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Wide gap between perceived and intrinsic value

Our view

The 4QFY22 reported Ebitda at Rs 891mn (+14% YoY; +16% QoQ) stood ahead of our and street estimates. The strong profitability and a beat on our estimates was primarily driven by higher than estimated realization and lower than estimated raw material costs, even as sales volume stood in-line. While the FY22 operating cashflow did stand YoY weaker at Rs (237)mn, but that was primarily on account of a) increase in sales and prices during 4Q leading to an increase in receivables as of Mar’22 end and b) volatile operating environment prompting GOLI to store higher than normal raw material, both the factors are expected to normalize going ahead. In the times to come, led by revival in rural sales ,growing penetration of vehicles in India, coupled with the strengthening of its own distribution muscle, GOLI expects to grow at above industry growth rates. In our opinion, markets have heavily discounted GOLI’s growth potential and ability for cash-flow generation in light of EV narrative, and a disconnect exists to that extent between perceived and intrinsic valuations. Maintain BUY

Result Highlights

Revenue: Revenue for 4QFY22 at Rs 6.4bn stood higher by +23.5% YoY & 6% QoQ, while the FY22 revenue stood at Rs 21.9bn, +33% YoY. The rise in revenue was attributable to growth in sales volumes (+7% YoY), coupled with a 15% YoY and 2% QoQ improvement in per unit realizations. For the FY22, the per-unit realization improved by 14% YoY to pass on the increase in raw material costs.

Sales volume: Sales volume increased to 37.5mn liters (+7% YoY; +4% QoQ) in 4QFY22, despite a temporary disruption caused by Omicron wave in Jan’22. The growth in volumes was led by strong demand for diesel engine oil (DO) for CVs, industrial oils and from customers in the infrastructure segment. Going ahead as well, GOLI expects continued growth on backs of revival in rural demand.

Operating Profits: The Ebitda for 4QFY22 at Rs 891mn, stood higher by 14% YoY and 16% QoQ, driven by growth in volume and improved pricing. Price revisions undertaken by GOLI helped the company to offset the increase in raw-material cost(+23% YoY; +2.6% QoQ), thereby restoring the per unit Ebitda margin to Rs 23.8/liter (3Q: Rs 21.4/liter).

Share Buyback & Dividend: GOLI has recently concluded its share buy-back program, buying back 1.42mn shares at a total out-go of Rs 1048mn (including Rs 198mn as buyback tax). In addition, the company has declared a dividend of Rs 5/sh.

Valuation

We value GOLI at Rs 645/sh on DCF basis, our TP implies a target P/E multiple of 12x FY24e, as against 7.6x the stock is currently trading at.

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