Buy Gulf Oil Lubricants; target of Rs 820: Emkay Global Financial

Emkay Global Financial's report on Gulf Oil Lubricants

We reiterate our Buy rating on Gulf Oil Lubricants (GOLI) with a TP of Rs820 (rollover to Mar’24). The recent correction appears unwarranted as the stock seems to be pricing in nil terminal value (TV) beyond our DCF period of up to FY33. GOLI’s business outlook is steady. The industry is expected to grow 3-4% in FY23-24 following the Covid impact in FY20-FY22. GOLI has retained its 2-3x industry growth guidance. We believe GOLI would beat our 6% volume growth estimate in FY23/24 each. We expect GOLI’s EBITDA/ltr to improve as base oil prices currently are down 8-9% from the peak levels in Aug-Sep’21. Moreover, retail price hikes taken by GOLI till H1CY21-end should start to reflect from Q3FY22, leading to margin expansion in the next few months.

Outlook

We keep our estimates unchanged, but our assumptions are conservative (FY23-24E EBITDA/ltr of Rs23+ vs. historical peak of Rs26-27). Hence, we see upside risk. Our Mar’23 TP of Rs820 is slightly up by 1% due to the rollover from December to Mar’24.