New project in South India to start in Oct 2017: Gulf Oil

Gulf Oil reported a good set of second quarter earnings where the company's revenue went up 10.2 percent to Rs 30.2 crore year-on-year (YoY) and profits increased 28 percent to 30.2 crore (YoY).

In an interview with CNBC-TV18, Ravi Chawla, MD of Gulf Oil said that volume growth has been strong across all segments and the second quarter has seen a volume growth of 10 percent.Chawla said that the new project in South India to start in October of next year.

The advertisement expenses stood at 7.25 percent of sales in Q2, despite that the company has able to maintain its margins, Chawla said.Below is the verbatim transcript of Ravi Chawla’s interview to Ekta Batra and Prashant Nair on CNBC-TV18.Ekta: Out of this total income which is up 10 percent can you break up how much was from volume increase as well as price increase this quarter?A: The volume increase in Q2 has been 10 percent and we have also seen the margins have been healthy. So, it has come with a combination of both. Even though we have invested a little more money in the advertising we have seen that the volume growths have come in strong across segments. So, it is a combination of both maintaining the margins also the volumes.Prashant: What does the first half volume growth look like now?A: Q1 we reported -- on a core business we grew 16 percent in volumes and Q1 also had institutional order. So, the growth was slightly higher in Q1. If you take the core and the institutional order Q1 growth was high at 30 percent and Q2 has come at 10 percent. Again it is the core business in Q2. So, on the core business on H1 we would be at about 13-14 percent growth and if you take the institutional order also the volume growth in H1 is 20 percent.Ekta: So, what would be may be an average run rate that we could expect for the second half of the fiscal?A: Our strategy has been that we have obviously got a segment wise approach in the automotive and industrial and whichever segments we are in, we focus on getting at least 2-3 times percent growth. So, the current rate as I mentioned to you is 13-14 percent in the H1 for the core business. So, obviously we would strive to continue to get that growth rate. The market, which was earlier at 1-2 percent volume growth has improved a bit in personal mobility segments. The tractor segment is looking up. So, it would be to maintain that run rate of growing ahead of the market at least 2-3 times.Prashant: So, when you say core what is non-core, could you break that up for us?A: No, just in Q1 we had an additional order from the institutional segment. So, I am just segregating that for the understanding of everybody.Prashant: So, you are taking that out?A: Yes, if I take that out Q1 growth has still be in 16 percent on volume and Q2 has come at 10 percent and Q2 there is no institutional order.Prashant: So, the year you should range between 13-14 percent in terms of the volume growth over the last year?A: Yes, there are obviously segments, which we play in. So, we are hoping that this trend is maintained.Ekta: You did mention advertising expenditure. How much was it as a percentage of the total sales this time?A: We have a range of 6-6.5 percent if you see our expenditure over last few years. This quarter, it went up to 7.25 percent. We had certain additional investments. You all recall the movie we had of our brand ambassador M.S. Dhoni. So, we had put in some resources into that promotion.Ekta: So, that was a onetime expenditure and it will revert back to your average or your mean of around six percent which you mentioned?A: Yes, 6-6.5, that is right.Ekta: You also have some capacity expansion coming up, we understand. It is around 50,000 tonnes of incremental capacity. Where does that stand and what might the funding plan for it might be?A: Yes, we have put in a new project in the south part of India close to Chennai, Ennore. That project is on stream now. It is going to start in October 2017 and the funding will be through internal accruals and partly we will be taking some debt from the banks.Prashant: You mentioned the advertising expenses, what about oil prices. They are moving up now and the forecast also seem to be coming in that prices will maybe maintain that uptrend for a while more. So, could you talk to us about that?A: So, the base oil prices as we have been telling you has a lag time of 2-3 months to the crude and it does follow the trajectory and also because some of the base oils also depend on the demand and supply. So, we have refineries releasing stocks or not releasing stocks. So, we have seen that the base oil has got steady in the last few months but again we will have to wait and watch and see if crude is going to go up then obviously it goes up and down. So, hopefully we will be able to pass on some. If it goes up, if it is steady we are happy with that too.Prashant: If needed can you take price increases, will the market allow it?A: The current market environment is not very conducive. We don't see prices are going up in terms of any cost increase.Prashant: It will be tough for you to do that?A: No, if the cost go up definitely we will see the competition also doing that.Ekta: You mentioned that your promotion expenditure was higher because of the MSD movie. Would you be getting any of the profits from the movie? Was there any direct investment by the company which might in fact reap benefits going forward?A: No, this is just an in placement movie offer and also we definitely leverage it in our influences and trade etc. So, some of our packs also we promote based on the movie. So, basically it is like a normal advertising investment.Prashant: Your retail and distributor network quarter-on-quarter (Q-o-Q) it is kind of difficult to track, you look at it from a slightly longer perspective you get a bigger sense in terms of how you are expanding. Your network is approximately half of that of Castrol. So, you have got lots of room to expand. Could you talk to us what happened in the quarter gone by?A: We are tracking it. We have a system where we are able to track the outlets we build for each of our distributors. We are happy to share with you that we are not only taking up our retail base quite aggressively we are also increasing our rural distribution, our branded independent workshops. So, we have taken that up also by close to 10-12 percent.Prashant: Increase of 10-12 percent?A: Increase of 10-12 percent to the base we have. Currently, we were tracking at 50,000 in the beginning of the year so if you take H1 statistics we have added about 5,000 touch points.