Buy Gulf Oil Lubricants; target of Rs 730: Emkay Global Financial

Emkay Global Financial's research report on Gulf Oil Lubricants

GOLI reported in-line PAT at Rs683mn in Q1, while EBITDA at Rs928mn saw a marginal 2% miss on our estimate, on higher other expenses. GOLI clocked 3% core vol. growth YoY at 35mn ltr, while AdBlue rose 7% QoQ. Core volumes were impacted by soft Agri & OEM factory-fill demand in Q1. Gross profit was better-than expected at Rs3.2bn, on the back of easing of input cost pressures. Mgmt.’s volume-growth guidance stands at 7-8%/15-20% for core/AdBlue in FY24, with target EBITDA margin of 12-14%, supported by focus on long drain products, strategic pricing decisions, branding and digital initiatives.

Outlook

We raise FY24E/25E EPS by 6-7% each, building-in a slightly better vol. & margin profile along with higher other income & lower finance cost going ahead. We take a constructive long-term view on the sector (refer to ‘Outlook for Indian lubricants steady’); retain BUY, with 12 % higher Mar-24E DCF TP of Rs730/sh.