Gulf Oil Lubricants’ 1Q profit faces cost pressure

Gulf Oil Lubricants India (Goli), part of the Hinduja group, saw its profit slip in the first three months of this year as a surge in raw material costs countered record-high sales.

Net profit of 598mn rupees ($8.21mn) in the first quarter of the year fell by 7pc from Rs640mn during the final quarter of last year. But it rose by 66pc from the same period a year earlier to the second-highest level on record.

Its profit fell from the previous quarter even as sales rose by 8pc to a record high of Rs5.17bn.

Sales got a boost from an ongoing recovery in domestic lube consumption at least until mid-March. The blender also invested in marketing initiatives to boost its brand visibility.

But a surge in feedstock costs squeezed its margins.

Its total costs of Rs4.49bn in the first quarter rose by 39pc from a year earlier to a record high. Raw material costs rose by 78pc during that period and increased their share of total costs to 66pc. The costs were up from a 55pc share during the last three months of last year.

Feedstock costs rose as base oil prices surged in response to unusually tight supply. India's imported cargo prices for Group I SN 500 averaged $1,152/t in the first quarter of this year, up by 87pc from $617/t during the same period last year.

The higher costs squeezed the blender's operating profit margin to 15.6pc in the first quarter. The margin was down from 17.8pc during the previous three months and an average 16.2pc during the previous five years.

Goli said it takes time to pass these higher input costs on to customers.

By Iain Pocock