Gulf Oil shifts Silvassa expansion to Q1 FY28, raises capex

Gulf Oil expects its Silvassa capacity expansion to be ready in Q1 FY28 rather than by March 2027, while total expansion capital expenditure for its Chennai and Silvassa plants has risen to Rs 60-62 crore from Rs 55 crore. Management said Chennai remains on schedule for completion by the end of the current quarter.

What has changed in Gulf Oil's expansion schedule?

Gulf Oil has delayed the expected readiness of its Silvassa expansion by one to two months, with a possible spillover into Q1 FY28 from the earlier March 2027 target. Management said the project is progressing well, but it now expects the added Silvassa capacity to be ready in the first quarter of the next financial year rather than at the end of FY27.

The revised schedule applies specifically to Silvassa, while the Chennai expansion remains on track. Chennai is expected to provide increased capacity by the end of the current quarter, whereas Silvassa is now expected to follow in Q1 FY28. Management did not identify a specific construction, equipment or regulatory reason for the one-to-two-month shift.

Gulf Oil said it is running third shifts at both plants wherever required during the interim period to meet demand. The company described its growth rate as 16% to 17%, or two to three times the market, and estimated its overall market share at 7% to 8%; those market-share figures were management estimates.

How much will Gulf Oil spend on Chennai and Silvassa?

Gulf Oil now estimates total capital expenditure of Rs 60-62 crore for the Chennai and Silvassa expansions, compared with its earlier announced estimate of Rs 55 crore. Management said the Board recently sanctioned an additional Rs 5-7 crore, producing the revised range for the two ongoing projects.

The lower end of the new range is Rs 5 crore above the original estimate, while the upper end is Rs 7 crore higher. The transcript does not split the additional spending between Chennai and Silvassa, nor does it state whether materials, construction, equipment or another project component caused the increase.

The Rs 60-62 crore figure covers the two plant expansions rather than Gulf Oil's wider cash deployment. In the same call, management said Gulf Oil carried Rs 1,200 crore of cash on its balance sheet and intended to retain funds for acquisition opportunities in lubricants, adjacent businesses, industrial products and electric-vehicle-related value chains.

Is Gulf Oil's Chennai capacity expansion still on time?

Yes. Gulf Oil said the Chennai expansion remains on track, with increased capacity expected by the end of the current quarter, while the Silvassa project may be ready in Q1 FY28 instead of the earlier March 2027 target.

Chennai is therefore expected to add manufacturing capacity before the delayed Silvassa project is completed. Gulf Oil did not disclose the capacity being added at either Chennai or Silvassa, the utilisation of existing plants, or the additional production generated by the third-shift arrangement.

The third shifts are Gulf Oil's stated operating response while the two projects are completed. Management said it uses those shifts wherever required to fulfil demand, rather than disclosing a separate temporary capacity investment beyond the revised Rs 60-62 crore expansion outlay.

What demand is Gulf Oil preparing capacity for?

Gulf Oil is preparing for growth across business-to-consumer, business-to-business and industrial lubricant channels. Management said the historical mix has been about 55% business-to-consumer and 45% business-to-business, including industrial business, although the reported quarter was closer to 50% and 50%.

Management identified industrial activity as a growth driver for India and the lubricant sector in coming years. It also said Gulf Oil aims to make synthetic products about 10% of its portfolio over the next three to four years, including higher-end motorcycle and passenger-car lubricant ranges.

Personal mobility accounted for about 21% of Gulf Oil's volume, according to management, while its passenger-car motor-oil market share was below 5%. Management said it was investing in passenger-car distribution through independent workshops under its Custom Car Stop programme, while retaining focus on motorcycle products.

Exports had increased during the preceding six months because of global supply and demand conditions, management said. Gulf Oil put exports at around 10% of the lubricants business at the time of the call, but did not attribute a specified part of either Chennai or Silvassa capacity expansion to export demand.

How is Gulf Oil managing cash and operations during the delay?

Gulf Oil said it held Rs 1,200 crore of cash and had increased dividend payouts to about 65% to 70% where management considered cash not to be immediately required. Management said the cash reserve could support acquisition opportunities in lubricants, industrial adjacencies and mobility-related businesses alongside the Rs 60-62 crore plant programme.

Working capital was elevated in the first half because of higher crude and base-oil prices, tactical buying to secure supplies and additional receivable support for customers, management said. It added that if prices stayed around current levels in the second half, incremental cash generation should add to cash rather than further working capital because it considered working capital close to its peak under that condition.

Input-cost changes remain relevant to the operating environment around the expansion. Gulf Oil said it had taken three price increases in its business-to-consumer channel, while original-equipment-manufacturer contracts generally have quarterly price-variation clauses; during the preceding six months, many customers accepted monthly changes because raw-material costs moved rapidly.

Conclusion

The revised programme leaves Gulf Oil with Chennai due to add capacity by the end of the current quarter and Silvassa following in Q1 FY28, while the two-project budget has increased by Rs 5-7 crore from the earlier Rs 55 crore estimate. Third shifts at both plants are intended to meet requirements until the additional capacity is ready.

The next point to watch is whether Silvassa becomes ready within Q1 FY28 and whether final spending remains within the Rs 60-62 crore range approved by the Board. Management also said that crude and base-oil prices remaining near current levels would allow second-half incremental cash generation to avoid further working-capital absorption.