GP Petroleums Ltd Management Discussions

Pursuant to schedule v to the SEBI (listing obligations and disclosure requirements) regulations, 2015, a management discussion and analysis report covering business performance and outlook (within limits set by company?s competitive position) is given below:

Industry Structure & Developments

The indian lubricant market is the worlds third largest after united states and china, accounting for nearly 7% of global lubricant demand and has been growing at 3% over the past decade prior to the pandemic. The market size is estimated to be 2.9 million tonnes, with the industrial segment accounting for more than half of demand. The lubricants market is highly competitive and fragmented with national oil companies, several international majors, and a plethora of local companies vying for a piece of pie. The lubricants industry is expected to grow at cagr of 5.6% for the next 5 years.

Stronger emission standards and increased demand for fuel efficiency are driving oems to develop new engine technology at a faster pace. Rising crude oil prices has impacted every geography and india is no exception. The company had to go through numerous challenges under highly uncertain global environment to maintain smooth business operations. Irrespective of the situation, the company has generated investor value through strategic sourcing, maintaining service and quality standards, bespoke solutions to the customers and building efficiency in processes and at organizational level.

Company?s competitive position

Gp petroleums? homegrown iconic brand ipol, launched in 1973, has entered the prime 50th year of successful operations in the indian lubricants market. It is one of the exceedingly rare ‘made in india? brand which has grown relentlessly, amidst competition from foreign mnc?s and large government companies, facing numerous onslaughts from the market.

The company specializes in the formulation, blending and marketing of industrial and automotive lubricants, rubber process oils, greases and other specialty products. Across the country, the company has a well-established network of over 500 distributors and 20 warehouses spread among 24 states and 3 union territories covering more than 350 locations and exports to more than 12 countries.

The company?s in-house blending and storage capacity is one of the key strengths that has helped it maintain steady supplies. During the lockdown, the company was able to maintain uninterrupted supplies to essential sectors - like western coal fields, sugar industries and many others.

Gp petroleums has an efficient manufacturing facility, which spreads across 9000 plus sq. M., having production capacity of 80,000 kl and base oil storage of 15,000 mt which is one of the largest in the industry. The plant is supported by an advanced laboratory, located at vasai, near mumbai. The plant caters to pan-india and export requirements.

Gppl is associated with test houses like avl, arai and icat for the product performance studies for automotive lubricants. The plant is well geared up to accommodate the growth agenda for next 5 years.

Gp petroleums is in collaboration with leading additive and chemical manufacturers for co-development of advanced lubricants for the ever-changing requirements.

The increasing demand from end-user industries is notably driving the market growth in india. The company?s agenda is to contribute to the same and achieve the targets that it has set for itself.

The company is driving growth on the strength of its uniqueness in being a technology-led portfolio player, learnings from five decades of existence, and the proof of the success in this journey is evident as the company entered into the ‘fortune india the next 500 – india?s emerging companies? list.

Segment-wise performance

Industrial lubricants: the industrial business vertical is well-known for its quality products and bespoke solutions, over the last 5 decades. The industrial segment has entered into new business segments and expanded its distribution network base as a part of the company?s ‘excelerate? strategy. The industrial business has proliferated into sugar industry, thermic fluids, steel tube mills, plastic injection molding industry, sponge iron, ceramic, cement, plastimix, textile and process industries. Going ahead, the company plans to focus on expanding further with newer product portfolio.

Agility is at the core of the company?s values. Gppl holds a distinct advantage as a ‘one-stop solution provider? with the whole gamut of the quality portfolio that has led to market leading business shares in metal removal fluids. The quality portfolio coupled with vintage partnerships with customers and distributors create the moat.

The 3is - incubate, innovate and integrate is the mantra in formulating bespoke solutions. Working alongside the leading additive manufacturers, company has launched future-ready solutions. The company had developed segment specific solutions, to mention a few - oil for textile industry, specialty greases for sugar industry and semi synthetic metal working fluids. Cutting oil offer ‘ipol aqua cut? has a cult status among the industrial customers with five decades of learning curve.

Rubber process oils: gp petroleums is considered as the no. 1 private player in rubber process oils and gets consumed in the manufacture of one in every 15 tyres. Gppl is also a pioneer in low poly cyclic aromatic (pca) rubber processing oils and has forged a partnership with most of the leading tyre manufacturers. The company plans to introduce new non-carcinogenic products. The strategy of providing bespoke solutions has helped the company maintain its market leadership position. The rpo exports in revenue terms has grown up by 52%.

Automotive lubricants: gp petroleums automotive division aims to grow the business exponentially on the strength of twin brands – ipol and repsol. The division is committed to increase geographical presence on a larger scale and has plans to enter into newer territories. Automotive division?s - business strategy ‘laskhya? is all about proliferation through 3rs – reach, range and retain.

Automotive vertical has launched several products fortifying its portfolio from bs vi compliant motorcycle oils, fully-synthetic engine and gear oils, low viscosity engine oils, ck-4 oils are some of the examples.

Gp petroleums has an exclusive partnership with repsol sa – spain?s global energy company, to manufacture and market repsol branded lubricants in india and southeast asia from the year 2016. On the strength of the brand building so far, repsol and gp petroleums have renewed the partnership for the next 5 years. Repsol is well known for its association with moto gp – the premier motorcycling championship with honda for the past 27 years. Closer home, in 2020, gppl entered a tri-partite agreement with repsol and honda motors and scooters india ltd (hmsi) for manufacturing and marketing repsol-honda co-branded lubricants.

The b2c growth of gp petroleums hinges on doubling the retail footprint with the weighted distribution model and rtm – route to market interventions like d2d (direct to dealer) model and omni-channel workforce that the company has embarked upon. New growth drivers having an immense potential are new-age tractors, suvs and scooter segment.

Opportunities & threats

At gp petroleums, the r&d doesn?t work in the closed confines of the laboratory but in the open, at the ‘customers? place. The tribology takes over subsequently to generate new solutions to be abreast with the ever-changing market requirements.

Technology upgradation has paved the way for development of critical solutions, which have been upheld by customers. Specialty greases for automotive components like the low temperature greases, grease with life of 1,00,000 km, specialty rust preventives, fire resistant hydraulic fluid for mining sector, deep hole drilling and broaching oil with

Ester-based technology and aqueous polymer quenchant are few that are developed to address the market needs. The chuck jaw greases, master mix special oils, mist oils, plunger lubricants were introduced during the year.

The rapidly changing machining technology calls for new tribology that is efficient. Gppl?s products with bs-vi specifications help in lowering the carbon footprint. The artec series of rubber process oils are non-carcinogenic and much sought after in the tyre industry.

Opportunities

Gp petroleums has a long standing of five decades which has created trust deposit with the customers. The product quality and the service parameters along with customer training and bespoke solutions do add to the advantage. In inflationary environment, everyone suffers. However, gp petroleums tends to be impacted less as our products come with fair sticker price, our value proposition being ‘right quality at right price?.

In industrial segment, the company has robust plans to enter in new segments like – mining, infrastructure, construction, textile, plastic, paper, cement, chemicals, glass and ceramic for growth.

Building on the existing overseas customers, export opportunity is being pursued with focus.

Brand ipol, repsol and the newly launched honda-repsol co-brand helps to meet the requirement of all the customer segments and demographics, and at various price points.

Threats

The raw material cost escalation and the forex hardening impacts the lubricant industry. The heightened competition puts pressure on pricing. Every cost line is on the rise given the inflationary trends while the demand is likely to taper due to delay in capex cycle.

The technical advancement of products paving the enhancement in quality and at the same time reduction in quantity is like a double-edged sword threatening the lubricants industry.

Evs impact on the lubricant industry is a foregone conclusion, in the long run. Evs are forecasted to have a considerable play in 3w and 2w space apart from the public transport. Evs have considerably lower number of parts and hence lower will be the consumption of industrial lubricants.

200 million vehicles ply on 6 million km of indian roads and nearly a third of this fleet is less than five years old. India will continue to add 20 million vehicles year after year. All these vehicles will require to be lubricated – through their entire life cycle - from the beginning of the production through the end-of-service life. So, as per the experts, the industry will shrink but outlive the ice and has a life span of another 15 years at the minimum.

Risks and concerns

Risk is an integral part of business and should be managed through identification, assessment and mitigation of potential risks. At gp petroleums, our core values play a pivotal role, shaping the organizational integrity and bringing uprightness in business actions.

Though the risks related with pandemic, surge in infections, variant mutants are eased out with a massive vaccination drive covering the entire population, yet other risks related to business environment continue. Few of the major risk hampering business are mentioned here. Risk due to inflationary input costs, raw material supply fluctuations at global level, technology obsolescence risk, slowing of automobile industry, increased competition from regional players, network retention, risk of liquidity crunch affecting the cash flow, credit exposure to distributors, volatility in dollar rate, talent retention risk.

The company has managed the risks, through assessing its impact with appropriate mitigation plans. The growth intensive ‘excelerate? strategy along with the austerity measures and efficiency and effectiveness programs have led to the coverage of business risks at large. Health, safety, security and environment (hsse) risks are significant and critical areas of focus with a team assigned to drive it. The company?s risk management committee carries a regular risk prognosis to ensure that robust risks management system is in place.

Future outlook

The business environment is showing green shoots after being hit by the pandemic. Though the aftermath effects are visible now, yet the business indicators show a better picture as compared to earlier years. The demand drivers and the proliferation of distributor network work as the base indicators.

The outlook appears promising as we move ahead, which will be driven by numerous business factors (internal) and the government policies and market forces (external). The demand and supply in lubricants industry is largely dependent upon the changing economic and regulatory landscape. The government?s policy decision on sops for the automobile industry, vehicle population, the growth of automobile and tyre industry will largely have bearing on automobile and rubber process oil business verticals, while manufacturing activity, mining and other business will lead to the lubricants demand generation.

Superior monsoon prospects and increase in agri-activities, farm output, increase in tractor sales, higher disposable income in tier 2 and tier 3 towns, is likely to ensure heightened demand for automotive lubricants.

The growth in demand for tyre and rubber products and increase in exports opportunity have created prospects for rpo business. The government?s policy of ‘atma-nirbhar bharat? and ‘made in india? in addition to curb on imports have bolstered growth in the tyre industry.

The company is bullish about the growth through and aims to be one of the fastest growing players in each of the profitable segments.

New products & opportunities

Automotive (business to customer)

Launched new lubricants to meet new environment norms & Bs vi.

New launch in passenger cars category with fully synthetic variants.

New launch in motorcycle category - fully synthetic lower Viscosity variant.

Fully synthetic gear oil meeting specifications of gl 5.

Ashless, zn free gas engine oil for stationary engines.

Ndustrial / rubber process (b2b)

Multi metal, semi synthetic metal and working fluids for auto Component manufacturing.

Cutting edge surface active micellar anionic emulsifier technology Developed for soluble cutting oil.

High performance rust preventives for export application with 6 Months of outdoor protection.

Tailor made barium free additive developed for rust preventives.

Chuck jaw grease for specialist segment.

Plunger lubricants.

Mist oils.

Master mix specialty products with high performance slip seal Grease for industrial applications.

Naphthenic & highly paraffinic based product range for rpo to Support oem requirement Specialty compressor oils.

Refrigeration oil for chilling units.

Vacuum oil for vacuum pumps.

Human resources and industrial relations

Gp petroleums path value framework, which stands for passion, agility, thinking big and honesty, serves as its compass. Employees are companys greatest asset since they have functional knowledge, industry expertise and are good team players. The company is on track to become the ‘employer of choice? among indian lubricant players. The employee strength of the company is 274 for the year ending march 2022. The extended leadership team feeds into the succession planning hopper. For the purpose of identifying and developing high potential across levels, the company has set up a distinct team called "innovation catalyst".

The company offers variety of benefits to its employees and also focuses on their safety by conducting various trainings. For the benefit of high potential employees, the company gives cross-functional exposure through lateral shifts and project exposure. The company, through the empower series, is constantly educating customers on right lubricant usage for safety and savings.

The company is driven by ‘performance culture? where employees are persuaded to take risks. A health, safety, security and environment (hsse) policy for the company is in place and is relevant to all employees, including contractors. It upholds the highest occupational hsse requirements and conduct regular reviews of safety performance to correct any flaws.

The company gives the adoption of modern hr techniques with the utmost attention in order to increase overall staff effectiveness. The company has a posh committee to safeguard the women employees from sexual harassment at work. The company has not received any complaint relating to the same. All legal compliances have been properly met by the company. The compliance is aided by the routine auditing and gap analysis process. The company has kept friendly working relationships and resolved the majority of labour disputes amicably. To help its employees advance from semi-skilled to skilled workers, the company provides skill development programmes on regular basis.

Health and mental wellbeing sessions are held on a regular basis. A lot of enjoyable activities are introduced to create gppl a great workplace. To foster a culture of professionalism, each employee receives individual attention and is considered as a member of the gppl family.

"play for profit$ with passion" is the mantra that has ensured that the culture is informal, transparent and respectful.

We care!, a corporate social responsibility initiative, is still going strong and supporting differently privileged communities. The company has undertaken various programs for the differently privileged sections of the society like health check-up camps in 13 locations across the country which benefited more than 850 people with free distribution of eye-glasses and free medical checkup. Over the last two years, your company has provided the health checkup facility to over 4500 people from different walks of life. Your company has also encouraged women empowerment by distributing sewing machines to the women who were looking for livelihood to support their families.

Internal financial control and their adequacy

Company?s internal control system has been designed to provide for accurate recording of transactions with internal checks and prompt reporting, adherence to applicable accounting standards and policies, compliance with applicable statutes, policies and procedures, guidelines and authorisations. Consequent to the implementation of the companies act, 2013 (the act), the company has complied with the specific requirements in terms of section 134 (5)(e) of the act, calling for the establishment and implementation of internal financial control framework that supports compliance with the requirements of the act in relation to directors? responsibility statement. The company has an independent internal audit function with extensive internal audit programme and periodic review by the management and audit committee. During the year, the controls were tested and no reportable material weakness in the design or operation was observed.

Discussion on financial performance with respect to operational performance

During the fy 2021-22, the company has registered highest revenue from operations of Rs 718 crores as against Rs 610 crores in the previous financial year, registering a growth of 18%. The company?s profit before taxes for fy 2021-22 was higher by 10.6% at Rs 26.40 crores as against Rs 23.60 crores in previous year. This has also been the highest pbt for the company till date. Profit after taxes for the year increased by 7.3% over previous year to Rs 18.9 crores as against Rs 17.7 crores. The debt cost reduced by Rs 1.5 crores on account of judicious working capital management. Inspite of rising crude prices in the previous year amidst the russia – ukraine war and ongoing covid crisis, the company managed a decent growth maintaining the margins during the year.

Changes in key financial ratios

Details of significant changes (i.e. Change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with explanations therefore, including:

Particulars	Unit	2020-21	2021-22	% Change
Debtors turnover	Times	6.9	6.9	+1%
Inventory turnover	Times	4.5	4.9	+8%
Interest coverage ratio	Times	4.9	8.1	+67%
Current ratio	Times	2	3.9	+100%
Debt equity ratio	Times	0.5	0.1	(73)%
Operating profit margin %	%	4.4	4.2	(6)%
Net profit margin %	%	3.9	3.7	(5)%
Return on net worth	%	10.1	10.5	+4%

Debtors turnover ratio indicates company?s effectiveness in collecting its revenue from customers. It is computed by dividing the revenue from operations by average trade receivables. The ratio has marginally improved over the last year indicating better collections and debtors management.

Nventoryi turnover ratio indicates the number of times a company has sold and replaced its inventory during the year. It is calculated by dividing the cost of goods sold by average inventory. The ratio has improved over the last year which indicates more efficient inventory management.

Interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. It is calculated by dividing ebit by the interest expenses. The ratio has increased by 67% in f.y. 2021-22 showing the company?s ability to pay the interest expenses easily due to higher ebit and lower interest expenses. This was achieved because of efficient working capital management.

Current ratio is a liquidity ratio that measures company?s ability to pay short term obligations or those due within twelve months. It is calculated by dividing the current assets by current liabilities. A current ratio of 2 and above is an indication of financial soundness of a business concern.

Debt equity ratio - since the company does not have long term borrowings, debt equity ratio has been calculated for the short-term debts and lease liabilities. It is a measure of short term debts plus lease liabilities divided by the total equity. The debt equity ratio has decreased indicating lower borrowings and efficient debt management.

Operating profit margin is a profitability ratio used to calculate the percentage of profit a company produces from its operations. It is calculated by dividing the operating profit by revenue from operations. The operating profit margin in fy 2021-22 has marginally reduced due to some bad debts provisioning because of certain debts not realizable as a result of the impact of the pandemic on some entities.

Net profit margin is a profitability ratio used to calculate the percentage of net profit before tax earned by a company during the year. It is calculated by dividing the net profit before tax by the revenue from operations. The net profit margin of the company has reduced marginally from the last year because of the impact of the bad debts provisioning.

Return on net worth is a measure of profitability of a company expressed in percentage. It is calculated by dividing profit before tax by shareholders equity. There is an improvement compared to the previous year implying that the company is increasing its ability to generate profit and has used the shareholders? equity more efficiently. In short, the company is growing.