Buy Gulf Oil Lubricants Ltd for the Target Rs 1,900 by Emkay Global Financial Services Ltd
GOLI’s 1QFY27 EBITDA/APAT of Rs1.7/1.3bn came in at a 29%/28% beat, driven by stronger core volumes and higher unit margins. Lube volume grew 17% yoy to 48.0mn ltr (Emkay: 45.9mn ltr), while AdBlue volume was up 5%. EBITDA/ltr rose to Rs19.4 (near pre-AdBlue levels) as margins were resilient despite elevated input costs, aided by staggered but sharp price hikes (benefits expected to flow through in subsequent quarters as well). The management reiterated its volume growth guidance of 2-3x industry growth and EBITDA margin guidance of 12-14%, with premiumization and operating leverage expected to support a gradual move toward 14-16% in the long term. Premium products currently contribute ~10% to volumes, with the company targeting a 1-1.5% annual increase in contribution. Tirex saw a relatively subdued 1Q, but growth is expected to accelerate from 2Q; the company targets revenue of Rs3- 4bn over the next 3-4 years. We raise FY27E/FY28E/FY29E EBITDA by 13%/9%/9%, on higher volume growth and better margins. We roll forward to Jun-28E, but cut our target PER to 18.0x (from 20.0x) amid macro volatility. We retain BUY with an unchanged TP of Rs1,900.
Results highlights
GOLI’s 1QFY27 SA EBITDA/PAT was up 35%/32% yoy and 26%/42% qoq. Core lube volume rose 17% yoy to 48.0mn ltr (up 7% qoq; 5% beat), while AdBlue volume rose 5% yoy to 40.0mn ltr (flat qoq; 2% miss). Net realization was up 23% qoq to Rs150.0/ltr, largely supported by staggered price hikes, while unit COGS rose 23% qoq to Rs88.4/ltr. Hence, unit gross margin rose 22% qoq to Rs61.6/ltr (21% beat). Unit opex was up 11% yoy/21% qoq to Rs42.3/ltr (18% above estimate), while absolute opex was up 24% yoy/ 26% qoq to Rs3.7bn (20% above estimate). EBITDA/ltr was up 22% qoq to Rs19.4 (up 21% yoy; 27% beat). D/A was up 4% qoq to Rs169mn (up 25% yoy), while finance cost declined 66% qoq to Rs77mn, likely on lower forex impact. Other income at Rs266mn was a 7% beat (20% yoy/7% qoq), while ETR was steady at 26%. Consolidated less SA (Tirex, etc) net income stood at negative Rs67mn vs negative Rs4mn in 4QFY26.
Management KTAs
GOLI posted record core lube sales in 1Q (>3x industry growth), with double-digit gains across segments, partly aided by stocking, while supply remained uninterrupted. RM inflation remained a key margin challenge, with base oil prices yet to correct in line with softer crude; some grades have seen further increases. B2C price hikes have historically not been fully rolled back when input costs softened, offering scope for margin accretion. AdBlue margins are expected to remain in mid-single digits. Battery revenue stood at ~Rs200mn in 1Q vs ~Rs800mn in FY26. Sales mix was ~55% B2C/45% B2B. GOLI maintained inventory of 30-45 days of base oil. Capacity expansion is on track.
Valuation
We value GOLI at Jun-28E PER-based TP of Rs1,900 (assign 18.0x target PER). Key risks: adverse base-oil prices/currency fluctuation, competition, technology-based changes.
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