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Margin to improve selectively in the backdrop of lower oil prices & currency depreciation

Automotive and Industrial segments, both, are expected to drive lubricants’ volume. Although decrease in Brent prices (by 13% y/y) ideally results in increase in margin for lubricant players, the devil lies in the detail. Base oil price, which accounts for 80% of RM cost for lubricants, was down just ~4% y/y in Q2FY26. However, as over 60% of base oil is imported, companies with less export exposure tend to benefit less due to 4% y/y depreciation in INR in Q2FY26. It’s a matter of time before base oil price corrects, leading to margin expansion for lubricant players.

Industrial lubricants: Over the medium term, the demand for Industrial lubricants is expected to outpace the consumption of automotive lubricants. Therefore, there is a possibility of average realised price to drop, leading to decrease in EBITDA margin. However, GOLI has continued to focus on high-growth niches within the Industrial segment, by emphasising on premium products. This is done through its participation in industry events and sequentially acquiring new marquee customers. As a result, we continue to expect the company to exceptionally increase both, its margin as well as volumes

White oil and Transformer oil market: On the back of GST rationalization, white oil market is expected to pick up provided there is revival in demand. Thus, companies with exposure to FMCG segment (petroleum jelly and wax) may see certain benefit during this quarter. Separately, integration of renewable energy sources and expansion of power grid continues to drive the demand for transformer oil. However, based on our interactions with the managements, the domestic demand for ester-based transformer oil is still picking up but it sees strong demand from the developed economies.

Sector View: We maintain our Positive View on Lubricants segment in downstream Oil & Gas space. For investors keen on playing the theme of exponential increase in India’s energy consumption, while avoiding regulatory headwinds, the Lubricant segment offers a worthwhile opportunity. We have a ‘BUY’ rating on GOLI underpinned by its ability to deliver margin expansion alongside healthy volume growth in what is often viewed as a commoditised business. We believe this positions GOLI to compound earnings faster than both, its historical trajectory and broad industry standards.

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