Arabian Petroleum Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Strong H1, specialty pivot underway: Revenue grew ~24% in the half year, PAT ~33%, and the Lavisa acquisition plus backward integration lay the path for margins to reach industry peer levels over the next couple of years.
• The specialty margin engine is now live: Lavisa Technologies brings 50%+ gross margin products and a near-monopoly tapping application, while in-house fatty acid amides production started in December, cutting costs and opening third-party sales.
• Defense and exports are the next growth legs: DRDO technology transfers for Universal Recoil Fluid and low-temperature coolants are absorbed, approvals for 3 Army products are in hand, and 4 new export countries were added with no exposure to US/Mexico trade wars.
• Working capital discipline is showing: Debtor days dropped from 62 to 48 via credit control dashboards, and the UAE subsidiary is on track to break even this financial year.
• What to watch next half: The pace of Lavisa’s revenue ramp toward doubling its ₹30 crore peak, the size of URF defense tenders expected in July-August, and whether the Ambarnath Unit 3 expansion unlocks the operating leverage management expects.

Specialty & Backward Integration: The Margin Story

• Lavisa Technologies acquisition: The new majority-owned subsidiary took a business transfer agreement from Emulsichem Lubricants, bringing 50+ years of cost-competitive product chemistries, key OEM customers including Tata Motors, Kirloskar and Greaves Cotton, and a near-monopoly tapping application product where customers queue up for supply.
• Gross margin uplift: Lavisa’s specialty products carry ~50% gross margins versus 20-25% for industrial lubricants; management expects this mix shift, combined with backward integration, to lift company margins toward industry peer levels in a couple of years.
• Fatty acid amides in-house: Production of own fatty acid amides started in December for self-consumption and formulations, with the ability to sell to the open market; the company is also developing additives for soluble neat cutting oil.
• Ester-based expansion: Management wants to expand into ester-based product lines in the coming few years, both for lubricants and selling esters generally, opening up the chemical space beyond lubricants into water-based chemistries like corrosion inhibitors and rust protectors.
• Lavisa break-even: Expected to break even in the last quarter of this financial year; management called it “too early to really speak about the numbers” on forward-looking revenue since the BTA was signed only on 3rd December.

Manan Mehta: “one of their product lines, which is for tapping applications. This is like a… more or so like a monopoly-based product, where this kind of product is not available with competition. So, people really queue up and, you know, demand these kind of products”

Defense & DRDO: High-Barrier Revenue

• Universal Recoil Fluid (URF): Non-oil-based chemistry for gun recoiling mechanisms absorbed via DRDO technology transfer; the TOT is held by only one or two other players, keeping competition very low; the company has already won tenders and expects bigger ones in July-August.
• Army approvals secured: Approvals received for 3 products for Indian Army deployment, valid for 5 years and renewable up to 10, on a recurring tender-based supply basis with low competition in these product lines.
• Low-temperature coolants: DRDO TOT also covers low-temperature coolants for Indian Army and Navy; the company is developing and supplying both URFs and coolants.
• Other defense developments: Recent work includes a development for Ordnance Factory Warangal and a water-soluble forming fluid developed for ISRO.
• Border Road Organization: Secured a repeat order from Project Dantak in Bhutan.

Manan Mehta: “These TOTs are being held only by one or two other players. So, the competition in general is very low in terms of, you know, having, you know, these kind of technology being made available to us.”

Partnerships & Private Label: The Shell Anchor

• Shell exclusive partnership: Arabian Petroleum is Shell’s exclusive partner for the relaunch of metalworking fluids in the Indian market, the first country where Shell has relaunched this segment; critically, all IP and formulation that Shell supplies to the market belongs to Arabian Petroleum.
• Xado nanotechnology tie-up: Licensed to use Ukraine-based Xado’s nanotechnology-based additives in formulations, with co-branded product lines marketed under both Xado and Arzol.
• Private label roster: The company does private labeling for Shell, Varroc, Endurance, Mahindra First Choice (acquired by TVS Group), Greaves Cotton, VST Tractors & Tillers, Topland, and Hella.
• NSF/US FDA approval: Received formal approval for food-grade product lines including white mineral oils, LLP, HLPs, gear oils, and hydraulic oils, enabling entry into the pharma space.
• BHEL and other rate contracts: Holds a 2-year rate contract from BHEL and was awarded rate contracts from MOIL and BML.

Manan Mehta: “India is the first country where they have relaunched this metalworking fluid segment, and we are the exclusive partner for Shell for producing this metalworking lubricants. And notably, all the IP or the formulation that Shell supplies to the market belongs to us.”

Operations & Efficiency

• Debtor days improvement: Credit control dashboards reduced debtor days from 62 to 48 as of October 2025; internal accruals are sufficient for smaller capex, though large-scale capex of ₹20-25 crores would need external financing.
• Supply chain compression: First-in-first-out process improved from 7-10 days to 3-5 days; the Bhiwandi mother warehouse for automotive lubricants is operational, with industrial lubricants to be added gradually.
• In-house cost control: An in-house weighing scale reduced dependence on third parties for incoming raw materials.
• Warehouse expansion: A new Bangalore warehouse marks entry into the south with the company’s own setup; plans exist to consolidate Ludhiana, Bhiwadi, and Gurgaon warehouses under one roof in the north, and an east warehouse is on the list as volume grows.
• Operating leverage bottleneck: Current utilization is ~70%, with the bottleneck in filling small-pack SKUs; the Ambarnath Unit 3 expansion will de-bottleneck this, bringing utilization to ~60% and giving room to grow while improving operating margins through larger batch sizes.
• Forex management: 50-60% of forex exposure is naturally hedged; monthly price rollouts for distributor business pass through price changes, quarterly price variation mechanisms apply for large customers based on indexation, and spot pricing covers user-based business.

Market Position & Geographic Reach

• TAM runway: Per management, Arabian Petroleum contributes just 24-25 KT to the market, which is not even 0.5% of the total market size, leaving substantial headroom.
• Geographic expansion: The next leg of growth is slated to come from south and east India, regions the company has not yet penetrated, and from export segments; 4 new countries were added across the Middle East and Central America.
• Trade war insulation: The company has no exports to the US or Mexico, protecting it from ongoing geopolitical trade war scenarios.
• UAE subsidiary: Arzol Petroleum Trading, FZE is headquartered in Jebel Ali Free Zone, Dubai; it will break even in the current financial year and turn profitable next year, serving both finished lubricants and raw material sourcing.
• Arzol brand IP: The promoter has thought about transferring the Arzol brand IP to the company, expected in the coming financial year.
• Eco-friendly lubricants: R&D has developed biodegradable lubricants, but the India market is still at a very nascent stage; the company is waiting for market pull rather than pushing these products, acknowledging India remains a cost-sensitive country.

Manan Mehta: “APL probably contributes to just 24-25 KT to this market, which is not even 0.5% of the total market size.”

Guidance & Commitments

Key Metrics