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Data center cooling liquids; a longer-term opportunity

We retain our constructive outlook on GOLI, driven by steady core volume growth (7% core volume CAGR over FY24-26E, >2x of the industry growth), and a stable 13-14% EBITDA margin profile supported by focus on premiumization. The new initiatives like EV charging solutions, EV fluids, and data center (DC) cooling liquids are expected to gradually add to the growth. Mgmt. estimates the DC cooling liquid market in India to stand at 12-14mn-ltr by CY26-end (given ~1,7GW of DC capacity; 100% transition to cooling liquids from ACs). Though cooling liquids contributing meaningfully to GOLI’s volumes by CY26 seems unlikely, availability of technical know-how and eventual portfolio addition improve the terminal period outlook. We raise target P/E to 17.5x (vs. 16.5x earlier); besides roll-over to Sep-25E. Reiterate BUY with revised TP of Rs1,500/sh.

DC cooling liquids – Nascent business at present; longer-term opportunity

The industry expects DC capacity in India to grow to 1.7-2.0GW by CY26 from ~1.0GW now. Average (rack) density is expected to increase to ~50kw/rack, from ~35kw/rack now, thus resulting in higher heat generation and need for liquid cooling solutions (mineral as well as synthetic). The mgmt. estimates 12-14mn-ltr of cooling liquid demand to cater to ~1.7GW of DC capacity, but conversion from traditional cooling solutions to liquid ones is expected to be gradual, at 3-4% initially and increasing ~25% in the following few years, as existing DCs would require capex for turning compatible with liquid cooling solutions. Our rough estimates (refer to Exhibit 2) imply ~0.5% volume contribution of DC cooling liquids by CY30E to GOLI’s current core volume, while assuming ~15% market share for the company in such liquids and ~25% DC capacity converting to liquid cooling solutions. These liquids could lead to overall energy savings; however, selection of liquid cooling system, related expenditure, drain interval, and reliability would need to be evaluated.

Healthy core business outlook; new initiatives in germination mode

Industry consultant Kline estimates the Indian lubricants industry volume CAGR at 3-4% up to CY27, whereas it expects value CAGR of 5-6% on the back of premiumization across product verticals. GOLI maintains core volume CAGR of 2-3x of the industry growth, with an intent to grow its market share to 10-12% vs. 6-8% currently. the company pegs its AdBlue market share at ~25%, led by supply-chain synergy, certifications and OEM tie-ups. It has rapidly scaled up AdBlue volumes to 128mn-ltr in FY24 from ~16mn-ltr in FY22, with market estimated to grow in high double-digits over the next few years. We expect GOLI to clock earnings CAGR of ~13% over FY24-27E, mainly led by ~11% volume CAGR. GOLI has invested ~Rs1.5bn till date, for acquiring equity stake in ElectreeFi (charging management software provider), Indra Renewables (home charger manufacturer in the UK), and Tirex (DC fast-charger manufacturer in India). Tirex currently caters to 8-10% of the fast-charger market in India; it also offers EV fluids to OEMs with a low single-digit revenue contribution currently, as EV fluid demand in India could touch 12-14mn-ltr by CY28.

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