Ravi Chawla, managing director, Gulf Oil Lubricants says the steep fall in crude prices will aid the company’s profit and loss account only in January as it usually holds inventory for a period of two to two-and-a-half months.
Chawla’s views come on the back of US crude falling to a five-year low while Brent futures touched a fresh four-year low, extending a steep sell-off after OPEC decided not to cut production last week, keeping markets well supplied.
Furthermore, on expansion plans, Chawla says the company is planning to enhance its capacity in Silvassa and has procured land for its second plant in Chennai.
“We expect the second plant to be functional by December 2016 and will raise part of the capital for it via debt and internal accruals,” he adds.Below is the verbatim transcript of Ravi Chawla's interview with Latha Venkatesh & Sumaira Abidi on CNBC-TV18.
Sumaira: What kind of an impact are you seeing on account of the falling crude prices?
A: We have our major raw material which is base oil which is made from crude and if the prices are going to remain at the level they are or if it is going to go down further, there would be drop in terms of our raw material pricing.
Latha: Can you tell us where were the prices for base oil in the second quarter and where do you see them averaging at in the current and next quarter and when do you expect the benefits from crude oil price fall to start showing up in your profit and loss (P&L)?
A: The prices in Q2, we have seen that in the last one month they have come down by 15 percent but since we hold stock for about 60-70 days, we see that the impact of this will only come in the January quarter because all of us are currently holding stock of close to two-two-and-a-half month.
Sumaira: What is the outlook now for the lubricants business in India with crude prices falling but the economic conditions have also improved, so we are seeing some sort of recovery in commercial vehicle (CV) industry and sort of upswing in infra investments as well.
A: On the lubricant demand side we are seeing that the factory fill is going up but in terms of lubricant consumption we still have to see the positive in the commercial vehicle segment and hopefully with the mining and economy picking up, this should happen in the quarter starting January. Movement of trucks and tippers and mining equipment is essential for that to happen.
Latha: You once told us about second plant that will come on stream in Chennai in two years or so. Can you take us through what investments capex you have planned as well whether you will raise any debt for that?
A: We are planning to enhance our capacity in the current plant in Silvasa, which is on the way and will happen till January and we are also planning the second plant in the southern part near Chennai. This is going on stream we have got the land; we are looking at December of 2016. The investment in this will be around Rs 120 crore, part of it will be raised in terms of debt and part of it will be funded through our internal funds.
Latha: What is your current debt and what will it be after this capex is over?
A: We are currently completely debt free the only debt is against working capital. So, with the expansion in the Chennai project we are looking at about Rs 120 crore. The exact ratios of how much we will raise from internal and external still need to be worked out. However, there will be some debt which we will take on board for the Chennai plant.
Sumaira: Can you tell us how Q3 is panning out the kind of visibility you have and also what is your outlook now for the rest of the year?
A: We are seeing positive volume gain in the quarter two which is also due to the base effect of last year. So, that will continue in Q3 and if commercial vehicle (CV) segment demand lubricants in the after market which is related to the movement of basically trucks, drippers equipments if that is positive than again the volume growth would be at a better levels. That is what we are anticipating.
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