Volumes exceed pre-COVID level
Gulf Oil reported encouraging volume growth of 7% YoY in 2QFY21, as it benefitted from pent-up demand. The share of high-margin personal mobility increased to 24% (from 20% in 1QFY21) as volumes recovered, resulting in a multi-quarter high EBITDA margin of 19%. Further, Gulf has collaborated with a renowned Korean company ‘S Oil’ to expand its presence in the personal car segment. We reiterate BUY and continue to value the stock at 20x P/E. We revise Sep-22 target price to Rs 800 as we marginally raise FY22/23 earnings by 2%. Key risks: increased competition and a slower-thananticipated recovery
* 2QFY21 financials:
While volume increased 7% YoY, realisations declined 2% YoY. Net revenue came in at Rs 4.1bn (vs. Rs 2.4bn QoQ, -2% YoY). EBITDA margin, at 19%, surprised and expanded 100bps YoY, owing to improved operating leverage and lower A&P expenses (which halved to 3% of sales on lower travel spends). Thus, other expenses declined by 12% YoY. While PBT came in higher by 14% YoY, PAT declined 5% YoY to Rs 591mn as tax rates normalised (vs. lower rates in the base quarter at 10.4%).
* Call and other takeaways: (1) Demand exceeded pre-COVID levels:
Gulf reported 2Q volume growth of 7% YoY at 29,500 litres. With this, the company has gained market share as the industry has reported flat to negative growth in the quarter. The share of higher-margin B2C segment has normalised to 61% as the contribution from personal mobility segment has risen to 24% (from 20% in 1Q) and factory fill volumes have risen to 5% of sales (from almost nil in 1Q). (2) Collaboration with S Oil, Korea: Gulf has entered into a tie-up with its base oil supplier ‘S Oil’ to manufacture and distribute the product in India. This move would enable the Indian lubricant manufacturer to expand its reach in the passenger car segment, where it has been traditionally weak. (3) Battery business: Volume growth sustained in double digits in 2Q, with Gulf Pride batteries now amongst the top-5 motorbike batteries in the country.
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