Gulf Oil Lubricants: Research Report By Motilal Oswal

Earlier, the high-quality (high margin with pricing power, strong return ratios and healthy free cash flow generation)
business of lubricants was clubbed with the other low-margin businesses of Gulf Oil Corp. Hence post-demerger, we see potential of value unlocking in the demerged entity, as it would be now directly comparable to Castrol. Castrol has an enviable ROCE of over 100%, earnings growth of 8% CAGR over FY14-16E and trades at 39x Sep 2016E. While Gulf has a respectable ROCE of 37%, it offers significantly higher earnings growth of 24% CAGR and trades at almost half of
Castrol’s valuation at 22x Sep 2016E. We believe that Gulf deserves better valuations and thus value it at INR 600 at 27x Sep 2016E EPS (30% discount to Castrol).

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