We recommend ?BUY? on GULF OIL LUBRICANTS INDIA LTD for a target of INR 931 – valuing the company at P/E 23x of FY20E Earning.?
CMP: INR 851
Target Price: INR 931
Investment Rationale:
- Fastest Growing Lubricant Player by consistently outperforming the industry growth rate YOY.
- The ?Gulf Oil? brand enjoys a position among the Top 3 lubricant brands with regards to brand awareness, purchase consideration and other parameters.
- Pioneered long-drain interval in India Launched future-ready products.
- Motivated workforce striving relentlessly to achieve organisational goals.
- Consistent investment in the brand has resulted in strong brand awareness of the Gulf brand in India.
- New R&D Centre ? Gulf?s biggest facility globally.
- Customer Experience Centre, the first of its kind in India.
- Differentiated products have helped to stay ahead of the curve and enhance market share across segments.
- Innovation has played a pivotal role in driving industry leading performance in the last few years.
- Significant potential to ramp up rural penetration of automobiles.
Valuations And View:
Gulf Oil Lubricants India Ltd is the fastest Growing Lubricant Player by consistently outperforming the industry growth rate YOY. The ?Gulf Oil? brand enjoys a position among the Top 3 lubricant brands with regards to brand awareness, purchase consideration and other parameters. We value the business at 23x FY20E EPS and recommend a BUY rating on the stock with a target price of INR 931 per share.
Risk & Concerns
- Foreign Currency Risk: Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company?s exposure to the risk of changes in foreign exchange rates relates primarily to the Company?s operating activities (primarily material costs are denominated in a foreign currency).
- Interest Rate Risk: The Company had borrowed funds at floating interest rates. The Company?s interest rate risk arises from short term borrowings with variable rates.
- Commodity Price Risk: The Company?s exposure to market risk with respect to commodity prices primarily arises from the fact that we are a purchaser of base oil. This is a commodity product whose prices can fluctuate sharply over short periods of time. The prices of base oil generally fluctuate in line with commodity cycles.
- Credit Risk: Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligations thus leading to a financial loss. The Company is exposed to credit risk from its operating and financial activities.
- Liquidity Risk: The Company?s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The company has net positive cash surplus after adjusting its short term bank borrowings.
Company Background
Gulf Oil Lubricants India Ltd (GOLIL) (Subject Company), part of the Hinduja Group, is an established player in the Indian Lubricants Industry with significant presence across automotive and industrial lubricants segments. Gulf Oil International (GOI), parent of GOLIL, owns the Gulf brand globally (except USA, Spain & Portugal). Previously a part of Gulf Oil Corporation Limited, today, GOLIL, as part of the parent company GOI, enjoys a presence in over a 100 countries. It has a robust global product portfolio and have been pioneers of the ?Long Drain? products in India. Brand ?Gulf? enjoys a high recall in the minds of customers. Strong distribution network, state-of-the-art manufacturing facilities at Silvassa and Chennai, and long-standing partnerships with OEMs and other B2B customers are pivotal to growth. With operations primarily in the?Automotive?and Industrial segments, during the year, it undertook multiple initiatives as it continued to enhance and strengthen distribution network across both automotive and industrial segments. It continued to deepen relationship with existing OEM partners and also welcoming new partners to family.
PRODUCTS:
- Automotive Lubricants
- Industrial Lubricants
- Batteries
- Marine
Industry Overview
India follows the US and China to be the third largest lubricant market globally. It is one of the fastest-growing lubricant markets in the world. The Indian lubricant market can be broadly classified under the three heads of automotive, industrial and process/white oils. Process oils constitute one-third of the total lube market. Automotive and industrial together form two-thirds of the market in terms of volume, followed by industrial oils such as transmission and hydraulic fluids, general industrial oils, gear oils, greases and so on. Automotive engine oils form the largest pie of the Indian lubricant market, excluding process oils. India?s lubricant market constitutes over 20 organised players, including the MNCs, public sector oil marketing companies and other domestic companies. The market is dominated by the public sector oil marketing companies. In recent years, though, private players have started growing rapidly owing to their expanding reach and highly innovative products and services. This trend is likely to continue in the future as well. Encouraging prospects of the rural economy, focus on energy efficiency, higher brand consciousness and continuous advancement of engine technology are some macro enablers that will contribute to the growth of India?s lubricant market in the future.
