Gulf Oil Lubricants India Ltd. (BSE:GULFOILLUB), a Hinduja group company, is an established lubricants company engaged in manufacturing, marketing and trading of automotive and non-automotive lubricants.
The company sells its products under the “Gulf” brand and with sales mainly to the automotive sector, industrial customers and supplies directly to OEMs and other B2B customers (industry, infrastructure, miners and fleets, state transport and government enterprises).
The company’s manufacturing facility is located at Silvassa with an installed capacity of 90,000 KLPA (kilometers per annum), which was increased from 75,000 KLPA in FY16. The company also commissioned a greenfield project in Chennai in December 2017 with a production capacity of 50,000 KLPA.
The company’s production units are accredited with ISO 9001:2008 and ISO 14001:2004 certification. This manufacturing facility utilizes process logic control systems to ensure that manufactured products meet the required level of quality and consistency. Of its total sales, 40-45% is B2B, while the rest is B2C.
GULFOILLUB is not present in process oils. Barely 5% of its sales come from exports, which are sales to group companies for sale in neighboring countries and sales of branded lubricants (with OEMs) in their destination countries.
GULFOILLUB‘s consistent marketing campaign focused on brand awareness and extensive coverage of a wide reach of consumers, mechanics and retailers has strengthened its position in the entire segment in recent years.
GULFOILLUB continues to strengthen its distribution reach, relationships with existing OEMs and has also welcomed several new OEMs and B2C and B2B customers across the automotive, industrial and construction sectors. GOLIL works closely with leading global OEMs and B2B customers such as Ashok Leyland, Mahindra, Swaraj Volvo Penta, MAN, Bharat Benz, Whitmore, Schwing Stetter and Bajaj.
These important partnerships have helped GULFOILLUB to adopt and pioneer many models launched in the automotive industry, such as co-branded oils, genuine oils and approved oils. With strong inbound volumes, strong supply chain, distribution strength and continuous investment in branding activities, GULFOILLUB expects to grow 2-3x as compared to the industry.
GULFOILLUB‘s market share is gradually increasing. However, margins may be affected for several quarters due to increasing pressure on input costs. However, we expect volumes to grow well as restrictions ease.
Volume growth will continue to outpace industry performance from FY23E as growth will come from new product launches, OEM tie-ups and expansion of distribution channels.
GULFOILLUB posted a strong performance in Q1FY23 with 69.3% YoY growth in revenue to Rs 706 crore, led by strong volume growth in the quarter. Sales volume in the quarter hit a quarterly high of 48 million liters, up 75% YoY and 28% QoQ, driven by 34% YoY growth in lubricants and ~500% YoY growth in Ad Blue sales.
Ad Blue provides lower realization and lower margin than lubrication products. Its lubricants sales were 34m litres, up 34% year-on-year and 2% quarter-on-quarter, Ad Blue sales were significantly higher at 14m litres, compared to the usual quarterly sales of 3-4m litres. Even lubricants sales were higher than the seasonally strong Q4FY22.
Despite higher base oil prices and several other costs, EBITDA was almost double the year-ago quarter at Rs 85 crore and EBITDA margin was 12% in 1Q23 vs. 10.1% in 1Q22; however, it fell by 190 bps quarter-on-quarter.
Lubricant price increases of 3-4% were received at the beginning and end of the quarter and helped offset the cost increase. Net profit rose 82.2% YoY to Rs 55 crore in Q1FY23.
GULFOILLUB‘s financial profile has been robust, led by negligible debt, healthy cash generation capacity and consistent dividend payments to shareholders in the past. Financial flexibility is strong, supported by strong liquidity.
GULFOILLUB‘s operating revenues grew from Rs 965 crore in FY15 to Rs 2192 crore in FY22 – ~12.4% CAGR for the period. The company has reported EBITDA margin in the range of 13-17.5% and PAT margin in the range of 10-12% over the last seven years. Working capital has remained positive and capital expenditure has also remained stable over the years.
However, growth is slowing for the company due to market saturation, better product quality requiring late oil changes and vehicle electrification in India. The company’s debt increased by Rs 179 crore to Rs 390 crore, the debt-to-equity ratio stood at 0.3x in FY22 and the company has no further plans to raise any debt in the future.
The company has sufficient cash and cash equivalents for further investments to expand its business in the future. As on March 31, 2022, the company has cash and cash equivalents of Rs 574 crore. The company has always been generous in declaring dividends, the company has a consistent dividend payout to its shareholders over the period. In FY22, the company also declared a buyback offer to shareholders.
Inventory days decreased from 83 days to 79 days, accounts payable decreased from 66 days to 45 days and receivable days increased to 49 days from 42 days as of March 31, 2022. With increased profitability and better return ratios going forward.
Given the company’s strong financial profile, led by healthy levels of profitability and return ratios and a comfortable capital structure, we have a positive view on the stock. Its valuations are cheaper compared to MNC peers and the stock also offers a decent dividend yield.