BUY on Gulf Oil Lubricants - An improved demand outlook - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Gulf Oil witnessed a healthy demand in 3Q, with volumes rising 16% YoY - with this, the FY21E volumes are expected to be flat YoY (vs. expectations of a decline earlier). However, the EBITDA margins at 17.3% moderated (-170bp QoQ) on firming costs. The company expects double-digit growth in FY22E as the management is confident of growing at 2-3x the industry. Diversification initiatives: After entering the battery segment in the past, Gulf has made its first strategic move into the e-charging segment with a minor investment in Indra, a UK-based electric charging company. We reiterate our BUY rating on the stock and set a revised Mar'22 PT of Rs.880. Our estimates for FY22-23E are increased by 10% / 2% - we value the company at 20x forward earnings.

3QFY21 financials: Net revenue came in at Rs 4.8bn (+14% YoY, 17% QoQ) as volumes grew 16%. EBITDA margin, at 17.3% was lower QoQ on firming input costs. Reported PAT at Rs.640mn was up 15% YoY.

Call and other takeaways: (1) Demand growth surprises: Gulf reported 3Q volumes of 33,000 litres. With this, the company has gained market share as it has grown 4x the industry. The share of higher-margin B2C segment remains above 60% - contribution from personal mobility segment has sustained at 24% and DEO was 37% of sales as CV volumes have revived. (2) Margins: The 3Q margins were lower at 17.3%(-170bp QoQ) on firming costs (RM costs +30bps, other exp +240bps). To offset the impact of rising crude, industry has taken price hikes in 3Q. (3) Diversification initiatives: The 2W battery business has broken even this quarter as sales have reached Rs.250mn (5% of revenue). The company has also invested in the EV charging company as highlighted above. The management highlights that the lubricants will be in used over the next 2-3 decades based on their assessment. However, they are gradually diversifying into newer businesses.

Shares of Gulf Oil Lubricants India Ltd was last trading in BSE at Rs.734.9 as compared to the previous close of Rs. 750.75. The total number of shares traded during the day was 1239 in over 302 trades.

The stock hit an intraday high of Rs. 763 and intraday low of 725.3. The net turnover during the day was Rs. 918006.

Source : Equity Bulls

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