Buy Gulf Oil Lubricants India; target of Rs 660: YES Securities

YES Securities' research report on Gulf Oil Lubricants India

The 3QFY23 reported Ebitda at Rs 900mn (+17% YoY; 12% QoQ) stood higher than our estimates, primarily on higher than estimated sales volume, which in-turn was driven by higher sales of AD Blue. The gross margins stabilized at 37%, as the raw material (base oil) prices stabilized and the price increase undertaken over previous quarters, to offset increase in raw-material price, also aided margins. The core lubricant sales during the quarter stood 8% YoY and 6% QoQ higher at 34mn liters, whereas sales including Ad Blu stood at 55mn liters (+53% YoY; +20% QoQ). Weaker rural demand sentiment impacted sales for Agri and two-wheeler oils, the CVO segment nevertheless witnessed a strong growth. Going ahead, GOLI intends to continue to grow at 3-4x industry growth along with plausible Ebitda margin expansion. In our opinion, markets have heavily discounted GOLI’s growth potential and ability for cashflow generation in light of the EV narrative, and a disconnect exists to that extent, between perceived and intrinsic valuations. Maintain BUY.

Outlook

We value GOLI at Rs 660/sh on DCF basis, our TP implies a target P/E multiple of 10.0x FY25e, as against 6.6x the stock is currently trading at.