Accumulate Gulf Oil Lubricants; target of Rs 822: Dolat Capital Market

Dolat Capital Market's research report on Gulf Oil Lubricants

GOLIL’s results were above our estimates on revenue and profitability front. Increase in demand from 2W and CV segment contributed to strong volume growth. Also, B2B and industrial segment saw strong growth. PCMO segment is picking up slowly. Volume in Q3FY21 was 33 TKL, grew 15.8% YoY and by 11.9% QoQ against our estimate of 28TKL. OEM factory fill business which was a laggard from last many quarters have started showing growth of 35-40% YoY. Gross margins contracted by 237 bps YoY and by 32 bps sequentially due to rising pressure of input cost. However, B2C contribution in the mix have returned to normal levels of 65% as retail sales was good. Net realisations were down 1.4% YoY and up 4.6% QoQ to Rs 146/L. EBITDA margins contracted by 108 bps YoY and 172 bps QoQ. Management has guided to maintain margins at 16-18%.

Outlook

GOLIL expects to grow at 2-3x of the industry, however, they expect the industry to have a double digit de-growth in FY21. However, with strong volumes coming in, strong supply chain, distribution strength and continuous investments in branding activities they expect a positive H2FY21 for GOLIL. 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 822 based on 16x FY23E earnings.

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