Rationale

 The reaffirmation of ratings of Gulf Oil Lubricants India Limited (GOLIL), considers the company's strong financial profile, characterised by healthy profitability levels and return indicators and a comfortable capital structure. The company is one of the fastest growing players in the domestic industry and has regularly posted higher-than-industry growth in its volume sales. In FY2021, despite the impact of Covid-19 pandemic and subdued industry demand, the company recorded 4% YoY volume growth driven by growth in industrial oil and diesel oil segment, partly offset by decline in motorcycle and passenger car segment. During Q1 FY2022 the company reported YoY revenue growth of ~73%, however, it witnessed QoQ revenue decline of ~19% because of the second wave of the pandemic and closure of retail markets in various states in a phased manner. Nonetheless, with the easing of containment measures there has been subsequent recovery in volumes. The ratings continue to consider the company's ability to maintain healthy profitability levels on the back of timely price revisions to partly mitigate the impact of base oil price movements as well as its improving market share in the domestic lubricants industry, driven by its strong marketing efforts, well-recognised “Gulf” brand and wide distribution network. The ratings also consider the company's robust financial risk profile, characterised by healthy profitability levels and return indicators. Owing to the low financing requirements and healthy cash accruals generated by the business (net cash accruals of Rs. 127.3 crore in FY2021), the company's liquidity profile remains healthy with sizeable cash balances (which are more than the debt outstanding) and unutilised fund-based working capital limits. The ratings also positively factor in the strong parentage of the company, being a part of the Hinduja Group. The ratings are, however, constrained by the exposure of the company's profitability to movements in base oil prices. Its profitability is also exposed to forex movements (to the extent of the unhedged exposure). The company's operations will continue to remain exposed to the demand indicators from the automotive sector. The ratings also consider the high competitive pressures in the domestic market, which is largely dominated by Government-owned oil marketing companies (OMCs), apart from other established players in the private sector. The stable outlook on GOLIL's long-term rating, reflects ICRA's expectation that it will continue to benefit from its established brand name and strong distribution network. Also, the financial performance is expected to remain robust, supported by expected recovery in demand in line with pick-up in economic activity.