Herakles Capital points out that Gulf Oil Lubricants (formed out a de-merger of Gulf Oil) is an established player in the lubricant industry. It has strong brands and ranks behind the OMCs and Castrol. Gulf Oil has managed to grow at about 2x-3x the size of the industry over the past 10 years. While the industry has delivered around 3% in CAGR, Gulf is estimated to have grown by 8% CAGR since 2010. The company has also increased its market share from 4.4% to 6.5% in the automotive segment and from 4% to 6-7% in the bazaar segment in the last seven years. The overall market share has increased from 2.5% in FY07 to 4.5% in FY14.
The other interesting point made is that Gulf Oil Lubricants has several ambitious plans. The revenue of Rs.880cr in FY14 is intended to be increased to Rs.1100cr in FY15 and approximately Rs.1250 in FY16. This constitutes a whopping 45% increase in absolute terms.
It is also explained that the decline in crude oil prices augers well for Gulf Oil Lubricants because crude is the major raw material. This will result in an improvement in margins over a period of time.
Herakles Capital also points out that Gulf Oil Lubricants is in a strong financial position. It has no long-term debt. The EBIDTA margins are healthy at about 12%. The dividend payout is also liberal at about 40%.
At the end, it is pointed out that Gulf Oil Lubricants is quoting at a sharp discount to the market leader Castrol India Ltd. Castrol has a market capitalisation of about Rs. 24,800 crore, Gulf Oil Lubricants is a minnow with a market capitalisation of only about Rs. 2,200 crore. Also, while Castrol is quoting at a P/E of 50x, Gulf Oil Lubricants is at a P/E of 22x. There is a good chance for the valuation differential to narrow, it is claimed.