Gandhar Oil is a faithful proxy of global economic growth. The more the
world grows, the better placed our company will be to ride that growth and enhance value
for stakeholders in a sustainable way.
Overview
I present my maiden communication to stakeholders following the initial
public offer of the Company during the last
financial year. This communication will review the Company's
performance of FY 2023-24, outline the business model that has got us there and the
initiatives
intended to take us ahead.
Performance review, FY 2023-24
Your company reported a consolidated revenue of H4,113.21 Crore in FY
2023-24. EBITDA of H278.72 Crore and net profit was H165.31 Crore in FY 2023-24. Return on
Capital Employed stood at 23.79%;
EBITDA margin moderated from 7.78% to 6.77%.
However, the Company's liquidity hygiene continued to be
protected.
We believe that in a volatile world with a premium in corporate
liquidity, this
represents a robust business advantage.
The Company's net cash position
strengthened from H2.51 Crore to H52.56 Crore from year-start to
year-end.
Interest cover increased from 37.76 to
38.10 through the year, indicating that the Company continued to remain
cash rich and under-borrowed with a debt-equity ratio of 0.02.
The relatively flat performance was the result of a decline in FMCG and
pharmaceuticals offtake during the third and fourth quarters of the
last financial year. This moderated revenues and
realisations, affecting overall profitability. Had this decline not
transpired, the
Company would have reported revenue growth in FY 2023-24. The
disturbance in and around Red Sea issue increased freight costs for exports, affecting
margins.
I am pleased to communicate that this relative under-performance did
not
impair the Company's Balance Sheet.
The Company's terms of trade cum
liquidity continued to represent a robust foundation on which the
Company
expects to scale the business as soon as industry realities revive. It
would also be pertinent to indicate that manufacturing volumes increased 12% from 433498
KL in FY 2022-23 to 485570 KL in FY 2023-
24, indicating a traction for our products on account of a superior
price-value
proposition.
Responsive
At Gandhar Oil, we strengthened our
competitiveness during the last few years by enhancing the
responsiveness of our business model. This represented an extension of our commitment to
push
the frontier across operating parameters, seek incremental margins from
finding
better ways of doing things and generating more from less.
During the last few years, the Company discontinued the practice of
procuring base oil through intermediaries and
commenced the practice of buying directly from oil refineries. This
direct engagement enhanced quality
assurance, resource customisation,
on-time cum in-full resource access and volume-based discounts. By
engaging directly with resource suppliers, the
Company strengthened the credibility of the business model, enhancing
in turn the confidence of customers that the
Company possesses a stable resource pipeline leading to a
predictability of
supply.
The India story
The principal message that I seek to communicate is that Gandhar Oil is
engaged in the right business in the right country at the right time.
Never before has India been as optimistic about its prospects as now.
The reasons are evident: China's economic growth
in percentage terms is slowing from its erstwhile average, Britain and
Japan
have entered a recession, US economic growth appears tentative and
while all
this is transpiring, India continues to grow around 8%.
There are no two opinions about the fact that this growth is being
driven by the economic emergence of rural and semi-urban India. The broad-basedpolicies of
the last decade and the trickle- down effect of the Indian economy have resulted in the
emergence of rural India as a robust consumption driver. The
country's consumption is being sustained on account of increased
consumption
and a desire to live better.
The result is that the conventional understanding of rural poverty is
transforming. India's poverty rate of 4.5- 5% in FY 2022-23
represented a sharp decline from what it was a decade ago;
rural poverty declined to 7.2% in FY 2022- 23 from 25.7% in 2011-12
(Source:
Household Consumption Expenditure Survey). The gap between urban and
rural household consumption narrowed; rural household spending
increased 2.6 times and urban household spending
strengthened 2.5 times since 2011-12.
The outcome of this transformation is remarkable. India is expected to
contribute 24% to the global middle-class growth (192 Million people).
A decade
ago, India's GDP was the 11th largest in the world;
last year, India emerged as the fifth
largest economy and is likely to move into fourth place by 2025, third
by 2027 and
emerge as a USD 10 Trillion economy in the next decade.
The one sector where the pass-
through of India's economic growth will reflect more visibly will
be in the use of specialised lubricants. As Indians earn
more, they will need to live better. This will translate into the need
for more vehicles and products (industrial and personal).
Inevitably, this aspiration is expected to translate into a growing
demand for
specialised lubricants. What makes me particularly optimistic of
prospects is
the vast gap between the consumption numbers of India and China. Even
as
India's population is higher than that of China, India's
specialised lubricants
consumption per capita is considerably lower than in a peer country
like China, highlighting a headroom for growth.
This indicates that as India's personal
incomes increase, there will be a quicker pass-through into specialised
lubricants offtake, narrowing the consumption
difference between the two countries.
Competitive advantages
As the India growth story accelerates and the consumption difference
between China and India declines, we expect sustained outperformance by
a company like Gandhar Oil.
The Company expects to build around a number of competitive advantages.
? The Company enjoys scale and related economies by the virtue of
being among the five largest white oil players in the world and the
largest in India. The Company generated 70%
of its revenues from repeat customers of three years or more,
indicating that the business enjoys growth visibility. The Company enjoys cost leadership
that makes it possible to remain liquid and profitable even during industry
downtrends.
? The Company broadbased its
revenue profile across more than 3500 customers, empowering it to
capitalise
on their growth on the one hand and protecting it from revenue
diminution in the event of selective customer
attrition.
? The Company controlled its overall receivables cycle at 68 days of
turnover equivalent with a nominal incidence of bad debts, protecting
overall cash flows. The Company
leveraged its relationships with large refineries to nurse a lower
inventory (around 36 days of turnover equivalent) that was half the
industry average. The Company continued to grow the business around an under-
borrowed Balance Sheet. Terms loans as on March 31, 2024 were a
negligible H7.15 Crore; debt-equity ratio was 0.02 as on March 31, 2024 and only a small
percent of the fund-based working
capital sanction had been called up during the year under review.
? The Company accounts for a sizable share of the Indian PHPO market;
this business segment accounted for 52.30% of the Company's
revenues
in FY 2023-24, deepening its
relevance in the sector and indicating revenue visibility on which to
build
the Company. The result was that the Company enjoyed a credit rating of
‘A' during the last financial year, validating the robustness of its business
model.
14 : Gandhar Oil Refinery India Limited
Optimism
At Gandhar Oil, we see India's economic
outperformance to be driven by increased rural spending in line with
enhanced
lifestyles and population growth.
This upturn is likely to be sustained by progressive government
policies,
increased foreign direct investment and growing capital investments.
At Gandhar Oil, we expect to capitalise
on these realities. The Company expects to outperform the growth of
downstream sectors with enhanced sales to each,
resulting in a larger wallet share and market share. The Company
intends
to widen its geographic footprint, enter relatively under-explored
pockets of Asia and Africa while making a decisive entry
into one of the largest markets in the world.
The current year will see benefits
arising from the Company's enhanced investments – 100,000 KL
capacity
increase in the Taloja plant and 18,000 KL accretion in the Silvassa
plant. The aggregate capacity increase should
translate into an incremental revenue
potential of H1,000 Crore at rated capacity
utilisation across the foreseeable future. Based on the existing
outlook, the
Company expects to build on revenues, capacity utilisation (especially
the Sharjah plant) and net cash position during the
current financial year.
The one factor gaining visibility is environment sustainability. At our
company, sustainability envisions a
balance, revolving around practices and priorities with a positive
long-term impact on humans, eco-system and economy.
Besides, the Company is addressing
environment priority through responsible waste disposal, energy use,
resource
sustainability, moderated greenhouse gas emissions, smaller carbon
footprint and
comprehensive environmental regulation compliance.
The Company recognises the
significance of societal sustainability. We draw from society for our
growth; it is our responsibility to nurture society in turn. In view of this, the Company
has deepened its social responsibility through initiatives related to rural education,
healthcare,
poverty reduction, animal welfare and vocational training.
The Company's governance commitment comprises the coverage of
stakeholders
rights, eliminating interest conflicts
within the Company, as well as focusing on performance-linked
transparent
remuneration to Directors.
Conclusion
These realities and fundamental
strengths make Gandhar Oil a faithful proxy of the economic growth of
the world, especially India. The more these regions grow, the better placed the
Company will be to ride that growth
and enhance value for stakeholders in a sustainable way.
I must thank all stakeholders for their trust and confidence in our
business
model. The stability of their engagement with our company provides us
with the
confidence to keep investing in our
business, strengthening our competence and deepening our multi-year
business
sustainability.
Ramesh Parekh
Chairman