Buy Gulf Oil Lubricants India Ltd For Target Rs. 1,600 - Choice Broking Ltd
Volume Outperformance via Integrated Approach: GOLI’s strategic alignment across operations, sales and strategy has created a competitive advantage. The firm has delivered 7–8% CAGR as compared to the industry’s average growth rate of 3.8%. Moreover, it has the ability to anticipate demand across 15 segments, such as Passenger Cars and Industrials. Therefore, it has invested appropriately in plant’s agility to grow market share in the B2C segment, which accounts for 53% of the business. Having secured partnerships with over 40 OEMs in order to expand in the B2B market, we believe GOLI is well-positioned to increase volumes.
From Pricing Leverage to Profit Stability – GOLI’s Game Plan: GOLI has raised its average realised price by ~21% over the past 7 years, driven by product mix, price hikes and schemes. By comparing the average realised price with Brent crude and Asian Base Oils, we conclude GOLI is now focusing on maintaining or increasing margin coupled with volume growth. As we expect Brent prices to decline over the next year, in line with US EIA and IEA; we expect GOLI’s EBITDA margin to rise above its current guidance band of 12–14% for FY27-28.
Consistent Investment in Branding Builds Competitive Moat: GOLI has consistently invested INR0.5-1bn p.a. over the past 10 years in order to build its brand equity. This has propelled loyalty, margin-backed volume growth, and landed GOLI a competitive advantage. The firm has further sharpened its consumer insight by appointing FMCG leaders Abhijit Kulkarni (as COO) and Aarthy Shridhar (as CMO)
Investment View: We expect GOLI’s Revenue/EBITDA/PAT CAGR of 10%/15%/20% from FY25–28E. We have a ‘BUY’ rating and target price of INR 1,600/share with an upside of ~38%. We primarily value the company using DCF model, implying a PE multiple of 14.6x/12.8x at FY27E EPS/FY28E EPS. GOLI trades at PEG ratio of 0.8 as compared to the industry leader which trades at ~3.0, implying strong upside for GOLI.
Optionality: Tirex, an EV charging manufacturing company which GOLI acquired in FY23, is targeting INR 3–4 Bn in revenue p.a. over the next 3–4 years with ~12–14% of EBITDA margin. If this plays out, it positions GOLI for a meaningful upside to our current estimate.
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