trajectory of 12% to 14%, and then we will look for further improvements.

[Operator]

We have the next question from the line of [ Babita Chetwani ], an individual investor.

[Unknown Attendee]

So I just had one question. So we have heard a lot about the revenue. But on the cost of materials, or the [ curve ] as we say, what are the 3 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 coping up with the rising inflation in those as well? Like base oil has been on a declining trend in this quarter, but how have the other components performed?

[Manish Gangwal, executive]

So we have, again, answered this question earlier that base oil, while it has been stable to downward trajectory following crude, other input costs like additives, et cetera, are still at a very high level, elevated level. And rupee also is in -- remains in a band of [ INR 81 ] to [ INR 83 ], which is a higher band of nearly 10%, 11% depreciation during the last 9 months or a year. So all these have impacted the input costs.

Inflation linked costs are more, I would say, from trade perspective, which is -- 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 from base oil additives, et cetera, packaging.

[Unknown Attendee]

So base oil I understand, right, but on the additives part, is the company taking any specific measures? Because there are no clear guidelines on how and when the additives are supposed to move, right. So are there any clear measures around it?

[Manish Gangwal, executive]

So there are specific formulations which are based on specific additives, and it's -- it is -- 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 additives, and there are a few major global suppliers. But as a trend, they also follow their cost strength and they look at various chemical indices and all. But, of course, there has been a very significant increase in additive over the past 1 year, but we believe that we may see some sort of stability there as well now.

[Operator]

We have the next question on the line of Rahul Chandra from [indiscernible] Securities.

[Unknown Analyst]

Sir, I have 2 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 the volume has significantly decreased on a quarter-on-quarter basis, around 8%. So I feel that your 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 Gangwal, executive]

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

[Unknown Analyst]

No, I don't have on the revenue guidance, but I want the revenue breakup of AdBlue as a percentage.

[Manish Gangwal, executive]

No. 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 Difficulty].

[Operator]

Ladies and gentlemen, the line from the management has dropped. Please stay connected as we reconnect them back again.

Ladies and gentlemen, we have the management reconnected. So, over to you.

[Manish Gangwal, executive]

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

[Unknown Analyst]

You were going to tell me something...

[Manish Gangwal, executive]

CapEx -- We need to have some CapEx on this. But, again, that will be within the overall CapEx guidance of INR 20 crores, INR 25 crores. The CapEx requirement of AdBlue will also be met.

[Unknown Analyst]

So you increase your Ad volume -- AdBlue volume as a base effect of 40% on a quarter-on-quarter basis. So the CapEx of INR 25 crores will suffice that volume growth, if I'm not wrong?

[Manish Gangwal, executive]

Yes. So we don't need any significant, major CapEx coming because of AdBlue.

[Unknown Analyst]

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

[Manish Gangwal, executive]

No. It's very difficult because, again, there are different type of additives, and going into diesel engine oil will have a different additive composition versus a motorcycle oil or a high-end passenger car oil. So it's very difficult to give you a percentage.

[Operator]

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

[Ravi Chawla, executive]

Yes. 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 in 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 2 to 3x the industry growth rate. And thank you, everyone, for your support. Look forward to catching up with you soon. Thank you.

[Operator]

Thank you. On behalf of YES Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.