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GOLI continued to clock steady growth in core lube volume, of 9% YoY at 36mn ltr in Q4FY23, led by the PCMO segment. While core volume was in-line, total volume beat our estimate by 9%, as AdBlue was up 33% QoQ to 28mn ltr (a 22% beat). GOLI posted Q4FY23 SA EBITDA/PAT of Rs875/622mn, an 8/12% miss to our estimate, primarily on higher-than-expected Other Expenses (ad & freight related). Gross margins were largely in-line. Mgmt. maintains volumegrowth guidance at 2-3x of the industry’s, with target EBITDA margin of 12- 14%. GOLI continues to focus on branding, long drain interval products, digital initiatives and strategic pricing decisions. It raised its dividend payout to >50% in FY23 which should sustain ahead. We raise FY24E/25E EPS by 3% each, building-in a slightly better margin profile and normalization of AdBlue volume growth ahead. We retain BUY, with revised Mar-24E DCF TP of Rs650 (up 4%).

Result Highlights

Net realization fell 13% QoQ to Rs124/ltr, while unit gross margin was down 12% to Rs46.3/ltr (7% below our estimate) due to higher AdBlue contribution. While absolute opex was up, unit opex fell, by 24% YoY and 9% QoQ to Rs33/ltr. EBITDA/ltr fell 16% QoQ to Rs13.7 (down 42% YoY) – a 16% miss. EBITDA margin was down 40bps QoQ to 11.1%. D/A rose 10% QoQ to Rs107mn, while finance cost fell 35% to Rs66mn on a high base. Other Income fell 3% QoQ to Rs138mn, but was up 18% YoY. For FY23, GOLI’s revenue/EBITDA/PAT rose 37%/20%/10% to Rs30.0/3.4/2.3bn, on the back of 59% total sales volume growth to 214mn ltr and 25% decline in EBITDA/ltr to Rs16.1 mainly due to AdBlue, while core lubes grew 15% to 136mn ltr. Finance cost rose 4x to Rs376mn owing to forex losses of Rs200mn. Capex, as per cashflow, stood at Rs230mn in FY23, while working capital cycle normalized to 54 days in FY23 (vs. 83 days YoY). Net cash position at end Mar-23 was Rs6.5bn vs Rs5.7bn YoY. The Board has recommended final dividend of Rs25/share, implying a ~53% pay-out (vs 40% earlier) and 6% yield.

Management takeaways

Q4 saw base oil prices and currency stabilizing, though additives, etc. are still going strong. GOLI undertook various ATL-BTL activities, leading to higher opex. OEM/B2B lube sales growth was robust, with PM recording double-digit growth in Q4 despite the overall bazaar segment witnessing a persistent slowdown. For FY23, both B2C and B2B recorded double-digit growth (3-4x of the industry’s), along with market-share gains. GOLI’s market share in the MCO/bazaar/industrial segments is 8-9%/6-7%/3-4%. It has tied up with two new OEMs for EV fluids. GOLI targets EBITDA margin of 12-14%, while reiterating its volume guidance – at 2-3x the industry’s 2-3% CAGR in the medium term. Capex guidance stands at Rs250-300mnpa, which includes AdBlue capex. The battery segment posted Rs250/870mn revenue in Q4/FY23, with 10% EBITDA margin target once localized battery production begins. Mgmt guided to >50% dividend payout ahead.

Valuation

We value GOLI using the DCF analysis. Our TP implies 10.7x Mar-25E target P/E. Valuations remain attractive, on double-digit earnings and strong volume CAGR, along with 6% dividend yield. Key risks: Adverse base-oil prices/currency; competition; technology-based changes.

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