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Result Highlights‐ Meets Expectations

* Revenue:

Revenue for the 4QFY21 stood 44% YoY & 7.4% QoQ higher at Rs 5.2bn, thereby taking the FY21 revenue to Rs 16.5bn, flat YoY. The strong growth in revenue was driven by a robust revival in sales volume, even as realization at Rs 148/liter, stood mostly flat QoQ and just 3% higher YoY.  

* Sales volume:

Sales volume improved to 35mn liters (+40% YoY; +6% QoQ) in the 4QFY21, riding on strong sales momentum in 2HFY21.   Realization of pent‐up demand, after lock‐down was lifted, contributed to stronger sales in 2HFY21 and helped shore up FY21 volume at 115mn lires (+4% YoY), contrary to wider expectation of decline in annual sales in FY21. In comparison the domestic lubricant industry experienced a 7.7% YoY decline in FY21. The growth in sales was led by double digit growth across segments.  

* Distribution Network:

Due to lockdown and limited opportunity for expansion the distribution network (FY21), stood mostly flat YoY at ~70000 touch points.

* Operating Profits:

The Ebitda for the 4QFY21 stood 41% YoY higher at Rs 781mn, however QoQ lower by 6.3% on account of increase in raw material (Base Oil) cost. As increase in base oil prices due to supply disruption resulted in sequentially lower gross margin of Rs 64/liter (3Q: Rs 69.9/liter) leading to a QoQ weaker EBITDA margin of Rs 22.3/liter (3Q: Rs 25.2/liter). The FY21 EBITDA at Rs 2.6bn (Rs 23/liter), as result stood 7% lower YoY.   

* Dividend:

GOLI declared a final dividend of Rs 9sh, in addition to an interim dividend of Rs 7/sh, implying a total payout ratio of ~40% and a div. yield of 2.3%. 

View & Valuation:

We assume coverage for GOLI   with a BUY rating at TP of Rs 1100/sh, implying a target   P/E multiple of 20x FY23e, vs 12.6x  , stock is currently trading at .

Our recommendation is premised upon:  

Strong Revenue growth potential:

GOLI has consistently delivered on its commitment to grow at 2x‐3x the industry growth. Over FY15‐20, when domestic lubricant industry had a CAGR of ~3%, GOLI clocked in a CAGR of ~10%. The company maintains its outlook of stronger than industry in the coming quarters and we therefore estimates an earnings CAGR of 12% (FY20‐25e) premised upon a volume CAGR of 9%. 

Strong Brand and growing distribution network:

Aided by strong promotion campaigns (IPL association with Chennai Super Kings & MS Dhoni as brand ambassador) GOLI’s lubricant brands are rated among top three in the brand consideration score, which in‐ turn in a promise of sales growth and margin expansion going ahead. With the distribution network consistently growing in size, the opportunity to monetize brand strength grows.  

Scope for margin expansion:

On backs of improved brand perception, better realization and logistical efficiency, GOLI has effected an expansion of almost 300‐440bps in operating margins over past ~5 years. With continued focus on growth of personal mobility (2‐wheeler & cars) oils and growing contribution from synthetic & semi‐ synthetic grades, the margins are set to improve further. To put things in perspective, even after expansion to Rs ~ 23‐25/liter in FY21‐20 (from Rs 19/liter in FY15) the Ebitda per unit is about just half of market leader.  

Risk‐growing adoption of EVs:

While EVs are gaining popularity, but still form a relatively miniscule portion of more than 220mn (and growing) ICE vehicle parc in India, with average life span of 10‐15 year, thereby ensuring a long term revenue visibility.

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