GP Petroleums Ltd Management Discussions.

1. SPECIAL NOTE ON CORONAVIRUS PANDEMIC

The Coronavirus disease 2019 (COVID-19) was declared a global pandemic by the World Health Organisation in March 2020. Following which, the Government of India then announced a nationwide lockdown for six weeks and thereafter a partial lock down in certain parts of the country based on their risk profile. The initial lockdown meant a complete slowdown of the economy and very limited demand for the Companys products and services. The Company has made committed efforts to support its business stakeholders, employees and service providers in this difficult time. It has geared itself to serve markets in different locations as the country re-opens, as per central and local government advisories. The Company is working on various options to ensure that it effectively navigates through the crisis and emerges stronger.

2. COMPANY VISION & MISSION

GPPL will transform and be future-ready by providing bespoke lubricant solutions with high-quality products at honest prices. It will be a partner of choice for all stakeholders - customers, channel partners, suppliers and employees - through 4Cs approach of Customer- centricity, Cash flow efficiency, Capability building & Communication through Digital platforms.

The Company has a mission to increase its capacity to 100 ML in volume and 1000 crores in turnover during next five years.

3. COMPANYS COMPETITIVE POSITION

GP Petroleums Limited (Company) is a listed Company and ranks amongst the top 1000 Companies in terms of Market Capitalization as on 31st March, 2020. We specialize in formulating, blending and marketing of Industrial & Automotive lubricants, Process oils, Greases and other Specialties. The Company has a well-established network of over 500 Distributors and 24 warehouses across the country. We have also signed an exclusive license agreement with Repsol of Spain to manufacture and market their products, who are well known for their MotoGP association. Our flagship Brand IPOL which is in India for four decades is now also available in over 10 Countries and adding a new country every year.

IPOL is the flagship brand and is a trusted bespoke solution provider in Industrial segment with presence for four decades with the entire range of metal working fluids. IPOLs cutting oil offering Aquacut has a cult status among the industrial customers. IPOL is already number one private player in a few categories like rubber processing oils. We are also pioneers in low PCA rubber processing oils with supply positions to most of the leading tyre companies.

We have invested in high precision quality-control and product development labs to meet global standards and OEM expectations and accredited with ISO 9001, ISO 14001 & ISO 45001 certification. Our blending plant at Vasai has an annual production capacity of 75,000 MT one of the largest in the Industry. We focus on demonstration of product benefits and unique Customer Value Propositions through our in-house R & D facility. We have successfully developed various synthetic greases, high performance metal working fluids, rust preventives and quenchants. We are associated with the test houses like AVL, ARAI, ICAT for the product performance studies for the automotive lubricants.

4. SEGMENT WISE PERFORMANCE

The countrys automotive industry accounts for around 7.1% of the countrys GDP, in which the two-wheeler segment accounts for major share owing to the growing young and middle-class population. Additionally, the governments initiatives, such as the Make in India campaign, are helping the local and state-owned manufacturers to provide their products to consumers and offer stiff competition to the international players. The 100 smart city plan is driving the consumption in tier 2/3 cities that account for 50% of market. Your Company has been focussing on the automotive segment growth which is driven by motorcycle and scooter lubricant business growing in double digits compared to commercial vehicle category which is in low single digit. In 2019-2020 brands IPOL & Repsol put together contributed almost 2% market share in MCO category as we drive the distribution to tier 2/3 cities and rural India. The Company added new 150+ distributors in FY 2019-2020 and now have 500+ in the country. For passenger car category the Company launched new passenger car oil offering IPOL DURASYNTH in synthetic variant which has been well accepted.

Government initiatives towards infrastructure development is expected to fuel the countrys industrial lubricant market. In the financial budget for FY 2019-2020, the Government of India announced an investment of USD 61 billion to upgrade infrastructure facilities across the country. Moreover, the Government is planning to develop new seaports and airports. With the increasing demand from various sectors in the country, the consumption of transmission and hydraulic fluids is expected to boost, during the forecast period.GPPL Industrial business has been driving the profitability through the product mix improvement into more soluble cutting oils and synthetics for better gross margin.WCL business continued to be a major contributor for FY 2019-2020.

5. INDUSTRY STRUCTURE AND DEVELOPMENTS

India is the worlds third largest lubricants market after US and China with approximately 2.7 billion litres of annual consumption and also the biggest motorcycle oil market in the world. The country is the fourth and sixth largest producer of commercial vehicles and passenger cars,

respectively. The lubricants market in India is highly competitive and fragmented comprising national oil companies, several international majors and a large number of local companies adding to at least 198 as per AC Nielsen. Experts predict the Covid impact on lubricants demand to be negative 20 to 30% in 2020-21( Source, PWC & Kline analysis).

2019-2020 has been a tough year for vehicle sales with overall vehicle sales declining by 14% for the full year compared to the same period last year. GDP growth rate for India reduced to 4.7% on account of investment led slowdown leading to lower consumption. Industrial output grew marginally with declining trends in the last two quarters of 2019-2020. The overall automotive lubricant demand grew marginally at less than 1% compared to 2018-2019.

With the change in the emission and fuel economy norms, the performance challenge posed on lubricants is wide varied right from base oil selection to additives chemistry. In India, with BS VI roll out there is significant change in the engine technology and fuels which in turn demand higher engine oil specification. Case in point is the Heavy duty segment - CK4 and FA4 oils, which offer Fuel Economy benefits as well. IPOL closely works with the Global additive companies for the co-development activities. The collaboration has resulted in development BS VI complaints lubricants for automotive segment.

6. DEMAND & SUPPLY DRIVERS

The demand and supply in the lubricant space is being largely driven by the changing economic and regulatory landscape. With improvements in transmission system, gear system, bearing technology and evolution of advanced RPM engines, there is a demand for high grade premium lubricants to support these advanced engines and systems. Lubricants play a major role in reducing friction generated by metal to metal contact. They also help in reducing noise and heat generation of metal parts - such as engines in automotive industry and cutting or honing parts in industrial applications. Automotive vehicles require engine oils, transmission fluids, brake fluids, hydraulic oils and greases, while industrial and manufacturing applications require lubricants for metal working, rust preventives and coolants. Demand for automotive lubricants is driven by the expansion of vehicle population as well as the usage of vehicles in the country. Industrial lubricants demand is observed to have a strong co-relation with the Index of Industrial Production (IIP), which is largely driven by economic activity. Lubricants are manufactured by blending base oils with additives. This blending involves highly advanced formulations as per the specific purpose the lubricant serves, and are in line with the OEM specifications and industry norms.

India is a net base oil deficit market leading to large scale import of base oil and additives. This exposes the lubricants business to fluctuations in foreign exchange rates 2019 was no different to the year before in terms of volatility in both Brent crude and foreign exchange. Within a span of the first four months, crude rose by almost 20% and touched a year high of $71 bbl in April and settling at around $60 bbl from August. Amid challenging economic conditions in India and overseas, the rupee lost its value by almost 1.5% over this year. These difficult market factors continued to put pressure on input prices but subdued demand kept it in check.

Despite this highly uncertain and challenging business environment, the Company continued to generate value for its investors through strategic sourcing, value improvement initiatives, extensive focus on service and quality as well as continuous monitoring of costs.

7. RISK AND CONCERNS

Volatility in input costs and foreign exchange continues to remain a risk coupled with general slowdown in the economy. The Company has appropriate mitigation plans in place to deal with such risks and protect margins. During 2019, appropriate strategic and pricing interventions were taken in the market keeping in mind input costs, competitive positioning and product brand strategy.

With India being a growth market, opportunities for employability and for commensurate roles are higher. The Companys capability building which nurtures and develops its talent, makes its employees more relevant to the market, thereby increasing the risk of attrition for the Company.

Health, Safety, Security and Environment (HSSE) are critical focus areas for the Company. Similarly, product quality and integrity continue to be another focus area for the Company. Its vision for Quality, right quality first.

8. FUTURE OUTLOOK

We are bullish about the growth of the Indian lubricant industry and aim to be one of its fastest-growing players. We expect demand from the rural India to jump back quickly followed by the tier 2/3 towns. Our presence is quite strong in these geographies vis-a-vis competition as we had strategically proliferated. The motorcycle space is expected to do well given the drive for social distancing. Repsol is strong in the Motorcycle Oil space due to its association with MotoGP. In a situation like the current one, the consumers down-trade and we are well poised to capture those who drop off from the super-premium segment to premium and value for money segment through our dual brands - Repsol and IPOL. Repsol will be positioned to target the premium customers from "India" while IPOL will target the value seeker from "Bharat".

Your Company is driving major digitization across the internal and external touchpoints as data is being called the new oil. Marketing will be the key differentiator with Digital driving our expansion plans through channel expansion in Automotive and new segment entries

in Industrial. This new phase will be dominated by mobile apps and will be deployed across channels—Sales force automation (SFA), Distributor Management Software (DMS) and loyalty programs for the mechanic and the trade.

9. NEW PRODUCTS & OPPORTUNITIES Automotive (Business to customer)

• Launched new Lubricants to meet new environment norms & Bharat VI compliance

• New launch in Passenger cars category with synthetic variants

• IPOL ‘Clear Blue DEF launched- Diesel Exhaust Fluid is required by most of the new technology engines to meet the emission norms of BS IV and BS VI

• Up-gradation of Motorcycle category from API SM to SN Industrial / Process (B2B)

• Semi Synthetic metal working fluids for Auto component manufacturing

• Deep hole drilling and broaching oil with ester based technology

• Textile oil for new markets & Specialty greases for Sugar industry

• Horticultural oil for the agro industry (orchard spray oil)

• Low PCA process oils for Tyres / Rubber industry

10. HUMAN RESOURCES & INDUSTRIAL RELATIONS

The Company has strong human capital with 283 Employees who have rich industry experience and functional expertise driven by the "One team One mission" spirit of GPPL. Your Company intends to be the number 1 "employer of choice" among the private Indian lubricant players. Objective of ‘human capital strategy is to attract and retain talent, develop leadership and drive a sense of belongingness among the employees. The teams are driven by a strong performance culture supported through a carrot or stick process. Company has started an "Extended Leadership team" to identify and groom next level leadership and succession planning.

The Company places highest importance in implementation of contemporary HR practices to enhance the overall employee effectiveness. With a strong governance mechanism at its core, the code of conduct has been communicated to and implemented for all the employees. Being an equal opportunity employer, your Company strives to implement the programs to promote various initiatives including awareness of ‘The Prevention of Sexual Harassment at Work Place Policy. There has been no complaint of the sexual harassment at workplace since its inception. It takes pride to have complied with all the legal requirements. The continuous process of audits & gap analysis helps the Company to have better compliance. The Company has maintained cordial industrial relationship and solved maximum labour issues amicably. Your Company also provided opportunity to semi-skilled workers to make them skilled workers.

With a committed team led by the Chief Executive Officer, the Company has fostered a culture of transparency and open communications. These endeavors were spearheaded with the motto being ‘Play for Profits with passion, which has made a resonance in achieving the superior performance of the Organization. The Employees indeed became the ‘Capital and rose to and through difficult and challenging business and economic situation to deliver superior results.

11. INTERNAL FINANCIAL CONTROL AND THEIR ADEQUACY

Your Companys 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 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 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 observed.

12. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE Operational Highlights

• Your Company is committed to increase its market share in India by enabling the consumers to enjoy the advanced and best technological products.

• The Company has consolidated the plant operations by migrating the entire Daman operations to VASAI plant operations and it helped in plant productivity and rationalization of costs.

• The Company has ramped up strategic tie up for institutional sales with large size manufacturing Companies in India which has boosted the brand image for its superior cutting edge technology products.

• The products have several latest national and international performance specifications and approvals to their credit such as API, JASO, ACEA etc. other than OEM credentials.

• New Products are being developed by the R & D Team and in the pipeline for introduction to market.

Financial performance

• EBIDTA was 29.46 Crores as against 35.30 Crores in previous year. The EBIDTA margin was higher at 5.93% as against 5.81% in FY 2018-2019.

• PAT for the year was 15.81 Crores against 16.61 Crores in FY 2018-2019. The PAT margin increased by 0.5%.

• Dividend of 0.75 per equity share recommended for shareholders approval.

• Inventory and debtors reduced by 90 crores which helped in improving the EBIDTA margin.

13. CHANGES IN KEY FINANCIAL RATIOS

There have been no significant changes in key financial ratios, during the financial year 2019-2020 as compared to the immediately previous financial year 2018-2019.