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 Companys competitive position) is given below:

INDUSTRY STRUCTURE & DEVELOPMENTS

As per Kline & Co., a worldwide consulting and research firm, among the top five major lubricants consuming countries, India is the only one with strong lubricant demand growth potential. In contrast, other markets such as the United States, China, Japan, and Russia, are likely to witness a decline or slowdown in lubricant demand growth. Indias lubricant market will grow at a CAGR of 3% through 2027.

The Indian Lubricant market is the third largest lubricants market globally. In the next decade, despite the emergence of electric vehicles, lubricant consumption in India will continue to grow. By the end of this decade, the lubricant supply chain in the country will be further strengthened with an increased domestic supply of base oils due to new capacity additions by national oil companies.

According to the International Monetary Fund, the country is expected to maintain its growth momentum over the next five years, increasing at an annual rate of 6%.

The lubricants market, despite its growth, is marked by intense competition and fragmentation. National oil companies, international majors, and local leading firms are all striving for market share. Furthermore, many small local businesses and established spare parts companies are constantly entering the market, either by setting up their own manufacturing plants or providing private labelling services.

According to Mordor Intelligence, the Indian lubricants market is projected to grow at a CAGR of 5.24% from 2021 to 2026. This is still a healthy growth rate, and it is likely that the market will continue to grow in the coming years.

Several factors are driving the growth of the Indian lubricants market, viz:

• Increasing demand from the automotive industry

• Expansion of the industrial sector

• Rising disposable incomes

• Growing awareness about the importance of proper lubrication

• Major focus on infrastructure development

• Government prioritization of the defense sectors growth

• Development and expansion of aviation products manufacturing

However, the Indian lubricants market also faces significant challenges:

• Disruptions in the automotive drivetrain

• High volatility of crude oil prices affecting the cost of base oils and finished products

• Raw material shortages due to supply chain disruptions

• Rising additive and chemical prices, eroding profitability

• Intense competition driving down prices and impacting margins

The profitability of the industry is under pressure due to the influx of new companies entering the market and the diminishing technology differentiation. Brand investments have also shown fatigue, with returns not matching the expenditures.

Despite these challenges, the Indian lubricants market is expected to continue growing in the coming years, benefiting from the increasing demand in the automotive and industrial sectors.

Regardless of the market conditions, GP Petroleums (GPPL) has consistently generated investor value through strategic sourcing, maintaining high service and quality standards, offering bespoke solutions to customers, and enhancing process and organizational efficiency.

COMPANYS COMPETITIVE POSITION

GP Petroleums iconic homegrown brand IPOL, launched in 1973, has proudly completed 50 years in the Indian lubricants market. It stands as one of the rare Made in India brands that has continuously grown amidst fierce competition from foreign multinationals and large government companies, weathering numerous market challenges.

The Company excels in the formulation, blending, and marketing of industrial and automotive lubricants, rubber process oils, greases, and other specialty products. GP Petroleums has a robust network of over 500 distributors and 19 warehouses across 22 states and 4 union territories in India, with exports reaching more than 12 countries.

One of the Companys key strengths is its in-house blending and storage capacity, which ensures steady supplies. Its efficient manufacturing facility spans over 9,000 square meters, with a production capacity of 80,000 KL and a base oil storage of 15,000 KL, one of the largest in the industry. The plant, supported by an advanced laboratory in Vasai near Mumbai, caters to both pan-India and export requirements.

GP Petroleums has deep expertise in meeting product standards set by renowned international organizations such as API, ACEA, ILSAC, JASO, SAE, AGMA, ISO, and DIN. The Companys automotive lubricants adhere to the highest industry performance criteria, and its well-prepared plant is equipped to support its growth agenda for the next five years. Notably, GP Petroleums is amongst the few companies in the industry with a grease blending facility capable of meeting all types of grease requirements.

The Company collaborates with renowned global additive and chemical manufacturers such as Lubrizol, Chevron, Afton, Lanxess, Italmatch, and Clariant to co-develop advanced lubricants that cater to evolving industry demands. By leveraging world-class additives and chemicals from these top-tier companies, GP Petroleums ensures its products incorporate the latest technology and maintain excellent quality, positioning them to align with future trends.

SEGMENT-WISE PERFORMANCE

Industrial Lubricants: Our industrial lubricants business has achieved notable growth through proactive product development. By continually enhancing our portfolio, we effectively address the evolving needs of customers across various industries. As a forward-thinking Company, we are dedicated to improving our products and services, which has been key to maintaining our industry-leading position.

Metalworking fluid is the core competency of IPOL Industrial Lubricants, where we have earned strong recognition. Moreover, with our comprehensive range of industrial lubricants, IPOL stands out as a complete solution provider, offering extensive and tailored solutions that reinforce our market leadership.

We have strategically partnered with distributors across various regions to expand our market reach and optimize product delivery. These collaborations have reinforced our distribution network and increased customer access to our offerings. Valuing our distributors, we provide comprehensive training on our products and applications, enhancing their capabilities and supporting business development. We also assist with secondary growth and offer strong support for their advancement. Additionally, we appoint specialized distributors for specific segments and product lines, driving growth in key focus areas.

Over the past years, a key achievement for our Company has been forming strategic alliances with leading industrial machine manufacturers. These partnerships have enabled us to understand their specific needs and develop tailored solutions that add significant value. We have created specialized products for industrial OEMs and built strong partnerships, leading to substantial business growth. Many of these major OEMs support and promote the IPOL brand. Additionally, our focus on various segments and comprehensive solutions is enhancing IPOLs market stature.

Throughout the year, we have placed a strong emphasis on advancing technical expertise. Through targeted training and knowledge-sharing initiatives, our employees have gained cutting-edge industry insights, enabling them to provide exceptional technical support. A key achievement has been the launch of the Trade Talk training program, which has significantly enhanced the techno commercial skills of our sales team members.

Our proactive engagement in social media branding and participation in both major and localized exhibitions have been instrumental in driving horizontal growth, strengthening our market presence, and expanding our reach. The comprehensive execution of these strategies represents a substantial effort and sets a solid foundation for future success in the industrial business segment.

Rubber Process Oils: GP Petroleums is recognized as the leading private player in the rubber process oils (RPO) market, with its products used in the manufacture of one in every 15 tyres. As a pioneer in low Polycyclic Aromatic (PCA) Rubber Processing Oils, GPPL has established strong partnerships with many leading tyre manufacturers. The Company collaborates closely with OEMs to develop new products that enhance the aging properties of rubber components. This strategic focus on providing bespoke solutions has enabled GP Petroleums to maintain its market leadership position.

Automotive Lubricants: GP Petroleums automotive division is strategically focussing on achieving exponential growth by leveraging the strengths of its twin brands, IPOL and Repsol. The division is dedicated to expanding its geographical presence and plans to venture into new territories. Guided by the business strategy LAKSHYA, the automotive division aims to proliferate through the 3Rs - Reach, Range, and Retain.

Recently, the automotive vertical has introduced several new products to its portfolio, including BS VI compliant motorcycle oils, fully-synthetic engine and gear oils, low viscosity engine oils, and CK-4 oils. IPOLs packaging has been completely revamped, enhancing the brands offerings for trade.

The automotive division is leveraging Repsols strong positioning in the motorcycle oil segment and targeting specific network segments. Co-branded lubricants are providing an edge over competitors and gradually enhancing the Companys image.

GP Petroleums B2C growth strategy focuses on doubling its retail footprint through a weighted distribution model and segment-wise expansion to increase total market action. The Company is particularly optimistic about growth opportunities in emerging segments like new-age tractors, SUVs, and the scooter market, which hold immense potential for driving future growth.

PRODUCT DEVELOPMENT

At GP Petroleums, R&D extends beyond the laboratory, actively engaging with customers to develop practical solutions that meet ever-changing market demands. Tribology then takes center stage to create innovative products.

Our focus on technical expertise and product development has led to advancements in high-performance cold forging oils, superior honing oils, high-performance semi-synthetic cutting coolants, improved rust preventives, and the latest machining ester-based mist oils. These formulations enhance tool life, offer cost savings, improve machining performance, and provide superior rust prevention. Our commitment to continuous improvement ensures we deliver top-quality solutions for our customers machining needs.

The rapid evolution of machining technology requires efficient tribology solutions that reduce power consumption and mist formation. GPPLs BS-VI specification products help lower the carbon footprint. Additionally, our ARTEC series of Rubber Process Oils are non-carcinogenic and highly sought after in the tyre industry.

OPPORTUNITIES

With a rich legacy spanning five decades, GP Petroleums has built a strong foundation of trust with its customers. Our unwavering commitment to product quality, service excellence, customer training, and bespoke solutions gives us a competitive edge. As a comprehensive solution provider, we offer a diverse product portfolio, extensive nationwide reach, impeccable service, and outstanding technical support.

The IPOL brand is rapidly establishing itself as a top player in the metalworking fluid market, known for its exceptional performance and reliability. Our focus on innovation and quality is propelling IPOL to become the leading choice in this sector.

In the industrial segment, we have robust plans to penetrate leading engineering companies across the country. Additionally, we are expanding our export footprint by entering new markets and promoting our wide range of products.

At GP Petroleums, we strive to deliver exceptional value to our customers, fostering enduring relationships built on trust and reliability. Our continuous growth and expansion reflect our dedication to meeting the evolving needs of industries and markets worldwide.

The brands IPOL, Repsol, and the Honda-Repsol co-brand cater to all customer segments and demographics at various price points, ensuring we meet diverse market demands effectively.

THREATS

The highly volatile base oil prices pose a challenge to profitability, as fluctuations can significantly impact the bottom line. Additionally, global supply chain issues have led to substantial price increases in additives and chemicals. The Companys ability to recover these costs directly affects its financial performance.

The long-term impact of electric vehicles (EVs) on the lubricant industry is inevitable. EVs are expected to play a significant role in the 3W and 2W segments, as well as in public transport. Due to their lower number of parts, EVs will reduce the consumption of industrial lubricants.

Indias vast vehicle fleet, with approximately 220 million vehicles operating on 6 million km of roads, continues to grow. Nearly a third of this fleet is less than five years old, and India is projected to add 20 million vehicles annually. These vehicles will require lubrication throughout their entire lifecycle, from production to end-of-service. Experts believe that while the industry may shrink, it will outlast internal combustion engines (ICEs) and maintain a lifespan of at least another 15 years.

RISKS AND CONCERNS

Risk is an integral part of business and should be managed through identification, assessment, and mitigation of potential threats. At GP Petroleums, our core values are pivotal, shaping organizational integrity and ensuring uprightness in business actions.

The lubricant industry faces several prominent risks, including inflationary input costs, raw material supply fluctuations on a global scale, technology obsolescence, a slowing automobile industry, increased competition from regional players, network retention challenges, liquidity crunch affecting cash flow, credit exposure to distributors, volatility in the dollar rate, and talent retention.

GP Petroleums manages these risks by assessing their impact and implementing appropriate mitigation plans. Health, Safety, Security, and Environment (HSSE) risks are significant and critical areas of focus, with a dedicated team assigned to address them. The Companys Risk Management Committee regularly conducts risk assessments to ensure a robust risk management system is in place.

A significant challenge arises from the new mandate by the Indian government, requiring the use of re-refined oil in finished products from April 2023. The main hurdles include the availability of high-quality re-refined oil and the limited availability of specialty re-refined oils that meet specific requirements. This presents a major concern for our operations and compliance with the mandate.

FUTURE OUTLOOK

The strong GDP growth of India at 6.8% in FY 23-24, has been upgraded by 20 basis points at 7% in FY 24-25, presents excellent prospects and opportunities for GP Petroleums.

As per the Custom Market Insights - India Industrial Lubricants Market was valued at USD 13,045 Million in 2024 and is expected to reach USD 20,715 Million by 2033, at a CAGR of 4.12% during the forecast period 2024-33.

The growing utilization of industrial lubricants in the power generation and electricity distribution sector is expected to create lucrative opportunities for industrial lubricant manufacturers during the forecast period. Rapid development in power generation and distribution has significantly driven the demand for industrial oils.

As the share of agriculture and industry in the GDP increases, now contributing nearly half of the countrys GDP, the outlook for the lubricant industry is promising. The expanding Indian economy will drive demand in the transportation and industrial sectors, creating a favorable market environment for GP Petroleums (GPPL) products.

GPPL, as a provider of various petroleum-based solutions, including lubricants, is well-positioned to capitalize on this growth. The Companys wide range of products finds applications across multiple industries such as automotive, construction, and manufacturing.

Furthermore, GPPL is actively expanding its product portfolio to meet the growing demand for lubricants in India. By investing in research and development, the Company aims to develop new and innovative lubricants that precisely meet the evolving needs of its customers.

With the expected growth trajectory of the Indian economy and GPPLs strategic initiatives, the Company stands to benefit from numerous opportunities. GPPL has strong potential to establish itself as a leading player in the lubricants market, capitalizing on favorable market conditions and increasing demand for its products.

In summary, GPPL is poised for promising business growth, with a bright outlook for the coming year. The robust GDP growth, coupled with GPPLs diverse product offerings and focus on innovation, creates a highly favorable environment for the Company to thrive and succeed in the market.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

At GP Petroleums of all the resources we work on, the most valued is the Human Resource. Our endeavor is to attain excellence which is guided by our value framework of PATH (Passion, Agility, Thinking Big & Honesty).

We are striving to offer an enhanced EVP (Employee Value Proposition) and inculcate a culture of consistently achieving higher benchmarks for human development while offering a safe open and inclusive workplace environment.

Our core functions at Human Resources are driven through following initiatives to boost our growth:

1) Talent Acquisition – We ensure the right talent is sourced to enable the businesses to achieve desired outcomes and objectives. We use EVP to attract Talent. Our dependence on hiring is through conventional ways though referral contributes in a major way.

2) Talent Development – The most critical part of the employee lifecycle, we have focused on providing equal opportunities to employees to enhance their productivity through upskilling their competencies through focused Learning & Development interventions. A Robust and timely PMS has been our hallmark of our commitment to recognize the efforts of our employees. Through our engagement initiative we ensure that our employees are highly engaged, motivated and self-driven to accomplish the organizational objectives. Periodic and regular reward and recognition is practiced promoting a culture of high ethical performance in the organization.

3) HR Operations – It is highly evolved and digitalized to keep pace with the technology and the latest development.

4) Compliance – Our commitment to ensure compliance is unwavering through gap analysis and routine Audits. At all our business premises legal compliances are met ethically, and maintained responsibly, though our endeavor is to proactively identify the disputes and resolve them amicably without causing any disruptions in our business activities.

A) POSH: We have constituted a POSH Committee as per the compliance requirement. We periodically conduct POSH awareness sessions to reinforce the feeling of safety and security for our employees. There was no case reported in the previous year.

B) HSSE: A comprehensive policy covering all our employees and business partners is executed through various training interventions to reskill, upskill and equip employees and workers to perform all their tasks and duties safely and efficiently. Periodic safety reviews and mock drills to ensure adherence to the highest occupational safety requirements.

To sum up, our HR initiatives and interventions are designed and executed to drive excellence to ensure accomplishments of our business, Social and legal objectives. We are focusing on creating an EVP (Employee Value Proposition) through Talent development and employee wellbeing initiatives to attract and retain Top Talent besides being an aspirational organization in the industry.

Under the ‘We Care initiative, the Company has undertaken various CSR programs for the differently privileged sections of the society. The Company has donated advanced medical equipment viz. Optical Coherence Tomography (OCT) machine, Ophthalmoscope instruments with Lenses, Slit lamp Digital Imaging System, and an Ophthalmic Refraction Unit to a Charitable Hospital. The OCT machine along with slit lamps and lenses facilitates early intervention, potentially preventing the progression of diseases and improving overall healthcare outcomes, as it is targeted at addressing vision-related health issues. The Company had also distributed safety jackets for road safety awareness and also to individuals and communities who were from differently privileged section of Society by contributing to their well-being and comfort and thereby improved the quality of life for the recipients. To enhance the quality of life for individuals, especially in areas with limited access to electricity, we distributed battery lights to Students in underserved areas so that they can study after dark, leading to improved academic performance and increased educational attainment. Distribution of water wheels to the tribal families is a strategic investment in enhancing the lives of communities facing challenges in accessing clean water. Furthermore, the Company partnered with orphanages to support the education of girl children, aiming for womens empowerment and social impact. Lastly, Eye-Checkup camps organized in Hissar provided quality healthcare services to rural areas. All these CSR initiatives collectively impacted approximately 80,000 individuals, significantly contributing to their well-being and societal advancement.

INTERNAL FINANCIAL CONTROL AND THEIR ADEQUACY

Companys Internal Control System is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with the applicable Accounting Standards and Policies assuring adherence to compliance with the applicable statutes, policies and procedures, guidelines and authorizations.

Companys internal financial control over financial reporting includes those policies and procedures that:

• Pertain to the maintenance of the records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company.

• Provides reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and those receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company.

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material impact on the financial statements.

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 an extensive internal audit programme and periodic review by the management and the Audit Committee. During the year, the controls were tested and no reportable material weakness in the design or operation observed.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During FY 2023-24, the Company achieved a profit (Profit Before Taxes - PBT) of 37.2 Crores, up from 34.7 Crores in FY 2022-23, marking a 7% growth. This performance was achieved despite a 17% drop in Revenue from Operations, which fell from 790.4 Crores in FY 2022-23 to 655.2 Crores in FY 2023-24. The revenue decline was due to reduced trading segment impacted by import challenges stemming from the Israel-Hamas conflict in 2023 and the ongoing Russia-Ukraine War. Nevertheless, the Company demonstrated operational efficiency by improving margins through cost optimizations leading to cost reduction and effective working capital management leading to significant reduction in debts and finance costs.

CHANGES IN KEY FINANCIAL RATIOS

Details of changes as compared to the immediately previous financial year in key financial ratios, along with explanations therefore, including:

Particulars	Unit	2022-23	2023-24	% Change
Debtors Turnover	Times	6.4	4.7	(27)%
Inventory Turnover	Times	7.6	6.9	(9)%
Interest Coverage Ratio	Times	16	48	+200%
Current Ratio	Times	4.9	6.1	+25%
Debt Equity Ratio	Times	0.11	0.06	(48)%
Operating Profit Margin	%	4.6	6.1	+33%
Net Profit Margin	%	4.4	5.7	+29%
Return on Net worth	%	12.6	12.3	(2)%

Debtors Turnover Ratio reflects Companys efficiency in collecting revenue from its customers. It is calculated by dividing the revenue from operations by the average trade receivable. The ratio has decreased in FY 2023-24 as compared to FY 2022-23 as the trading revenues have dropped significantly during the year. However, this ratio for FY 2023-24 suggests that the Company is effective in managing its debtors and collecting payments promptly.

Inventory Turnover Ratio measures how often a Company sells and replaces its inventory within a year. It is calculated by dividing the cost of goods sold by the average inventory. A ratio of 6.9 indicates that the Company is managing its inventory efficiently and turning it over quickly.

Interest Coverage Ratio measures Companys ability to pay interest on its outstanding debt, calculated by dividing EBIT by interest expenses. A 200% increase in this ratio for FY 2023-24 compared to the previous year demonstrates the Companys robust working capital management, resulting in lower interest costs. This indicates the Companys financial strength and effective cash flow management.

Current Ratio is a liquidity metric that assesses Companys ability to meet short-term obligations due within twelve months. It is calculated by dividing current assets by current liabilities. A current ratio of 2 or higher signals strong financial health. This suggests that our Company has strong liquidity position means that the Company is well-equipped to meet its short-term obligations.

Debt Equity Ratio - The Companys debt equity ratio, calculated by dividing short-term debts plus lease liabilities by total equity, reflects its efficient debt management. With no long-term borrowings, the ratio considers only short-term debts and lease liabilities. The 48% decrease in this ratio signifies a substantial reduction in short-term borrowings, highlighting Companys strong financial health and proficient management of its debt.

Operating Profit Margin is a profitability ratio that assesses the percentage of profit a Company earns from its core business activities. It is determined by dividing operating profit by revenue from operations. A 33% increase in FY 2023-24 vs FY 2022-23 suggests that the Company has efficiently managed its operations leading to cost reduction and in turn has achieved better margins.

Net Profit Margin is a profitability ratio that measures the percentage of net profit before tax relative to revenue from operations. It is calculated by dividing net profit before tax by revenue from operations. The Companys net profit margin has increased by 29% in FY 2023-24 as compared to FY 2022-23, reflecting its commitment to sustained strong performance throughout the year.

Return on Net Worth measures Companys profitability relative to its shareholders equity. It is derived by dividing net profit before tax by shareholders equity. The slight decrease in this ratio, despite an increase in profit, suggests that shareholders equity has grown at a faster rate.