Gulf Oil Lubricants Research Report By HDFC Sec

With a well-balanced and improving portfolio of lubricant brands, Gulf Oil Lubricants (GOL) is well placed to capitalise on the much anticipated revival in autos and GDP/IIP cycle in India. The recent collapse in crude oil implies softer base oil (key RM) prices, a significant margin lever in the near term.

We are enthused by GOL’s (1) Faster than market volume growth (2) Well-entrenched and steadily expanding distribution network of 350 distributors and 50,000 retailers (3) Near doubling of capacity over FY14-16E (4) Sustained investment in brand building [6-7% of sales] (5) Margin expansion (ex-crude, driven by brand building, improving sales mix, operating leverage and better logistics).

Valuations don’t seem expensive at 19.7x FY17E EPS, given a debt-free balance sheet, superior return ratios (FY17E RoE : ~44%), multi-year market share growth and a stated dividend payout policy of ~40%. This will most likely lead to a sustainable re-rating on the stock.

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