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Earnings beat estimates as cost pressure moderates; maintain Buy

* Q4FY22 revenue/EBITDA/PAT rose 23%/14%/6% yoy and 6%/16%/8% qoq to Rs6,389mn/ Rs891mn/Rs634mn. EBITDA exceeded our estimate by 18% due to a 4% beat on gross profit and a 3% lower opex. PAT also came in 16% above estimate.

* Lube sales volume rose 7% yoy/4% qoq to 37.5mn ltr, driven by DEO, PCMO and industrial-infra. Net realization rose 2% qoq to Rs170.4/ltr (in line), though unit COGS rose only 1% qoq, leading to a gross margin of Rs66.8/ltr (3% above est).

* Unit opex was down 4% qoq/up 4% yoy (4% below est) at Rs43.1/ltr. EBITDA/ltr was, hence, a 17% beat at Rs23.8 (EBITDA margin of 14%), up 11% qoq/6% yoy. Finance costs increased due to MTM forex losses (totaling Rs30mn), while ETR was 26%.

* We maintain our FY23E/FY24E EPS. We lower our Mar’23 DCF-based TP by 5% to Rs685 primarily due to higher WACC of 11% vs. 10% earlier. Valuations remain very attractive given a double-digit earnings CAGR. Maintain Buy.

Highlights: Other Expenditure rose 15% yoy/1% qoq to Rs1.34bn. EBITDA margin expanded by 100bps to 14% qoq, with the sales mix largely stable qoq. Depreciation rose by 2% qoq to Rs94mn, while Other Income was up 7% qoq/down 7% yoy. Revenue/EBITDA/PAT for FY22 grew by 33%/8%/5% yoy to Rs21.9bn/Rs2.86bn/Rs2.11bn, aided by a 17% jump in volumes to 134mn ltr, offset by an 8% fall in EBITDA/ltr to Rs21.3 as unit COGS pressure mounted. Short-term borrowings (excl. lease) rose 79% yoy to Rs3.6bn on inventory and receivables build-up. Cash balances rose 16% yoy to Rs5.7bn. The board has recommended a final dividend of Rs5/sh, lower than that of FY21 due to the buyback earlier (1.4mn shares).

Guidance: GOLI increased its market share by 0.5-1% in FY22 as the industry saw a 1-2% fall. Demand growth in rural is likely to pick up. GOLI took a 3-4% bazaar price hike in Apr’22. GOLI expects base oil prices to move in tandem with crude prices, but any input cost pressure will be passed on to maintain guided margins (14-16% EBITDA going ahead). GOLI sees healthy volumes with economic tailwinds/infra push and maintains its guidance of 2-3x volume growth over industry growth (2-3% CAGR) in the medium term. It plans to expand distribution outlets by 10-15% annually. Capex guidance is Rs150-200mn annually with plant expansion on the anvil in the next 2-3yrs, along with cash preservation for new ventures. It can run its plants in three shifts vs. two now to meet demand. The battery segment recorded revenue of Rs180mn in Q4FY22. It faced supply-chain disturbances (FY22 revenue down 15% yoy). GOLI is not present in 3W and buses (EV early transition segments). It continues to expand its footprint in the EV eco-system and synergize its existing business

Valuation: Our DCF-based TP implies a FY24E target PE of 12.4x (we include buyback in est). Key risks: adverse base oil prices/currency, competition, and technology changes.

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