Strong lubricants play offering strong growth & deep value - Business Guardian
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Strong lubricants play offering strong growth & deep value



Rising vehicle ownership levels, incorporation of advanced engines, continuous growth in investment in infrastructure projects, robust two-wheeler sales, increase in number of women driving scooters, etc are propelling demand for automotive lubricants in India.

While the auto industry has grown by close to 7% in the last five years, lubricants industry in India has been growing in high single-digit primarily due to enhanced oil drain intervals. Stronger gains in construction and agricultural activities are also boosting the demand for off-highway vehicles.

From a product business point of view, a lubricant is generally a fluidic material with the primary function of reducing friction between surfaces in contact. Lubricants minimises energy loss generated from friction and at the same time, it can also be very useful to clean, cool and prevent metal parts from corrosion and rust and many such challenges a machine faces during its operation.

For example, engine oil is a specific type of lubricant that is developed for application in engines. A good quality engine oil is very essential for the appropriate working of an engine; this helps to operate engine efficiently, prevents from damages and helps in extending the life of the engine.

The lube industry is characterised by brand building, innovation, and premiumisation, which aids market share gains and pricing power. New products are launched based on largely homogenous specifications (like viscosity), though branding helps to boost customer preference. Commercial vehicles (CV) customers, however, are value chasers seeking better economics (long drain, pricing, distribution reach etc).

At 2.7 billion litre p.a. (7.5% of world markets) India is the third largest market globally after US and China. The market growth at 3-4% is higher than the global average of 1-2% primarily led by APAC.

Automotive lubricants dominate the market in India, with applications for CV, passenger vehicles (PV) and two-wheelers. Diesel engine oils (DEOs) lead the automotive lubricant market as they form 45% of the total market, followed by motorcycle oils (MCOs) and passenger car motor oils (PCMOs).

The industrial lubricant segment comprises of hydraulic fluids, metal working fluids, greases and industrial gear oil. These products are used in the construction, manufacturing, textile, power generation, mining, food processing, light-heavy engineering, marine operations and metal working sectors.

The demand for automotive lubricants is a direct function of vehicle movement on the roads, as well as growth of vehicle population and automobile sales. The industrial lubricant segment comprises of sectors such as power, chemicals, metals, automotive manufacturing, mining, road construction and non‐road transportation.

In such a scenario, which are the companies which are likely to derive maximum benefit and grow significantly within the lubricants sector? One such company which is a dominant leader in the entire lubricants value chain is Gulf Oil Lubricants India Ltd which sells its lubricants products under the “Gulf” brand with sales largely to the automotive sector along with industrial users.

Gulf Oil operates mainly in the automotive and industrial segments with a leading presence as one of the top players in the open market (B2C/Bazaar channel) through the distributor network and also directly supplies to OEMs & other B2B customers (industries, infrastructure, mining and fleet customers, state transport and government undertakings).

The company has over 7% market share in the Bazaar/replacement market and an estimated 5% share in the overall auto and industrial lubricants market. Gulf Oil enjoys a pan-India network of 300+ auto distributors, 50+ industrial distributors and over 75,000 touch-points, 500+ marquee customers in B2B, infra, mining and fleet, backed by the logistics support of 30 depots, 4 regional offices and corporate office in Mumbai. At present, the product mix includes CV oils 45%, personal mobility oils 22-25% (motorcycle 18-20%, passenger car 4-5%), industrial 15% and other gear oils and greases 15%. Gulf Oil works in close coordination with several OEMs and has adopted and pioneered several go-to-market models in the automotive industry, including genuine oils, co-brand oils and approved oils.

Some of the company’s OEM partners include Ashok Leyland, Mahindra, Swaraj, Bharat Benz, Schwing Stetter, Tata Motors, Force Motors, Kobelco, Piaggio and Bajaj. Gulf Oil also provides customised service and technical solutions to its B2B customers and has thus built strong-long standing relationships with its customers in the infrastructure, mining and fleet segments.

It supplies lubricants to more than 300 prestigious B2B customers like L&T, JSW, etc. With 10-12% CAGR volume growth in the last decade, Gulf Oil has recorded more than 3x-4x times growth of the lube industry. Its strategy has helped it built a strong brand and increase its reach and offer products with differentiated value propositions to customers which has enabled the company to record one of the fastest volume growths amongst the top lube players. Besides leveraging, Gulf Oil International’s global motorsports associations in India, GOLIL built the Gulf brand in India around the cricketing platform – by sponsoring teams in the Indian Premier League and appointing the Indian team captain Mahindra Singh Dhoni as the brand ambassador. Consistent investment in the brand has resulted in strong brand awareness and usage of the Gulf brand in India.

While the lubricants market will continue to grow for at least next 15-20 years as explained above, GOLIL has also been focused on creating its foothold in the e-mobility space while looking at opportunities that synergise with its brand, distribution. The intention of the company is to stay ahead of the curve in order to cater to the evolving market and consumer requirements in this sector with very strong technology driven products.

At present, it has two tie-ups through equity stakes into Indra Renewable Technologies and ElectreeFi which has enabled it to provide superior solutions related to electric vehicle (EV) charging, EV fleet management and battery swapping.

Gulf Oil is the second largest player in the domestic lubricant market enjoying a strong presence in the automotive, industrial, infrastructure segments with around 55% of the revenue coming from the B2C segment and rest from the B2B segment where the company has built a strong domestic brand ‘GULF’ which believe has great potential and going ahead can be scaled up significantly.

However, for Gulf Oil, its key raw materials cost (base oil) is dependent on movement of crude oil prices and rupee against the US dollar. But despite this, the company was able to increase product prices by 6 times in the last 8 months of FY22 indicating strong pricing power in a very competitive market. This is the reason Gulf Oil is a solid cash generating machine with almost 7-8% of its revenues being spent on brands and promotions, and despite Covid, the company was able to sustain and manage its operations optimally.

More importantly, once the geo-political situation between Russia and Ukraine gets over in the near term, crude prices will correct sharply thereby leading to softer base oil prices which will benefit the company going ahead.

Hence, Gulf Oil is the best proxy to play the Lubricants theme which is likely to show strong growth over the next 3-5 years ahead as the company enjoys scale, a strong brand and a well-established infrastructure to benefit from this change. All this has got reflected in FY22 numbers with revenues at Rs 2,192 crore and a PAT of Rs 211 crore vis-a-vis Rs 200 crore last year with a net EPS of Rs 41 as compared to Rs 39 in FY21.

From a valuation perspective, the Gulf Oil stock has also corrected by almost 18% from its peak in last February and currently trades at Rs 420 levels at a PE multiple of 8xFY23E and 7xFY24E while EPS growth over the next 2 years is estimated at over 20% annually.

These valuations look attractive considering the fact that Gulf Oil enjoys healthy demand prospects across all its product segments, plus due to its asset light business model and low capital intensive business model, the company has potential to double its sales from existing setup which essentially puts Gulf Oil in a sweet spot.

(The author is the Head-Research at Profitmart Securities and a seasoned financial planner and equity researcher)

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Kejriwal unveils ‘Guarantee’ for LS Polls: AAP’s pledge for change



On “Kejriwal ki Guarantee”, he said 24X7 power supply, good education and health facilities, and arranging two crore jobs for youths every year are part of it.

Delhi Chief Minister and AAP national convener Arvind Kejriwal declared “Kejriwal ki Guarantee” on Sunday, outlining 10 urgent initiatives to be pursued swiftly, including the liberation of Indian territory from Chinese control, should the INDIA bloc come to power at the Centre. This opposition alliance, comprising parties like AAP, Congress, Trinamool Congress, and Dravida Munnetra Kazhagam, was established to challenge the BJP-led National Democratic Alliance in the Lok Sabha elections.

A day after his release from jail on interim bail, Kejriwal on Saturday said the INDIA bloc will form the next government and his AAP will be part of it. Addressing a press conference on Sunday, the AAP leader said people will have to choose between “Modi ki Guarantee” and “Kejriwal ki guarantee”. The latter is a “brand”, Kejriwal said.

On the announcement of his guarantees, Kejriwal said, “I have not discussed with my INDIA bloc partners about this. I will press upon my INDIA bloc partners to fulfill these guarantees.”

Kejriwal said while the AAP has fulfilled its “guarantees” of free power, good schools, and Mohalla Clinics in Delhi, “(Prime Minister Narendra) Modi has not fulfilled his guarantees”.

On “Kejriwal ki Guarantee”, he said 24X7 power supply, good education and health facilities, and arranging two crore jobs for youths every year are part of it.

“We worked on management to ensure 24×7 power supply in Punjab and Delhi. We can do it in the entire country. The government schools in the country are in a bad shape. We will arrange good quality education across the country. We know how to do it,” he said.

Kejriwal also promised to end the Agniveer scheme and ensure that farmers get MSP for their crops as per the Swaminathan Commission’s report. “Rashtra Sarvopari is our guarantee. China has occupied our land and we will free it from their occupation,” he said. Kejriwal also promised to provide full statehood to Delhi.

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Macro & financial stability, boost to infra, extended PLI likely key areas in Modi 3.0



If one were to go by the Central Government’s poll manifesto which has stayed aligned to the pre-poll interim Budget, a strong adherence to the path of macro and financial stability as priorities, marked by low inflation, strong external balances, high growth, and fiscal prudence, appears to be the likely scenario if it comes back to power. A DBS Group research by Radhika Rao, senior economist, DBS Group Research and Taimur Baig, MD and Chief Economist, DBS Group Research indicates that the government will continue with the infrastructure push, policies to expand the manufacturing sector, and establish the country’s position as a voice of the Global South.

On the first, the focus will be on improving physical and digital infrastructure, marked by new metro networks, new railway tracks, new-age trains, improved connectivity, new bullet trains, roads, and energy infrastructure. Concurrently, besides expanding the 5G network, improving rural broadband connectivity, exploring 6G technology and the digitization of land records, amongst others, were highlighted in the to-do lists, as per Rao and Baig.

Secondly, Make-in-India and PLI schemes are likely to be expanded, with an emphasis on employment creation, simplification of regulatory processes, appropriate infra for manufacturing hubs, and R&D. A mix of traditional and new-age sectors will likely be prioritized, including a globally competitive food-processing industry, and core sectors (steel, cement, metals, engineering etc), besides a push towards indigenous defense manufacturing, pharma, new age & chip manufacturing, auto and electric vehicles, amongst others.

Existing social welfare programs are likely to be enhanced with better outreach, including, a middle-class focus through the provision of high-value jobs, quality healthcare and infra to improve ease of living, amongst others. Also on the radar is affordable housing program expansion with a focus on slum redevelopment, sustainable cities, etc. The PM Garib Kalyan Anna Yojana is to be a priority, which will continue to provide free foodgrain ration to about 800 mn residents. On healthcare, Rao and Baig see continuity to provide quality free health treatment to up to 500,000 poor families under Ayushman Bharat.

The economists are also of the view that the PM Ujjwala Yojana, which has already benefited 100 mn with cooking gas connections, will be expanded. Subsidies for solar panels on roofs of 10 mn households up to 300 units/month under the PM Surya Ghar Muft Bijli Yojana, unorganized workers, farmers and continuation of financial assistance to farmers under PM Kisan, farm self-sufficiency, etc.), start-ups and micro-credit enterprises, will be the other focus areas to boost the economy from a bottom-up approach.

Rao and Baig foresee limited fiscal implications from these announcements as part of these were included in the interim budget and the manifesto did not outline any new big-bang reforms or fresh social welfare spending programs. “We maintain our FY25 fiscal deficit assumption at -5.1% of GDP with the existing borrowing program,” says the economists.

A broad-based push towards more contentious structural reforms (land, labor, farming, etc.) did not receive a mention in the manifesto, which may still be prioritized if the party returns for a third term. In our view, the incoming government is neither limited by nor will be restricted by the poll promises. To that extent, the scope of reforms can be wider than what has been laid out in the respective manifestos.

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Govt extends date for submission of R&D proposals



The Government has extended the deadline for submission of proposals related to R&D scheme under the National Green Hydrogen Mission. The R&D scheme seeks to make the production, storage, transportation and utilisation of green hydrogen more affordable. It also aims to improve the efficiency, safety and reliability of the relevant processes and technologies involved in the green hydrogen value chain. Subsequent to the issue of the guidelines, the Ministry of New & Renewable Energy issued a call for proposals on 16 March, 2024.

While the Call for Proposals is receiving encouraging response, some stakeholders have requested more time for submission of R&D proposals. In view of such requests and to allow sufficient time to the institutions for submitting good-quality proposals, the Ministry has extended the deadline for submission of proposals to 27th April, 2024.

The scheme also aims to foster partnerships among industry, academia and government in order to establish an innovation ecosystem for green hydrogen technologies. The scheme will also help the scaling up and commercialisation of green hydrogen technologies by providing the necessary policy and regulatory support.

The R&D scheme will be implemented with a total budgetary outlay of Rs 400 crore till the financial year 2025-26. The support under the R&D programme includes all components of the green hydrogen value chain, namely, production, storage, compression, transportation, and utilisation.

The R&D projects supported under the mission will be goal-oriented, time bound, and suitable to be scaled up. In addition to industrial and institutional research, innovative MSMEs and start-ups working on indigenous technology development will also be encouraged under the Scheme.

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India, Brazil, South Africa to press for labour & social issues, sustainability



The Indian delegation also comprises Rupesh Kumar Thakur, Joint Secretary, and Rakesh Gaur, Deputy Director from the Ministry of Labour & Employment.

India, on Thursday, joined the G20’s two-day 2nd Employment Working Group (EWG) meeting under the Brazilian Presidency which is all set to address labour, employment and social issues for strong, sustainable, balanced and job-rich growth for all. India is co-chairing the 2nd EWG meeting, along with Brazil and South Africa, and is represented by Sumita Dawra, Secretary, Labour & Employment.

The Indian delegation also comprises Rupesh Kumar Thakur, Joint Secretary, and Rakesh Gaur, Deputy Director from the Ministry of Labour & Employment. India has pointed out that the priority areas of the 2nd EWG at Brasilia align with the priority areas and outcomes of previous G20 presidencies including Indian presidency, and commended the continuity in the multi-year agenda to create lasting positive change in the world of work. This not only sustains but also elevates the work initiated by the EWG during the Indian Presidency.

The focus areas for the 2nd EWG meeting are — creating quality employment and promoting decent labour, addressing a just transition amidst digital and energy transformations, leveraging technologies to enhance the quality of life for al and the emphasis on gender equity and promoting diversity in the world of employment for inclusivity, driving innovation and growth. On the first day of the meeting, deliberations were held on the over-arching theme of promotion of gender equality and promoting diversity in the workplace.

The Indian delegation emphasized the need for creating inclusive environments by ensuring equal representation and empowerment for all, irrespective of race, gender, ethnicity, or socio-economic background. To increase female labour force participation, India has enacted occupational safety health and working conditions code, 2020 which entitles women to be employed in all establishments for all types of work with their consent at night time. This provision has already been implemented in underground mines.

In 2017, the Government amended the Maternity Benefit Act of 1961, which increased the ‘maternity leave with pay protection’ from 12 weeks to 26 weeks for all women working in establishments employing 10 or more workers. This is expected to reduce the motherhood pay gap among the working mothers. To aid migrant workers, India’s innovative policy ‘One Nation, One Ration Card’ allows migrants to access their entitled food grains from anywhere in the Public Distribution System network in the country.

A landmark step in fostering inclusion in the workforce is the e-Shram portal, launched to create a national database of unorganized workers, especially migrant and construction workers. This initiative, providing the e-Shram card, enables access to benefits under various social security schemes.

The portal allows an unorganized worker to register himself or herself on the portal on self-declaration basis, under 400 occupations in 30 broad occupation sectors. More than 290 million unorganized workers have been registered on this portal so far.

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India to spend USD 3.7 billion to fence Myanmar border



India plans to spend nearly $3.7 billion to fence its 1,610-km (1,000-mile) porous border with Myanmar within about a decade, said a source with direct knowledge of the matter, to prevent smuggling and other illegal activities. New Delhi said earlier this year it would fence the border and end a decades-old visa-free movement policy with coup-hit Myanmar for border citizens for reasons of national security and to maintain the demographic structure of its northeastern region.

A government committee earlier this month approved the cost for the fencing, which needs to be approved by Prime Minister Narendra Modi’s cabinet, said the source who declined to be named as they were not authorised to talk to the media. The prime minister’s office and the ministries of home, finance, foreign affairs and information and broadcasting did not immediately respond to an email seeking comment.

Myanmar has so far not commented on India’s fencing plans. Since a military coup in Myanmar in 2021, thousands of civilians and hundreds of troops have fled from there to Indian states where people on both sides share ethnic and familial ties. This has worried New Delhi because of risk of communal tensions spreading to India. Some members of the Indian government have also blamed the porous border for abetting the tense situation in the restive north-eastern Indian state of Manipur, abutting Myanmar.

For nearly a year, Manipur has been engulfed by a civil war-like situation between two ethnic groups, one of which shares lineage with Myanmar’s Chin tribe. The committee of senior Indian officials also agreed to build parallel roads along the fence and 1,700 km (1,050 miles) of feeder roads connecting military bases to the border, the source said.

The fence and the adjoining road will cost nearly 125 million rupees per km, more than double that of the 55 million per km cost for the border fence with Bangladesh built in 2020, the source said, because of the difficult hilly terrain and the use of technology to prevent intrusion and corrosion.

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However, Stock highlighted the enormity of the challenge, noting that between 40% and 70% of criminal profits are reinvested, perpetuating the cycle of illicit financial activity.

In a press briefing held on Wednesday, Interpol Secretary General Jurgen Stock unveiled alarming statistics regarding the extent of undetected money laundering and illegal trade transactions plaguing the global banking network. Stock revealed that over 96% of the money transacted through this network remains undetected, with only 2-3% of the estimated USD 2-3 trillion from illegal trade being tracked and returned to victims.

Interpol, working in conjunction with law enforcement agencies and private financial sectors across its 196 member countries, is committed to combating the rising tide of fraud perpetrated by illicit traders. These criminal activities encompass a wide spectrum, including drug trafficking, human trafficking, arms dealing, and the illicit movement of financial assets.

Stock emphasized the urgent need to establish mechanisms for monitoring transactions within the global banking network. Currently, efforts are underway to engage banking associations worldwide in setting up such a framework. However, Stock highlighted the enormity of the challenge, noting that between 40% and 70% of criminal profits are reinvested, perpetuating the cycle of illicit financial activity. The lack of real-time information sharing poses a significant obstacle to law enforcement agencies in their efforts to combat money laundering and illegal trade.

Stock underscored the role of Artificial Intelligence (AI) in exacerbating this problem, citing its use in voice cloning and other fraudulent activities. Criminal organizations are leveraging AI technologies to expand their operations and evade detection on a global scale. Stock emphasized the importance of enhanced cooperation between law enforcement agencies and private sector banking groups. Realtime information sharing is crucial in the fight against illegal wealth accumulation.

Drawing inspiration from initiatives such as the “Singapore Anti-Scam Centre,” Stock called for the adoption of similar models in other countries to strengthen the collective response to financial crimes. In conclusion, Stock’s revelations underscore the pressing need for concerted action to combat global financial crimes. Enhanced cooperation between public and private sectors, coupled with innovative strategies for monitoring and combating illicit transactions, is essential to safeguarding the integrity of the global financial system.

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