Buy Gulf Oil Lubricants Ltd for the Target Rs.1,900 By Emkay Global Financial Services Ltd
Healthy volumes drive earning beat
GOLI’s Q2FY26 core lube volumes grew 9.5% YoY, exceeding our estimates by 1% and leading to an 8%/9% EBITDA/PAT beat despite higher other expenses from elevated OEM royalty payouts. AdBlue volumes grew 24% YoY to 36mn ltr (a 20% beat). Percentage EBITDA margin at 12.4% was slightly lower in Q2, though within the management guided range of 12-14%, while gross margin fell by 10bps QoQ to 42.7% on slightly lower realization and weaker rupee. The mgmt reiterated its volume growth guidance of 2-3x the industry growth, and maintained EBITDA margin guidance at 12-14%. Tirex reported H1FY26 revenue of Rs240mn (up 75% YoY) which it targets scaling up, to Rs3-4bn over the next 3-4 years. We slightly tweak FY26-27E earnings by 1-2% each, given the H1FY26 run rate and building in higher finance cost amid a weaker rupee. We roll forward to Sep-27E, raising our TP by ~6% to Rs1,900 (at ~20x Sep27E target P/E). We retain BUY on the stock on attractive valuations.
Result Highlights
GOLI’s Q2FY26 SA EBITDA/APAT was up 11%/3% YoY and down 6%/10% QoQ. Core lube volume rose 9% YoY to 40.5mn ltr, while AdBlue volume rose 24% YoY to 36mn ltr. Net realization was down 1% QoQ to Rs125.1/ltr, while unit COGS fell 1% QoQ to Rs71.7/ltr. Hence, unit gross margin was down 1% QoQ at Rs53.4/ltr (in-line). Unit opex was largely steady QoQ at Rs37.9/ltr (down 1% YoY), while absolute opex was down 3% QoQ at Rs2.9bn (11% above our estimate on higher OEM royalty). EBITDA/ltr fell 3% QoQ to Rs15.5 (down 5% YoY; 2% miss to our est). D/A was up 1% QoQ, at Rs137mn (up 28% YoY), while finance costs rose 135% QoQ to Rs130mn, on higher forex losses. Consol minus SA (Tirex, etc) net income was negative Rs32mn. Cash position was Rs11bn as of Q2FY26-end. The Board has approved the acquisition of additional 14.18% stake in Tirex for Rs380.9mn (Rs325/sh). With this, GOLI's share in Tirex will increase to 65.18%.
Management takeaways
GOLI retained its 2-3x industry growth momentum in Q2, despite the erratic monsoons, supported by strong traction in the PMO, MCO, OEM franchise, agriculture, and select industrial segments. Factory-fill volumes—subdued last year—have begun recovering, aided by higher vehicle sales and GST rate cuts. Profitability in Q2 was weighed down by rupee depreciation and base oil volatility, though EBITDA margins stayed within the 12- 14% guidance range. Margins are likely to improve if crude (USD65–70/bbl) and currency are stable. GOLI hedges a minimum of 50% of its forex exposure, with MTM loss of Rs62mn booked in Q2. Working capital rose temporarily due to higher receivables. Rural expansion and premiumization continue to gain traction. Tirex launched AC chargers, with H2 expected to fare better on higher deployments. The data center coolant segment remains niche, with volumes expected to be less than 1% of total lube volumes.
Valuation
We value GOLI at Sep-27E P/E-based TP of Rs1,900 (assign ~20x target P/E). Key risks: Adverse base-oil prices/currency fluctuation, competition, technology-based changes.
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