Gandhar Oil Q1 FY26: Profit Rebound or Warning Sign? Unpacking the Numbers

Gandhar Oil Refinery (India) Limited, a prominent player in the white oil industry, recently unveiled its Q1 FY26 investor presentation. The results present a mixed bag: while there’s a discernible sequential rebound in profitability, the year-on-year performance signals a more challenging operating environment. As we navigate the broader Indian economic landscape, which has seen Nifty and Sensex undergo a July correction driven by weak earnings, let’s dive into what Gandhar’s latest numbers tell us about its trajectory.

A Closer Look at Sales Performance: Volume vs. Value

The first quarter of FY26 saw Gandhar Oil’s revenue from operations settle at ₹9,030 million. On the surface, this might seem like a concern. When compared to the same period last year (Q1 FY25), revenue is down by a noticeable 9.2% from ₹9,948 million. Even sequentially, from Q4 FY25’s ₹9,617 million, revenue saw a 6.1% dip. This mirrors the slight annual revenue decline observed in FY25 compared to FY24, suggesting a broader trend rather than a one-off event.

However, a deeper dive into volumes paints a more nuanced picture. Total sales manufacturing volumes for Q1 FY26 stood at 121,733 kiloliters. This is roughly on pace with the annual run rate for FY25 (FY25 total volume of 500,231 kl divided by 4 quarters gives ~125,057 kl/quarter).

Sales Manufacturing Volumes (kl)

The key takeaway here is that the revenue decline, despite largely consistent volumes, points towards pressure on price realization or an unfavorable shift in product mix. The “manufacturing gross margin spread” (INR/kL), a critical indicator of pricing power and cost efficiency, also fell both year-on-year (from 8,755 in Q1 FY25 to 8,274 in Q1 FY26) and sequentially (from 9,146 in Q4 FY25).

This aligns with the broader economic context for India, where the Fast Moving Consumer Goods (FMCG) sector – a significant end-user for Gandhar’s PHPO segment (46.4% of Q1 FY26 revenue) – has been an underperformer due to margin pressure. This external pressure likely influenced Gandhar’s ability to command higher prices, directly impacting its top-line and gross margins.

Earnings: A Tale of Two Quarters

If revenue presented a cautionary note, the earnings story for Q1 FY26 offers a glimmer of hope, though it’s still tempered by year-on-year comparisons.

Quarterly Financial Performance (INR mn)

Let’s break down the profitability:

• Gross Profit: Following the revenue and margin spread trend, gross profit decreased by 8.2% YoY and 10.4% QoQ. This is the first ripple effect of the pricing pressure.
• EBITDA: Here’s where the story gets interesting. Q1 FY26 EBITDA saw a significant 36.9% increase sequentially from ₹336 million in Q4 FY25 to ₹460 million. This suggests an impressive operational efficiency improvement post a tougher Q4. However, the year-on-year picture shows a 23.7% decline from ₹603 million in Q1 FY25.
• Profit After Tax (PAT): Mirroring the EBITDA trend, PAT surged by 112.2% QoQ from ₹123 million in Q4 FY25 to ₹261 million in Q1 FY26. Yet, it recorded a 19.9% decline compared to ₹326 million in Q1 FY25. EPS followed suit, improving QoQ but falling YoY.

What drove the sequential improvement? A closer look at the expenses reveals that employee expenses remained stable year-on-year but significantly decreased quarter-on-quarter (from ₹191 million in Q4 FY25 to ₹115 million in Q1 FY26). “Other Expenses” also saw a sequential drop from ₹603 million to ₹438 million, though they were up YoY. The management’s focus on cost control, particularly on employee and other operational costs, appears to have partially offset the gross profit erosion, leading to the rebound in EBITDA and PAT from the previous quarter’s lows.

Given the annual decline in FY25 earnings and the YoY decline in Q1 FY26, Gandhar Oil appears to be navigating a period of slower growth, potentially exhibiting characteristics of a slow grower or a cyclical company. The current environment, marked by FMCG sector headwinds and commodity price fluctuations, underscores the cyclical nature of its business. The future earnings trajectory will heavily depend on the company’s ability to maintain cost efficiencies and improve its pricing power in a competitive market.

Working Capital: A Point of Vigilance

The balance sheet offers insights into the company’s operational liquidity and efficiency.

• Trade Receivables: At ₹6,704 million in FY25, trade receivables increased compared to ₹6,233 million in FY24, even as revenue declined. This suggests that the company might be taking longer to collect payments from its customers, or that some customers are facing liquidity pressures. A rising accounts receivable period when sales are contracting is a notable point of concern.
• Inventories: Inventories slightly increased to ₹4,627 million in FY25 from ₹4,477 million in FY24. While not drastically out of line with sales, it’s worth monitoring alongside the revenue decline to ensure no significant build-up is occurring.
• Trade Payables: These decreased to ₹3,111 million in FY25 from ₹3,663 million in FY24. While a lower payable balance can indicate efficient cash management, if it implies the company is paying suppliers faster without a corresponding increase in collections, it can strain working capital.
• Cash and Cash Equivalents: The company’s cash position saw a decline, with cash and cash equivalents falling to ₹506 million in FY25 from ₹714 million in FY24, and bank balances also decreasing significantly.

Overall, the working capital trends suggest a tightening liquidity situation, with increased receivables and reduced cash, which needs close monitoring. The management’s ability to optimize the cash conversion cycle will be crucial for maintaining financial health in the coming quarters.

Capital Expenditure and Financing: Understated Growth?

Gandhar Oil’s investment in property, plant, and equipment has continued to grow, reaching ₹3,377 million in FY25 from ₹2,979 million in FY24. However, the capital work-in-progress (CWIP) has been low and declining (₹76 million in FY25), suggesting that current capital deployment is more focused on maintenance or completion of existing projects rather than aggressive new growth-oriented expansions. While the presentation highlights strategic initiatives like strengthening customer base and expanding geographies, the current CapEx trend doesn’t immediately suggest large-scale capacity additions.

On the financing front, the company has shown a slight reduction in both non-current and current borrowings in FY25 compared to FY24. However, a notable increase in lease liabilities, particularly non-current leases, points towards alternative asset acquisition or operational agreements. The significant increase in “Other equity” in FY24 (likely due to the IPO in late 2023) bolstered the equity base, contributing to a more robust capital structure. The current trend suggests a preference for organic funding and potentially asset-light growth through leases.

Key Takeaways for the Road Ahead

Gandhar Oil Refinery’s Q1 FY26 performance paints a complex picture. The strong sequential rebound in profitability is commendable, demonstrating the management’s grip on operational costs after a tough Q4 FY25. This shows their capability to manage what’s within their control.

However, the consistent year-on-year decline in revenue, gross profit, and overall profitability, despite relatively stable volumes, highlights significant external headwinds. The pressure on pricing, especially given the underperformance of key end-user sectors like FMCG, is a primary concern. The deteriorating working capital metrics, particularly the increase in trade receivables while sales decline, warrants close observation.

From an investment perspective, Gandhar Oil currently resembles a slow grower or a cyclical play. Investors should look for signs of:

• Stabilization in Gross Margins: Can they effectively pass on input costs or improve product mix?
• Improved Receivable Management: A reversal in the trend of rising trade receivables would signal better cash flow health.
• Clearer Growth Catalyst: While strategic initiatives are outlined, the current CapEx trend doesn’t immediately signal aggressive capacity expansion to drive future revenue growth.

The Indian market, currently undergoing a correction driven by weak earnings, will remain discerning. For Gandhar Oil, demonstrating a sustained improvement in its year-on-year financial performance, driven by both volume and value, will be key to winning investor confidence beyond just sequential gains. The emphasis must shift from cost control to reigniting top-line growth and margin expansion in a challenging, yet dynamic, economic environment.

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