By Neil Halligan
Sharjah-based Gulf Petrochem has ballooned into a $2.5bn oil conglomerate in less than 20 years. Co-founder Sudhir Goyel reveals why the UAE is no longer the centre-of-attention, as global plans take hold
Sudhir Goyel is rather happy about the healthy size of the company he now manages along with his brother Ashok.
Together, they saw an opportunity in the late 1990s to set up an oil trading operation in the UAE, and grew their company Gulf Petrochem from a $50m operation in Sharjah, to the global $2.5bn oil conglomerate it is today.
The Goyel brothers arrived in Dubai in 1992 and spent six years importing and exporting oil and chemicals between UAE and India.
“The main part of the business was used oil trading,” says Goyel, the managing director.
Used oil, which is the type of spent oil that comes from engines during an oil change, was largely discarded in the UAE, he recalls.
“In the UAE back then there was no recycling of this used oil and it was thrown away,” he says. “In fact people were paid to collect [the discarded oil]. That’s what we saw an opportunity in.”
They established Gulf Petrochem in Hamriyah Free Zone, which was the first manufacturing facility to set up in the sprawling industrial zone. He adds they were also among the first Indians to bring their own equity to the UAE.
“Other people who started their business here made their money here. We were the first ones to bring in money,” he says.
The capital came from their import-export trading business, which also allowed them to build a recycling plant in India.
“We started with an environmentally-friendly recycling unit [in Hamriyah],” he says.
The company grew quickly, first setting up a grease manufacturing plant and then venturing into oil storage terminals. It needed structure, Goyel says, in order to take advantage of this growth.
“From storage terminals, we started trading opportunistic oil cargoes. So one thing led to the other, and in 2006 we had a refining unit, grease plant, oil storage, some trading, and that’s when we decided it’s time to get in a professional CEO. The company had grown to 40 or 50 people and turnover at that time was pretty small, about $50m,” he says.
Harshavardhan Sinha, a friend of the Goyels from their days in India, was the man with the expertise needed to put in place the required corporate structure.
“He was a chemical man so he knew the chemical industry pretty well, not so much oil, but was extremely helpful and resourceful in setting up the professional journey of Gulf Petrochem,” Goyel says.
“We were doing opportunistic trades and he hired traders to have opportunistic trades converted to sustained business models,” he explains.
The company, which now employs 1,100 worldwide, has a family-based senior management team, with elder brother Ashok as chairman, Sudhir as managing director and sons Prerit and Manan Goyel as group directors.
The lower price of oil hasn’t affected Gulf Petrochem’s business as much as expected, largely because of those business models put in place at an early stage, Goyel says.
“The industry in general is quite interesting. There is a decline happening that happens every seven-eight years; players change, scales of businesses change, and you see the crude prices going up and down,” he says.
“The smaller players in the region are not there anymore. In the last seven or eight years a lot of small oil traders mushroomed out of nowhere and because of lack of risk management and credit management, these players went out of business.”
Goyel says it underlines the importance of managing risk, particularly when the price of oil drops as much as it did.
“People got badly impacted because of that. If you manage risk, you are fine, but if you don’t then you have issues,” he says.
Looking at it from a macro viewpoint, Goyel says lower oil prices are not bad for everybody.
“It is very good for [petrol] consumers like you and me, where the same AED500 budget that you have for fuel every month, what you were getting one-and-a-half or two years ago versus what you get today is almost double the volume,” he says, referring to the global average.
“It’s good for refiners who are not drilling. So for independent refiners like Essar Oil or Reliance, who don’t have offshore operations, it’s good because the cost of financing that barrel of oil is lower.
“When oil prices are lower you have contango [a situation when the current price of a commodity is lower than the futures price]. The cracks become stronger. So overall your gross refining margins go up.”
Goyel does, however, see certain signs that indicate the lower price is starting to have an impact on business in general.
“What I have realised over the last seven or eight months is that we are in an ecosystem and in that you have the smaller companies, consumers, refiners, pump station operators, oil producers, and governments. So somewhere down the line when the government has lower budgets, the spending would be lower in the region as a whole, banks would have lower liquidity,” he says.
“These are things that have a trickling down effect that ultimately as a consumer or as a business in this country, you would tend to see some effects. You would see a little slowdown, but not beyond that.”
Goyel says Gulf Petrochem’s trading volumes have grown “significantly”, based on an increased demand in India.
“Indians by nature are very cost conscious so the moment their daily costs start to go up they try and see how they reduce that. One of the key things the consumer does is pool cars or use public transport. But when prices going down, they tend to relax and consumption goes up, and traders see opportunity,” he says.
“While volumes have gone up, our revenue hasn’t grown because fuel oil is one of the largest commodities that we trade. That was $600/MT (metric tonne), two years ago and today it’s at $245/MT, so you would literally have to do twice the volume to have the same turnover. So the whole volume has gone up, but the top line doesn’t grow.”
Goyel says the company’s risk management committee predicts that the price of oil is likely to “stay in the $50 to $60 range” for the medium-term.
“We don’t see much downside from here, but having said that we don’t see much upside,” he says.
As the price of oil began to sink in 2014, Gulf Petrochem was making three significant acquisitions. The company bought a 72 percent stake in the India-listed Sah Petroleums (now called GP Petroleums), which has a 5 percent retail market share of the Indian lubricants industry. Despite no significant growth in volumes, key changes to the company structure and operations have seen its value soar five times since Gulf Petrochem became majority shareholder (from 15.40 rupees a share to 81 rupees last week).
“The raw material for that company is called base oils, and when you process base oils you make lubricants. We are one of the largest traders of base oil in the world, next to BP and Shell, who I would not call traders because they are refiners themselves. So the input cost is significantly lower,” Goyel explains.
The top layer of the company also left, and Gulf Petrochem plugged in its global services, like procurement, HR and IT, to help further reduce costs.
“The other issue in that company before we took over was the forex. Indian foreign exchange between the rupee and the dollar keeps fluctuating quite a bit,” he says.
“They lost a lot of money in the last two or three years because there was a lot of volatility in the rupee-dollar. We simply started hedging rupee,” he says.
Goyel says they are “very excited about its prospects” for future growth.
“This company has a 40-year-old lubricant brand called IPOL, which is a very strong industrial lubricant brand. In the UAE we have had a lubricant and grease plant for seven years, but we never had a brand. Now we have introduced IPOL in the UAE and Oman, and we are now marketing our own brand,” he explains.
GP Petroleums also joint-ventured with a Spanish company called Repsol to manufacture and market its popular products in India.
“It’s a good marriage between a company that is very strong in automotive lubricant that has a strong presence worldwide,” he says.
Gulf Petrochem’s also acquired a bitumen plant from Shell in India. “The plant has been turned around and is doing very well. We have increased the volume four times of what Shell was able to do in that market,” he says.
And Essar Petroleum East Africa, which marks the company’s first retail presence and which Goyel says will be expanded, mostly in East Africa.
“The Kenyan network will grow and we will add more. We have now started looking into Uganda, which is a brilliant market — a lot of demand and growth. The next would be Tanzania,” he says.
Now a multi-billion dollar oil conglomerate, Goyel says the company will take time to let the multiple acquisitions bed in before actively pursuing any further prospects.
“I think we’re done with our acquisitions for the year at the moment. We would like to stabilise a little bit with what we have,” he says.
“Having said that, assets are cheap, and it would make sense to acquire a few more units which could be bolt-ons to the existing units that we have. We have a team looking at opportunities. There’s nothing that we’re actively looking at, but if something comes at the right price and which makes sense, we would go for it.”
He says Gulf Petrochem will concentrate on expanding its own operations, including the planned $50m expansion of its Fujairah Terminal, the contract for which will be awarded towards the end of the year.
“We are looking at taking up this project in the last two months of this year, because we want to take stock of what’s happening and look at who else is expanding in Fujairah,” he says.
“In the current terminal we have 412,000 cubic metres capacity. We are looking to add 50 percent more. Both the Fujairah and Hamriyah terminals are full so it will add storage capability and increase the bottom line of the company as well as help the trading book grow.”
In the UAE and Oman, he says the company will look to expand in its
petroleum coke (pet coke) and coal business.
“Petcoke is a variant or replacement for coal. It’s a little bit cleaner and has a high calorific value and some plants and power plants are able to replace it with coal,” he explains.
“That’s new a book. We’ve done about 2 million tonnes in the last nine to ten months. The major market for that is India, and we’re looking at Pakistan and the UAE — we’ve sold a few cargoes here.”
With a presence in South Asia, the Far East, Africa and Europe, Gulf Petrochem has positioned itself as one of the well-established worldwide manufacturers and traders of petroleum products.
In 2009, when the company first emerged from its self-imposed media shyness, Gulf Petrochem made a prediction that it wanted to become an eminent regional player, with the numbers to back it up.
“We wanted to be a billion dollar topline by 2014. We became a billion dollar topline in 2013,” says Goyel.
“We are one of the largest non-government oil companies in the region. We’re not just present in the region — we have a very active book in India, Singapore, East Africa; we’re going into Europe with physical bunker operations in Rotterdam.”
Next step is to become an eminent global player, with a lot of focus on the GCC. Getting there, Goyel admits, is a “long journey”, but it starts with increasing its global offices.
“Wherever we’ve gone we’ve become a local player. In Rotterdam we’re as local as any other bunker player there. In Singapore we’re as local as a Singapore-Chinese trading company there. We need to identify markets which are growing and where we can expand,” he says.
“We have a matrix system of reporting. We have global heads of each of the products and services that we offer and their role is to expand their particular portfolio globally and then we have regional heads in each of the regions whose role is whatever business we are doing in other regions, they have to expand that business in that region.
“And in each of the regions we have a product manager who reports to the global head as well as the regional head. So his role to expand that product in that region.”
Goyel says there has been a shift in how the company approaches growth, and how it reaches the next level. He says the company is no longer “a topline driven company”.
“The billion dollar mark was an important mark and since then you will never see us talking on topline anymore,” he says.
“We’re a very bottom lined focussed company. We want a healthy bottom line and a sustainable business. We’ve done that and continue to grow those businesses and position them in new geographies.
“The idea is to enter new geographies and to sustain what we have, because we’ve also realised that there comes a point in every business where growing beyond that you start losing money just because of gain in the market share.
“We have come to a point in the UAE where if we grow beyond this it may not be healthy for the business. The idea is to sustain and then venture in the new countries so we are not just called a UAE company, or a regional company, we want to be called a global company.”