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Earnings beat estimates on betterthan-expected volumes.

* GOLI’s Q2FY22 revenue/EBITDA/PAT of Rs5.34bn/Rs773mn/Rs587mn were up 30%/ down 1%/down 1% yoy (up 28%/83%/93% qoq), beating our estimates by 10%/16%/15% on the back of a 5% volume beat and operating leverage on unit opex.

* Lube sales volume rose 12% yoy/20% qoq to 33mn ltr, with growth across segments primarily driven by B2C and overall recovery. Net realization rose 7% qoq to Rs161.7/ltr, though unit COGS was also up as cost pressures continued.

* Gross margin of Rs67/ltr was in line, up 9% qoq. Unit opex was down 6% qoq/up 7% yoy (5% below est.) at Rs43.6/ltr. EBITDA/ltr came in at Rs15.3, down 31% qoq/up 5% yoy. EBITDA/ltr saw a 10% beat at Rs23.4, up 53% qoq/down 12% yoy.

* We raise FY22E EPS by 19%, considering the H1 run rate and building in 4% higher EBITDA/ltr and 10% higher volumes. We raise FY23E EPS slightly on better volumes and keep FY24E largely unchanged. We raise the Dec’22 TP by 2% to Rs815. Reiterate Buy

Highlights:

The interest cost slumped to Rs2mn vs. the ~Rs20mn normalized rate (likely due to forex gain), while depreciation was up 4% yoy/8% qoq at Rs89mn. The tax rate for Q2 was slightly higher at 25.6%. Absolute opex was up 19% yoy and 13% qoq to Rs1.44bn. EBITDA margin expanded from 10% to 14% qoq, though it was 19% in Q2FY21. GOLI saw doubledigit growth in the CVO segment (owing to strong marketing initiatives) and the PCMO segment (higher margins) as urban centers witnessed increased traffic. There was strong growth in the industrial segment, with major growth coming from Auto Ancillary, Engineering, Metal, Cement and Construction segments. GOLI’s industrial products received approval from the biggest Thermopack manufacturer in India. It inaugurated a new Adblue section in its Chennai plant & another section for manufacturing Metal Working Fluids (increased value addition in industrial products) in the Silvassa plant. GOLI recently entered into a tie-up with L&T to launch a range of genuine oils for their equipment and customers. It also launched a range of EV fluids for Hybrid/EVs

Guidance:

Management expects margins to stabilize at current levels. It is unlikely to take any more price hikes as LOBS prices have largely stabilized and are on a downwards trend despite crude prices (up from USD70/bbl to USD80+). Margin improved qoq due to better realizations as previous four price hikes done over the past 6 months have taken effect and B2C-B2B mix returning to 60-40 levels (50-50 in Q1) as retail channel sales bounced back

Valuation:

We value GOLI on a DCF-SoTP basis and maintain our Buy rating. Our Rs815 TP implies a 15.5x Sep’23E target PE multiple. Key risks are adverse base oil prices/currency, competition, economic slowdown and technological changes.

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