IGI Logo

Volume improve but operating margins shrink

Our view

GOLI’s 3QFY22 reported operating profit stood at 770 mn (-7.6% YoY; -0.3% QoQ), below our estimates, even as revenue at Rs 6bn (+25% YoY; +13% QoQ), stood in-line. Higher than anticipated SG&A expense was the key reason for miss on estimates and also for sequential contraction in Ebitda margin to 12.8% (from 14.5% in 2QFY22). The growth in volume was nevertheless healthy at 9% to 36mn liters. GOLI’s stock price has retuned ~ (17.3)% over last three months and (33%) over trailing 12M, as growing interest in EVs become an overhang for the stock. As per our assessment, markets are not ascribing any value to continued business operations beyond 2035, whereas any impact of EVs on GOLI’s business, is still a decade or two away. Maintain BUY.

Result Highlights

Revenue: Revenue for 3QFY22 stood +24.9% YoY & 12.8% QoQ higher, at Rs 6.0bn, while 9MFY22 revenue stood at Rs 15.5bn, +36.8% YoY. The rise in revenue was attributable to growth in sales volumes, coupled with a 14.8% YoY and 3.5% QoQ improvement in per unit realizations as it realized full impact of price increases undertaken to pass on rising raw material costs.

Sales volume: Sales volume increased to 36mn liters (+8.8% YoY; +9.0% QoQ) in 3QFY22, as demand recovered after impact of Covid-2nd wave. The growth in volumes was led by strong growth in PV, industrial and diesel oil engine segment marginally offset by subdued demand in agri-lubricants and motorcycle oil in rural segment. In comparison the domestic lubricant industry witnessed a growth of 16% QoQ but sales stood lower by 0.5% on YoY basis, during the 3QFY22.

Operating Profits: The Ebitda for 3QFY22 at Rs 770mn, stood 7.6% lower YoY however, remained flat QoQ as sharp increase in raw material (base oil) price was offset by price revision undertaken by GOLI. However, margins fell to 12.8% (17.3% in 3QFY21; 14.5% in 2QFY22) ) on account of higher advertising spends and freight charges. Nonetheless, margins adjusted for price increases stood in the range of 14-16% in line with targeted levels. Gross margins stood at 66.2/liter (- 5.2%YoY; -1.0% QoQ), while EBITDA declined to 21.4/liter (-15.1% YoY; - 8.5%QoQ).

Share Buyback: GOLI’s board of directors have approved a share buy-back program encompassing of buying back of 1.42mn (9.8% of paid-up equity capital) shares at Rs 600/sh, for a maximum amount not exceeding Rs 850mn.

Valuation

We maintain our BUY rating on GOLI albeit with a revised TP of Rs 850/sh (from Rs 1100/sh) as we pare down our target P/E multiple from 20 to 15x FY24e, given the overhang on the outlook for sustained business growth in light of growing interest in electric mobility.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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