IGI Logo

Management meet – Healthy volume outlook; cost pressures likely to ease

Gulf Oil Lube’s (GOLI’s) Management reiterated that the Indian lube industry would maintain growth till the middle of next decade. Despite rising EV penetration, a large portion of new-vehicle sales would continue to be ICEs, leading to expansion of the lube universe; the lube market should clock 3-4% CAGR in the foreseeable future, with GOLI’s own target maintained at 2-3x of the industry (i.e. >10%). The post-Covid cost pressures that have gripped the industry (first base oil and now having affected additives too) should subside going ahead, with oil stabilizing and the supply scenario easing. GOLI took responsive retail price-hikes to maintain unit margins, though percentage margins seem optically lower. AdBlue’s annual market size is 500millionlitres currently and is expected to see 3x growth in 5 years, entailing strong volumes for GOLI, which is a premium player with 15% market share. Company is also gradually increasing its EV footprint via investments and products. GOLI’s OCF would be deployed in core capex, EV foray and payout to shareholders (40% dividend payout, buyback, etc). We concur with Company outlook and reiterate BUY, with TP of Rs625

Expect volume to log double-digit CAGR; cost pressure to subside:In terms of EV risks, the lube sector comprises 43% of diesel engine oils, wherein buses and certain LCVs can convert to EVs more quickly than bulk categories like M&HCVs and tractors. Industrial/nonengine oils (incl. greases & coolants) comprise 21%/15%, which does not entail any EV risk; 15% is 2W oils, 70% of which covers motorcycle oils (scooters would make a quicker EV shift due to availability of models, motorcycles have limited option) and 8% entails passenger-car oils (certain urban centers to see more conversions). Hence, the Indian lube story is unlikely to get derailed before the next decade at least. Vehicle sales are likely to accelerate ahead, with second-hand sales, kilometer-run, etc also expected to rev up. Additive prices, which had jumped 35-40%, are yet to come down, but GOLI’s margin position is stable and cooling of cost pressure can lead to margin expansion. Mgmt has guided to 14-16% lube EBITDA

Gearing up for EVs; AdBlue to witness rapid growth:GOLI has invested in the EV chain through technologies and solutions such as Indra Renewable and ElectreeFi Software, which it would offer to the Indian market. Company has launched EV fluids globally as well as in India in CY21, and enjoys OEM relationships with the likes of Piaggio, Altigreen, Switch, etc. AdBlue, a diesel exhaust fluid, has significant upside potential; while its EBITDA margin is in single-digit, it is a complementary product and earnings-accretive whose penetration would increase exponentially. GOLI has 30mn-ltr capacity, with core plants in Silvassa and Chennai and satellite units in 5-6 locations. GOLI is one of the top-3 players and likely to log 30% CAGR ahead. Battery would also expand. Its balance sheet would remain healthy, with reasonable capex requirement and gross WC likely to be range-bound at 100 days.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer