Gulf Oil Lubricants – A low risk way to play the economic cycle?

“A Guesstimate around Gulf Oil’s Data Centre Cooling Fluid Business”

Emkay Global reiterates a buy on Gulf Oil and revises target price from 1350 to 1500/ share cites an addition of a new product – data centre cooling fluids, says the availability of technical know-how and eventual portfolio addition improves their terminal period outlook.

What makes this upgrade interesting is that it comes days after Mr Ravi S Chawla, the MD of Gulf Oil clarified that at 1.7 GW of DC capacity, DC cooling liquid market in India to stand at 12-14mn-ltr by CY26 E at 100% penetration is a very small proportion of the overall industry volume of 2.9 million tonnes. The proportion of volume of DC cooling fluids of the overall industry volume is really low about 0.001% of the industry volume.

Let’s perform a guesstimate around the terminal period. Let the terminal period be CY 2030 E. (Units – in litres and assumptions are made regarding volumes)

The current volumes in CY 25 end

DC Cooling fluids – 100 L @100%
penetration and proportionate lubricant market size – 100000 L

The volume estimate for CY 30 end

DC Cooling fluids grows 20% annually to 248 L
Overall lubricant market grows at 4% annually to 121665 L

The proportionate share – DC Cooling Fluids would have in Gulf’s Business by CY30 end

Gulf’s current market share in lubricants industry is 6% (varies across segments but let’s take this aggregate for convenience), shows how fragmented the market is – Gulf being second largest player.

Let’s also assume Gulf Oil gains 1.5% market share, which is a pretty hard task as lubricants are a sticky proposition

With that market share the overall lubricant volume of Gulf Oil shall be – 9124 L

Gulf’s DC cooling fluid volumes – 85L with below mentioned assumptions

Let’s assume Gulf holds 40% share in this segment – since this is a niche segment we expect other respected peers like Castrol, Savita Oil Tech and others seize the opportunity to grab some market share.
Let’s also assume that the penetration of DC fluid remains 85% – not everyone switches to them some still use air conditioners.

Conclusion – “The proportion of DC cooling fluids volumes of overall business volume by CY30 end would be only 0.93%, let’s assume it to be in the range of 1-2%, which doesn’t seem to improve my terminal period outlook. “