Accumulate Gulf Oil Lubricants; target of Rs 710: Dolat Capital

Dolat Capital's research report on Gulf Oil Lubricants

GOLIL’s revenue were above our estimates on revenue front. Agri segment has been a surprise demand driver which showed a double digit growth in the quarter. All other segments have shown de-growth and is now picking up. Volume in Q1FY21 was 17.5 TKL de-grew 41% YoY and by 30% QoQ against our estimate of 13TKL. All businesses for GOLIL showed de-growth with factory fills taken a massive hit. Gross margins contracted by 300 bps YoY and 392 bps sequentially due to reduced traction from B2C to 59% (normal 63-64%) and increase in trade schemes in the retail channel to push sales. Net realisations were down 7.7% YoY and 4.2% QoQ to Rs 137.8/L. GOLIL expects to grow at 2-3x of the industry, however, may see some delays in FY21 volumes till the economy has not recovered fully and pent up demand coming, before recovering in FY22.

Outlook

The volume growth will continue to outperform the industry from FY22, where growth will come from new product launches, OEM tie ups and expansion of distribution channels. Maintain Accumulate, with a TP of Rs 710 based on 16x FY22E earnings.

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