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August 15, 2017

Volume 7 Issue 8

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Indian Blenders Bit by GST in Q1

Indian lubricant suppliers saw first-quarter profits fall by between 30 and 55 percent from the same period last year. Most cited the transition to the country’s new tax system in June as a major reason for the slide, and were optimistic for a quick recovery. 

Tide Water Oil Co. (India) Ltd. 

Tide Water Oil Co.’s first-quarter net profit plunged 41 percent annually, as sales and other income declined.

The company posted a standalone net profit of Rs 16.3 crore (Rs 163 million, or U.S. $2.4 million) during the April to June 2017 period, down from Rs 27.5 crore last year, according to a regulatory filing.

Tide Water reported that revenue from operations decreased 11 percent to around Rs 256 crore. The supplier of Veedol-branded lubricants said its other income fell nearly 8 percent to Rs 5 crore. Total expenses were down 5.5 percent to Rs 236 crore.

Continental Petroleums Ltd. 

Continental Petroleums Ltd., which sells Mobolene-branded lubricants and greases, reported that its profit slumped 29 percent compared to last year’s first quarter, due primarily to higher expenses and finance costs.

The lubricant maker posted a standalone net profit of Rs 878,000 (approximately U.S. $13,020) in the quarter ended June 30, down from Rs 1.23 million in the corresponding quarter last year, according to a regulatory filing.

Total income from operations, however, rose nearly 6 percent to Rs 6.3 crore. Total expenses increased 7 percent to Rs 6.2 crore, and finance costs surged about 94 percent to Rs 6.8 lakh.

Apar Industries Ltd.

Apar Industries Ltd. reported a 40 percent decline in its transformer and specialty oils segment’s operating profit. Aggressive pricing and weak retail sales of automotive and industrial oil ahead of the July implementation of India’s Goods and Services Tax system suppressed profit.

The segment posted a consolidated profit of Rs 34 crore before finance costs and taxes during the quarter, down from Rs 56.6 crore in the same period last year, the diversified company said in a regulatory filing. Revenue for the segment increased 1.2 percent to just under Rs 552 crore.

“The fairly aggressive pricing in the domestic and export markets for specialty oils … has had some impact on profitability,” Apar’s Chairman and Managing Director Kushal Desai said on a conference call with analysts and investors on Aug. 11. The impact is expected to taper off in the next few quarters, he noted.

Revenue from Apar’s specialty oils segment surged 19 percent to just shy of Rs 500 crore, driven by strong growth in transformer oils, white oils and automotive oils. Total exports for the quarter increased 13 percent to reach around 85,350 metric tons.

“Margins were also affected to some extent because our retail automotive sales and the industrial oil sales were both affected in the month of June quite substantially,” he added. Desai noted both segments carry significantly higher margins compared to the average margin in other segments.

He pointed out that many customers stopped buying lubes towards end of June, ahead of the July implementation of GST. But despite this, he said, automotive lubricants sales volume in the quarter grew 8.6 percent to around 55,630 tons. “Essentially, this growth has come from new client acquisitions and new sales in the [original equipment manufacturers] segment,” Desai explained.

The company saw the impact of GST in the month of July as well, but things on the retail side seem to be coming back to normalcy in August, he noted. Desai said there would be some aberration for months as the government is still in the process of clarifying various GST intricacies and procedures. “[After] the initial stage, we expect demand for our products to grow,” he projected.

Desai said Apar will be much more competitive in the second quarter, as some of its key competitors in the specialty oils and automotive lube segments will no longer have the central sales tax benefit that they had before GST rollout. He mentioned Savita Oil Technologies as an example of one of its biggest competitors in the transformer oils and white oils segments. Savita, he said, like many of Apar’s competitors, were not subject to central sales tax before GST.

“Obviously they tried to be more aggressive and pick up market share in a period where our hands were tied and we could not go beyond a certain price point,” Desai remarked. Savita raked in profit of Rs 23.4 in its first quarter, a 16 percent hike from last year.

The company expects that its stocks will be exhausted by the end of this month and that it will start to see improvements in September.

“From the third quarter onwards, we will see a very clear level playing field on both the procurement side as well as the sales side on our raw materials,” Desai said. “We are much more optimistic about what our results should look like in the third and fourth quarters.”

GP Petroleums Ltd. 

GP Petroleums Ltd. posted a 55 percent slump in its first-quarter net profit as the lube producer’s sales declined ahead of the July implementation of GST. A sharp drop in other income also depressed its bottom line.

GP, a subsidiary of the United Arab Emirates-based Gulf Petrochem Group, reported a net profit of Rs 3.5 crore during its April to June 2017 period, down sharply from Rs 7.8 crore in the same period last year, the company noted in its earnings report last week.

Other income declined to Rs 757,000 from Rs 7.6 crore, while total expenses fell nearly 20 percent to Rs 92.7 crore, the supplier of Ipol-branded lubricants said.

The company, which sells industrial and automotive lubricants along with process oils, transformer oils and greases, reported that net sales declined 19 percent to Rs 99.5 crore. GP didn’t provide reasons for the sales decline.

Balmer Lawrie & Co.

Balmer Lawrie & Co. Ltd., one of India’s largest grease suppliers, reported that its lube segment’s operating profit declined 33 percent year on year in its first quarter.

The state-run diversified company said the segment posted a standalone profit of Rs 7.1 crore before tax and interest during the quarter ended June 30, down from approximately Rs 10.7 crore.

Net sales for the segment, however, increased 4.5 percent to Rs 124 crore, the maker of Balmerol products said in a recent financial statement.