Adnoc Distribution eyes Indian lubricant market

Fuel retailer will also upgrade 100 stations in the UAE and launch a loyalty programme in the third quarter

Adnoc Distribution will look to achieve cost reductions of $50m or more in 2019, says chief operating officer Mohamed Al Hashimi. Leslie Pableo for The National

Adnoc Distribution, the UAE’s largest fuel retailer, will progress plans to enter the Indian lubricants market in the third quarter of 2019 as it looks to increase corporate sales volumes.

The company will also roll out 100 refurbished convenience stores in the UAE by the end of the next quarter and plans to realise cost savings of around $50 million (Dh183.6m) by year-end, its chief operating officer said.

"We might have some announcements this year, in terms of at least by the end of Q3, we'd be able to give on the lubricants side," Mohamed Al Hashimi told The National in Abu Dhabi.

"We’re assessing all those options and we continue to find and search for that one pathway into the Indian market,” he added.

Lubricants have become a new market segment for UAE fuel retailers such as Adnoc Distribution and Emirates National Oil Company, which have looked abroad to diversify away from saturated home markets by tapping into high-growth demand centres such as India. Mr Al Hashimi said the company saw the market as a way of globalising the Adnoc brand in lubricants and base oil.

"It doesn’t take a massive amount of capital to take the base oils or lubes to market,” he said.

"So these shelf spaces are quite saturated, otherwise the Adnoc brand is well known, but the further and further you go from the UAE, the strength of the brand starts to weaken and that’s a huge factor in expanding shelf space aggressively,” he added.

Adnoc Distribution, which floated 10 per cent of its shares in 2017, reported a 2.2 per cent year-on-year rise in second quarter net income on Sunday. Net profit rose to Dh595m for the three-month period ending June, the company said in a regulatory filing to the Abu Dhabi Securities Exchange, where its shares trade.

Overall fuel volumes, meanwhile, declined for the first half by 1.7 per cent year-on-year, which the company said was due to a 3.5 per cent fall in fuel retail volumes, increased competition and longer public holidays in the second quarter. Revenue also declined by 5.2 per cent to reach Dh5.5 billion in the second quarter from the same period last year.

For the second half, Adnoc Distribution plans to open 20 to 30 new stations in the UAE and expects higher volumes and an improved sales outlook.

"We’re not giving any specific outlook but volumes, revenues, we do expect to see correction, so the slight decline, we expect to see a reversal of that in the second half of 2019,” said Mr Al Hashimi.

Around 100 stores across the UAE will be upgraded as part of a revitalisation programme, with new product offerings and a new loyalty programme that will be launched in the next quarter.

“The best-in-class players in this industry take about 35 to 40 per cent of their bottom line from non-fuel retail. You’re a major retail player at that point, you’re not just a gas station, so build and they will come. Refurbish, revitalise and then you can expect an upside, that’s our major renewed focus,” said Mr Al Hashmi.

Adnoc Distribution, which reduced its distribution and administrative expenses by 16.3 per cent in the second quarter, will continue to pare down costs for the remainder of the year.

"We promised $50m and we’re on track to deliver that, in terms of savings for 2019, but what’s important for our shareholders to know is that there’s plenty of room for further reductions,” added Mr Al Hashimi.