COMPANY UPDATE 10 JULY 2019

Gulf Oil Lubricants

BUY
Consistent and solid INDUSTRY LUBRICANTS
Our recent meeting with the management of Gulf Oil rationale for its entry into this segment. Gulf has CMP (as on 09 Jul 2019) Rs 830
reinforces our view about the company’s industry leading registered revenues of ~Rs 0.5bn in FY19 from this Target Price Rs 1,052
volume growth and superior execution. We expect Gulf to segment. It aims to scale this up to Rs 2.5-3bn over Nifty 11,556
continue to deliver 3-4x industry volume growth and gain next 3-4 years with ~Rs 0.5bn EBITDA contribution Sensex 38,731
market share. Reiterate BUY; TP of Rs 1,052 @ 22x FY21E (20% of current EBITDA).
KEY STOCK DATA
EPS.  Gulf is well poised to grow at 3-4x industry growth
rate. The near term outlook remains mixed due to Bloomberg GOLI IN
INVESTMENT RATIONALE weak sentiments in the auto segment. No. of Shares (mn) 50
MCap (Rs bn) / ($ mn) 41/602
 Industry leading volume growth: In a structurally slow STANCE
growth industry of ~3-4% p.a., Gulf has registered a 6m avg traded value (Rs mn) 24
Over FY15-19, Gulf's volume/ revenue/EBITDA/PAT has
healthy 12.4% CAGR growth over FY09-19. Albeit In grown by 17/19/21/20% vs. market leader Castrol's STOCK PERFORMANCE (%)
recent past (FY16-19) the growth accentuated to 16%. 3/6/4/4%. Gulf’s superior growth is led by increase in 52 Week high / low Rs 940/618
PBT grew by a healthy 31%/21% over the respective capacity (75 to 90mn KL p.a. in FY16 and 150mn KL in 3M 6M 12M
period. FY19), expansion in distribution reach by ~15% p.a. (~70k Absolute (%) (6.9) 10.0 (8.8)
retailers vs. 150k for Castrol), and improving product and
 In sweet spot: Despite healthy growth, Gulf’s market customer (B2C) mix. Relative (%) (11.3) 4.5 (14.5)
share is a modest 6%, which provides enough SHAREHOLDING PATTERN (%)
opportunity for growth. Gulf is well positioned as it is We reiterate our Buy, as Gulf’s growth story is solid led by
a focused management. We expect market-share gains to Dec-18 Mar-19
gaining market share from (1) National oil companies
be driven by an expanding distribution network. Short- Promoters 72.7 72.7
(45-50% share) due to their inherent inefficiencies and
(2) MNCs which have protracted decision making term weakness, if any should be an add-on opportunity. FIs & Local MFs 6.0 5.6
processes/ heightened focus on profitability. The FPIs 7.9 9.3
market leader has reported flat volumes over the Public & Others 13.3 12.4
trailing decade. Pledged Shares* - -
 Outlook: Gulf expects to deliver 12-18% volume Consolidated Financial Summary Source : BSE, * % of total
growth in FY20 led by multiple initiatives. We remain (Rs mn) FY17 FY18 FY19P FY20E FY21E
Himanshu Shah
conservative and have estimated 11/10% growth in Net Sales 11,007 13,323 17,058 18,625 20,911
[email protected]
FY20/21E (excluding for the one-off order in FY19). EBITDA 1,783 2,357 2,831 3,082 3,574
+91-22-6171-7315
 Battery business – potential growth driver: Gulf has APAT 1,184 1,586 1,745 1,964 2,382
forayed in the battery segment in FY14. After AEPS (Rs) 23.9 31.9 35.0 39.4 47.8 Aditya Makharia
enhancing the product quality, the management is now P/E (x) 34.7 26.0 23.7 21.0 17.3 [email protected]
gearing up to scale up the batteries segment. They EV / EBITDA (x) 22.7 17.2 14.6 12.7 10.5 +91-22-6171-7316
have created a separate team internally to scale this RoE (%) 39.3 38.6 33.1 30.4 30.7 Mansi Lall
business. Gulf’s distribution strength is the key Source: Company, HDFC sec Inst Research [email protected]
+91-22-3021 2070

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 Gulf Oil Lubricants GULF OIL LUBRICANTS : COMPANY UPDATE

Industry overview
 Overview of the Indian lubricants market: At ~2.7bn  Industrial segment: The industrial lubricant segment
liters p.a. (~7.5% of world markets) India is the third comprises of hydraulic fluids, metal working fluids,
India is the third largest largest market globally after the US and China. The greases and industrial gear oil. These products are
lubricant market globally market growth at ~3-4% is higher than the global used in the construction, manufacturing, textile,
after US and China and is average of ~1-2% primarily led by APAC. power generation, mining, food processing, light-
growing ahead of ROW  The Indian lubricant market can be broadly classified heavy engineering, marine operations and metal
into three segments: automotive, industrial and working sectors.
process/white oils. Gulf Oil is present in automotive
 Demand for industrial lubricant depends on the Index
and industrial oil segment.
of Industrial Production (IIP) and overall growth
 Automotive Segment: Automotive lubricants trends in the economy. The growth of industrial
dominate the market in India, with applications for segment has been muted at 1-2% due to sluggish
Commercial Vehicles (CV), Passenger Vehicles (PV) economic activity.
and two-wheelers. Diesel Engine Oils (DEO) lead the
automotive lubricant market as they form ~45% of  Infrastructure segment: The infrastructure segment
the total market, followed by Motorcycle Oils (MCO) can be classified separately as it leads the demand for
and Passenger Car Motor Oils (PCMO). both industrial and automotive lubricants through
products finding application in both on-highway
 The demand for automotive lubricants is a direct vehicles and off-highway construction equipment.
function of vehicle movement on the roads, as well as Improving prospects of the infrastructure sector will
growth of vehicle population and automobile sales. benefit the domestic lubricant market.

 Improving vehicle engine technologies coupled with  Encouraging prospects of the rural economy, focus on
superior products has been leading to an increase in energy efficiency, higher brand consciousness and
drain intervals and is thus negative for the lubes continuous advancement of engine technology are
industry. Customers though are willing to upgrade to some macro enablers that will contribute to the
branded products. Automotive segment has been growth of India’s lubricant market in the future.
growing at average 4-5% p.a. and is expected to
continue in the foreseeable future.

Page | 2
 GULF OIL LUBRICANTS : COMPANY UPDATE

Overview of the lubricants industry

Gulf’s market share is modest Total Market 2.7bn ltr industry (7.5-8% of
~6% in the automotive and 100% world market)
industrial segment
Gulf’s market share is ~6%
Process Oils Auto (~43- Industrials
in Automotive + Industrial
(~27-28%) 44%) (~28-29%)
segment

Replacement OEM factory

(~38%) fill (~5%)

Gulf’s market share in high

Factory
Fuel station Bazaar (~27- margin B2C segment is ~7%
workshop
(~2%) 28%)
(~8-9%)

Source:Industry, Company discussion, HDFC Sec Inst Research

Gulf’s Go-to-market strategy

GULF Lubricant

95-96% 3-4%

Domestic Exports

~38-40% ~60-62%

B2B Automotive Channel

Industrial (Direct industries, Distributor/Franchisee

Infra, Mining & Fleet (IMF) OEM
STUs, etc) Workshop

Retailer/Mechanics/Worksh
ops/Spare Parts

Consumer

Source:Industry, Company discussion, HDFC Sec Inst Research

Page | 3
 GULF OIL LUBRICANTS : COMPANY UPDATE

 Key market participants: India’s lubricant market  Apar, Savita group, Panama group, Raj Oil etc are key
constitutes over 20 organized players, including the players in the process/transformer/white oil market
Gulf is now at second position MNCs, public sector oil marketing companies and segment.
along with Shell in market other domestic companies. The market is dominated
share in FY19 by the public sector oil marketing companies. In  Gulf Oil – Surging ahead in a crowded market: In an
recent years, though, private players have started industry that is clocking an annual volume growth
growing rapidly owing to their expanding reach and rate of 1-2% globally and about 3-4% in India, Gulf’s
highly innovative products and services. This trend is growth rate is significantly ahead of the market. It’s
likely to continue in the future as well. pure play lubricant focus has led to its higher growth.
Gulf has significantly Continuing to be one of the fastest growing lube
outperformed the market Player-wise market share (%) companies, its volume has grown at an impressive
leader Castrol Others 16% CAGR in the last three years.
17%
Total Gulf vs Castrol: Volume growth trend
4% Gulf Castrol
OMCs Mn Ltr
Gulf’s volumes have grown Veedol 46% 220
4%
~3x in trailing decade vs. flat

219
216

212
Valvoline

208

206
205

204
180

199
volumes for Castrol

197

195
195
5%
Gulf Oil 140
6%
Shell 100

119
6% Castrol

95
11%

84
60

75
46

68
Source: Media articles, Industry and Company discussion, HDFC

65
37

64
61
53
Sec Inst Research 20

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19
Source: Industry, Company discussion, HDFC Sec Inst Research

Page | 4
 Gulf Oil Lubricants GULF OIL LUBRICANTS : COMPANY UPDATE

 Key enablers of growth: Gulf witnessed an Key interventions that enabled to deliver superior
uninterrupted execution of a well-conceived business growth
Gulf’s pure-play lubricants plan that encompassed steady expansion of market 2007 New generation diesel engine oils with long drain
focus, investments in brand, and distribution network, enhancement of intervals
distribution, capacity manufacturing capacity and brand portfolio, 2008 Focus on Motorcycle Oil
expansion, attracting talent intensification of customer relations in the 2008 to Chest branding partnership on T-shirts for Chennai
from leading companies, institutional and OEM segment and a sharp and 2019 Super Kings
efficiency in decision making, sustainable surge in brand and customer connect 2008 New vertical for Infrastructure, Mining and Fleet
are the key driving factors for initiatives. 2010 Special focus on industrial business
its industry leading  Gulf’s carefully selected segment-wise approach has
2011 OEM focus with dedicated team put in place
performance strongly positioned their brands, products and
2011 Signs MS Dhoni as brand ambassador
services. It has fortified companies pure-play 2014 Tractors
lubricant propositions. It has penetrated into new 2015 Scooter Oils
segments with strategic OEM tie-ups. 2017/18 Passenger Car Motor Oils
2017/18 Signed Hardik Pandya as brand ambassador for
new initiatives (battery) and lubricants business
2018/19 Greases, Coolants, High end speciality products etc
Source: Media articles, Company discussion, HDFC Sec Inst
Research

Page | 5
 Gulf Oil Lubricants GULF OIL LUBRICANTS : COMPANY UPDATE

Marketing initiatives

Source: Company, HDFC Sec Inst Research

Page | 6
 GULF OIL LUBRICANTS : COMPANY UPDATE

In the recent past, Gulf has been able to attract talent  There is a misconception of margins being lower in
Gulf’s investment behind
from the leading and competing peers; a feet it was B2B/Industrial segment. However adjusted for the
brands and promotion at 13-
unable to break-through a few years ago. A&P spend in the B2C business; margins are broadly
14% of revenue is 2x of Castrol
comparable.
 As a global brand, Gulf is ready to meet the
requirements of BS VI emission norms. Their products A&P spend as % of Revenue: Castrol vs. Gulf
have approvals from the leading global OEMs. Gulf’s
Castrol* Gulf
Adjusted for higher plan to increase exposure to the B2B segment will
enable them to benefit from any revival in the road 15
proportion of B2B business,
construction, industrial & OEM activities. It also plans
the A&P spend on B2C

14.2
to ramp up retail presence in the next two years as

13.5
12
business would look even

12.8
well as continue brand initiatives to leverage global &

12.2
higher India specific brand associations. We strongly believe
9
Gulf can grow sustainably in future with innovative
and people-driven customer-centric initiatives.

7.3
7.3
6

6.9


6.6
Growth vs. margin expansion! Gulf’s gross margin
has been steady over the past four years while that of
3
Castrol has been declining. Gulf’s EBITDA margin
hovers around 16-18% vs. 23-24% for Castrol. FY15 FY16 FY17 FY18

 The difference is primarily on account of Gulf’s lower Source: Company, HDFC Sec Inst Research * Castrol CY14
gross margin due to business mix and higher A&P is considered as FY15 and so on
spends. Gulf’s investment behind brands and
With higher proportion of B2B sales (38-40% vs. ~25% for
promotion at 13-14% of revenue is 2x of Castrol. In
Castrol); Gulf’s effective marketing spend on B2C is
our view, Gulf can easily expand its margin by 200-
higher. This too is strategically positive from business
300bps; however it has chosen to grow
perspective, though margin dilutive in near term.
volumes/market share instead of expanding margin.
We believe this is a strategic decision and is visible in
Gulf’s superior performance. We thus have kept our
margin assumption at 16.5-17% for FY20/21E.

Page | 7
 GULF OIL LUBRICANTS : COMPANY UPDATE

 Increase in working capital – temporary!: Gulf’s  Key risk: Slowdown in auto and industrial sector is a
working capital increased sharply owing to near term risk. Sharp increase in crude oil (and thus
Gulf’s working capital days
incremental raw material inventories at newly base oil) prices, rupee depreciation are other
are significantly higher vs.
opened Chennai plant and also higher procurements business risks.
Castrol due to the difference due to favorable RM prices. We foresee this as a
in mix and stage of business temporary phenomenon and expect the working  Persistently gaining market share in a low volume
capital to stabilize. growth industry may pose challenge in medium term
and thus limit the scope of re-rating/multiple
 Further, Gulf’s working capital at ~35 days (FY19 63 expansion.
days) vs. negative for Castrol offers it a significant
opportunity to improvise on the same. We foresee  Sharp rise in Electric vehicle may pose challenge to
this as a long term opportunity and could unleash the lubricant industry. However, EV at this stage is a
In the longer run we expect cash besides boosting return ratios. medium term threat due to higher costs of batteries,
this gap to moderate and it lack of infrastructure (charging stations etc).
could unleash significant Net working capital (excluding C&CE)/Revenues Nevertheless, the thrust of government on EVs is
capital for Gulf Castrol Gulf Oil higher and thus may pose a challenge.
Rs mn.
64 However, both Gulf and Castrol management have
ruled it out as a threat atleast over the next decade.

63
52 Castrol’s management in a recent interview pointed
40 out that it expects the lubricants demand to peak
39 over the next 20 years from now.
28 https://www.dnaindia.com/automobile/report-ev-

34
34

segment-will-not-dent-demand-for-lubricants-
16
castrol-2744430
(5) (4) 1
4 (4)  Further, Gulf derives less than 25% of its volumes
(8) from PCMO and MCO which is more likely to be
impacted in the long term. DEO contributes ~45% of
FY16

FY17

FY18

FY19
its volumes with the rest coming from industrials and
Source: Company, HDFC Sec Inst Research * Castrol CY14 is others.
considered as FY15 and so on

Page | 8
 GULF OIL LUBRICANTS : COMPANY UPDATE

Gulf Oil - PE trend Castrol - PE trend

P/E Mean +1 SD -1 SD P/E Mean
Gulf Oil since its demerger 32.0 50.0
from Gulf Oil Corporation has
traded at avg 23x 1-yr 27.0 40.0
forward PE vs. 29x for Castrol
since 2010 22.0 30.0

Castrol’s PE has corrected to

17.0 20.0
18x due to its persistently low
single digit volume/revenue
12.0 10.0
and thus earnings growth

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Oct-14

Oct-15

Oct-16

Oct-17

Oct-18
Apr-15

Apr-16

Apr-17

Apr-18

Apr-19
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Source: HDFC Sec Inst Research Source: HDFC Sec Inst Research

Castrol vs. Gulf - PE trend Castrol vs. Gulf – Price performance

Castrol Gulf Castrol Gulf
50.0
450
400
40.0
350
300
30.0 250
200
20.0 150
100

10.0 50

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Oct-14

Oct-15

Oct-16

Oct-17

Oct-18
Apr-15

Apr-16

Apr-17

Apr-18

Apr-19
Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Oct-14

Oct-15

Oct-16

Oct-17

Oct-18
Apr-15

Apr-16

Apr-17

Apr-18

Apr-19
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Source: HDFC Sec Inst Research Source: HDFC Sec Inst Research

Page | 9
 GULF OIL LUBRICANTS : COMPANY UPDATE

Quarterly Volumes & Growth Trend Realization/KL

Gulf continues to gain market Volumes (Mn KL) - LHS % YoY - RHS Realisation per KL (Rs) - LHS % YoY - RHS
share and is one of the fastest

34.0
36 40

32.2

8.4
30.2
150 10

30.0
growing lubricants company

6.4
27.5

5.4
33

9.1
30

8.6
145

22.0
5
Its volume growth is 3-4x 30 140

0.3

(0.6)
13.1
20
industry growth in the B2C

(2.6)
9.8
27

(3.1)
8.7
135 0
segment and even higher in 10

3.4
3.1
24

(5.5)
130

(2.2)
the B2B segment -5

(9.1)
21 0
125

18 -10 120 -10

1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19

1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Revenue: Steady Growth Gross Margins: have been rangebound

Net Revenues (Rs mn) - LHS YoY Growth (%) - RHS Gross margin (%)
50
4,800 40

29.2

49
48

39.4
4,400 24.6
30
22.6

48
34.4
18.3

47
29.8
16.8
4,000

47
46
20

46
10.2

46
46
46
3,600

46

45
44
5.9

45
10
3,200
1.8

-1.2

43
0 42
2,800

2,400 -10 40
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19

1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 10
 GULF OIL LUBRICANTS : COMPANY UPDATE

EBITDA EBITDA Margin

EBITDA (Rs mn) - LHS YoY Growth (%) - RHS
20 EBITDA margin (%)

800 60.0

51.0
43.3

19.2
In FY19, Gulf’s volumes were 50.0

35.3
38.5
18
benefitted from a one-off 600
40.0
government order

15.3
18.4
30.0

17.6
17.9

17.5
12.0

17.3

17.1
30.8

17.0
20.0

16.9
16

16.5
1.8
400

16.4
3.4
10.0

(0.7)

15.8
These orders have low

15.5
15.4
-
margins with negligible
200 (10.0) 14
contribution to EBITDA.

1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19

1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
Therefore, the reported
numbers (Realization, Gross,
EBITDA and PAT margin) are Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
under-stated to that extent

PAT PAT Margins

PAT (Rs mn) - LHS YoY Growth (%) - RHS
13 PAT margin (%)
59.1
600 60.0

12.5
12

12.2
50.0
38.0

11.9
500
28.9

40.0 11

11.1
11.1

11.1
30.0
17.2
17.0

10.8
10.7
400
13.0

20.0 10

10.3

10.1
10.1
7.0
6.8

(0.3)

10.0
0.0

9.7
300 9
-
0.2
-

200 (10.0) 8
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19

1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 11
 GULF OIL LUBRICANTS : COMPANY UPDATE

FY16 FY17 FY18 FY19P CAGR FY16-19

Volumes (Mn ltr)
Gulf’s industry leading volume Gulf 75.2 83.5 94.8 119.3 16.6%
growth is the key Castrol 195.2 199.4 205.7 212.4 2.9%
Revenue (Rs Mn)
outperformance driver vs.
Gulf 10,113 11,007 13,323 17,058 19.0%
Castrol. This is without
Castrol 33,452 33,969 36,292 39,537 5.7%
compromising on realization,
Realization (Rs Mn)
margin or mix.
Gulf 134.4 131.9 140.5 143.0 2.1%
Castrol 171.4 170.4 176.4 186.1 2.8%
Gross Profit (Rs Mn)
We believe, Gulf has
Gulf 4,604 5,064 6,346 7,675 18.6%
significant headroom for
Castrol 17,640 18,530 19,380 20,198 4.6%
growth from here-on
Gross Profit (%)
especially in the high margin
Gulf 45.5 46.0 47.6 45.0
automotive and bazaar
Castrol 52.7 54.5 53.4 51.1
segment.
Gross Profit (Rs/ltr)
Gulf 61.2 60.7 66.9 64.4
Castrol 90.4 92.9 94.2 95.1
Gulf has been gaining market EBITDA (Rs Mn)
share of between 60-100bps Gulf 1,592 1,783 2,357 2,831 21.2%
p.a. Castrol 9,593 10,075 10,440 10,795 4.0%
EBITDA Margin (%)
Gulf 15.7 16.2 17.7 16.6
Castrol 28.7 29.7 28.8 27.3
EBITDA (Rs/ltr)
Gulf 21.2 21.4 24.9 23.7
Castrol 49.1 50.5 50.8 50.8
APAT (Rs Mn)
Gulf 1,003 1,184 1,586 1,745 20.3%
Castrol 6,409 6,770 6,946 7,118 3.6%
APAT (%)
Gulf 9.9 10.8 11.9 10.2
Castrol 19.2 19.9 19.1 18.0
Source: Company, HDFC sec Inst Research

Page | 12
 GULF OIL LUBRICANTS : COMPANY UPDATE

Key Assumptions
The new plant in Chennai was Particulars FY15 FY16 FY17 FY18 FY19P FY20E FY21E
soft launched in Dec17 and Volumes (Mn KL) 53.1 75.2 83.5 94.8 119.3 125.8 137.1
became fully operational from Revenue (Rs Mn) 9,675 10,113 11,007 13,323 17,058 18,625 20,911
May18. Gross Profit (Rs Mn) 3,764 4,604 5,064 6,346 7,675 8,467 9,562
GP Margin (%) 38.9 45.5 46.0 47.6 45.0 45.5 45.7
It will contribute to volume EBITDA (Rs Mn) 1,294 1,592 1,783 2,357 2,831 3,082 3,574
growth in FY20/21E. The plant EBITDA Margin (%) 13.4 15.7 16.2 17.7 16.6 16.5 17.1
will help to reduce freight Realisation (Rs/KL) 182.2 134.4 131.9 140.5 143.0 148.1 152.5
Gross Profit (Rs/KL) 70.9 61.2 60.7 66.9 64.4 67.3 69.7
costs, as South India accounts
EBITDA (Rs/KL) 24.4 21.2 21.4 24.9 23.7 24.5 26.1
for ~30% of volumes
change YoY (%/bps)
Volumes (Mn KL) 41.7 10.9 13.6 25.8 5.5 9.0
Revenue (Rs Mn) 4.5 8.8 21.0 28.0 9.2 12.3
Gross Profit (Rs Mn) 22.3 10.0 25.3 20.9 10.3 12.9
GP Margin (bps) 663 48 163 (264) 47 26
EBITDA (Rs Mn) 23.0 12.0 32.2 20.1 8.9 16.0
EBITDA Margin (bps) 236 46 149 (110) (5) 54
Realisation (Rs/KL) (26.2) (1.9) 6.5 1.8 3.5 3.0
Gross Profit (Rs/KL) (13.6) (0.8) 10.3 (3.9) 4.6 3.6
EBITDA (Rs/KL) (13.2) 1.0 16.4 (4.6) 3.2 6.4

Peer Set Comparison

Mcap CMP TP EPS (Rs) P/E (x) RoE (%)
Company Reco.
(Rs bn) (Rs) (Rs) FY18 FY19P FY20E FY21E FY18 FY19P FY20E FY21E FY18 FY19P FY20E FY21E
Gulf Oil 41 829 BUY 1,052 31.9 35.0 39.4 47.8 26.0 23.7 21.0 17.3 38.6 33.1 30.4 30.7
Castrol # 125 126 NR* NA 7.0 7.2 7.5 7.8 18.0 17.6 16.7 16.1 69.1 64.8 60.8 56.3
Source: Company, HDFC sec Inst Research, # For Castrol FY is CY17, CY18, CY19 and CY20 respectively, *NR= Not Rated

Page | 13
 GULF OIL LUBRICANTS : COMPANY UPDATE

Consolidated Income Statement Consolidated Balance Sheet

Year ending March (Rs mn) FY17 FY18 FY19P FY20E FY21E Year ending March (Rs mn) FY17 FY18 FY19P FY20E FY21E
Net Sales 11,007 13,323 17,058 18,625 20,911 SOURCES OF FUNDS
Growth (%) 9.1 21.1 28.0 9.2 12.3 Sh Capital 99 99 100 100 100
Material Expenses 5,943 6,976 9,383 10,158 11,349 R&S 3,442 4,575 5,768 6,954 8,378
Employee Expenses 703 826 1,017 1,099 1,187 Shareholders Fund 3,541 4,674 5,867 7,053 8,478
Other Operating Expenses 2,578 3,163 3,827 4,287 4,801 Gross Debt (Short term) 2,094 2,481 2,831 2,406 2,045
EBIDTA 1,783 2,357 2,831 3,082 3,574 Other Non Current Liabilities 72 155 243 285 342
EBIDTA (%) 16.2 17.7 16.6 16.5 17.1 TOTAL LIABILITIES 5,707 7,309 8,942 9,745 10,865
EBIDTA Growth (%) 12.0 32.2 20.1 8.9 16.0 APPLICATION OF FUNDS
Depreciation 72 104 224 247 267 PPE 1,180 2,601 2,705 2,608 2,492
EBIT 1,711 2,253 2,607 2,835 3,307 CWIP 292 60 7 7 7
Other Income 215 261 295 304 313 Other Non Current assets 165 136 373 280 359
Interest 105 85 185 164 12 Non Current Assets 1,637 2,797 3,085 2,896 2,858
PBT 1,822 2,429 2,718 2,975 3,609 Inventories 1,499 2,368 3,388 2,920 3,422
Tax 637 843 973 1,012 1,227 Sundry Debtors 1,096 1,346 1,507 1,879 2,118
APAT 1,184 1,586 1,745 1,964 2,382 Other Current Assets 254 516 519 600 610
APAT Growth (%) 18.1 33.9 10.0 12.6 21.3 Current Assets 2,849 4,230 5,413 5,398 6,149
AEPS 23.9 31.9 35.0 39.4 47.8 Trade Payables 1,331 2,229 1,959 2,654 3,130
AEPS Growth (%) 18.1 33.9 9.8 12.6 21.3 Other Current Liabilities 344 751 523 516 651
Source: Company, HDFC sec Inst Research Current Liabilities 1,675 2,980 2,483 3,170 3,780
Net Current Assets 1,174 1,250 2,931 2,228 2,369
C&CE 2,896 3,262 2,926 4,621 5,638
TOTAL ASSETS 5,707 7,309 8,942 9,745 10,865
Source: Company, HDFC Sec Inst Research

Page | 14
 GULF OIL LUBRICANTS : COMPANY UPDATE

Consolidated Cash Flow Statement Key Ratios

Year ending March (Rs mn) FY17 FY18 FY19P FY20E FY21E FY17 FY18 FY19P FY20E FY21E
Reported PBT 1,822 2,429 2,718 2,975 3,609 PROFITABILITY (%)
Interest Expenses 105 85 185 164 12 GPM 46.0 47.6 45.0 45.5 45.7
Depreciation 72 104 224 247 267 EBITDA Margin 16.2 17.7 16.6 16.5 17.1
Working Capital Change (234) (76) (1,680) 702 (141) EBIT Margin 15.5 16.9 15.3 15.2 15.8
Tax Paid (637) (843) (973) (1,012) (1,227) APAT Margin 10.8 11.9 10.2 10.5 11.4
OPERATING CASH FLOW ( a ) 1,128 1,700 473 3,077 2,520 RoE 39.3 38.6 33.1 30.4 30.7
Capex (456) (1,294) (275) (150) (150) RoIC (Core ROCE) 44.9 42.9 33.3 33.6 42.2
Free Cash Flow 672 406 198 2,927 2,370 RoCE 24.5 25.2 22.9 22.2 23.2
Non current movements (35) 112 (148) 135 (22) EFFICIENCY
Tax Rate (%) 35.0 34.7 35.8 34.0 34.0
INVESTING CASH FLOW ( b ) (491) (1,182) (423) (15) (172)
Asset Turnover (x) 9.3 5.1 6.3 7.1 8.4
Debt Issuance / (Repaid) 142 386 350 (425) (361)
Inventory (days) 50 65 72 57 60
Interest Expenses (105) (85) (185) (164) (12)
Debtors (days) 36 37 32 37 37
FCFE 709 707 364 2,338 1,997
Other Current Assets (No of days) 8 14 11 12 11
Dividend (128) (453) (552) (778) (957)
Payables (days) 44 61 42 52 55
FINANCING CASH FLOW ( c ) (91) (152) (386) (1,367) (1,330)
Other CL & Provisions (No of days) 11 21 11 10 11
NET CASH FLOW (a+b+c) 545 366 (336) 1,695 1,018
Cash Conversion Cycle (days) 39 34 63 44 41
Closing Cash & Equivalents 2,896 3,262 2,926 4,621 5,638 Net Debt/EBITDA (x) (0.4) (0.3) (0.0) (0.7) (1.0)
Source: Company, HDFC sec Inst Research
Net D/E (0.2) (0.2) (0.0) (0.3) (0.4)
Interest Coverage 16.4 26.4 14.1 17.3 287.0
PER SHARE DATA (Rs)
EPS 23.9 31.9 35.0 39.4 47.8
CEPS 25.3 34.0 39.5 44.4 53.2
BV 71.3 94.0 117.8 141.6 170.2
DPS 8.5 10.5 11.5 13.0 16.0
VALUATION
P/E (x) 34.7 26.0 23.7 21.0 17.3
P/BV (x) 11.6 8.8 7.0 5.9 4.9
EV/EBITDA (x) 22.7 17.2 14.6 12.7 10.5
EV/Revenues (x) 3.7 3.0 2.4 2.1 1.8
OCF/EV (%) 2.8 4.2 1.1 7.9 6.7
FCFE/Mkt Cap (%) 1.7 1.7 0.9 5.7 4.8
FCF/EV (%) 1.7 1.0 0.5 7.5 6.3
Dividend Yield (%) 1.0 1.3 1.4 1.6 1.9
Source: Company, HDFC sec Inst Research

Page | 15
 GULF OIL LUBRICANTS : COMPANY UPDATE

RECOMMENDATION HISTORY
Date CMP Reco Target
Gulf Oil TP
9-Jul-18 861 BUY 1,028
1,100
9-Aug-18 872 BUY 1,027
1,050
10-Oct-18 723 BUY 886
1,000
13-Nov-18 785 BUY 946
950
9-Jan-19 831 BUY 963
900
14-Feb-19 888 BUY 1,037
850 10-Apr-19 875 BUY 1,041
800 16-May-19 830 BUY 1,052
750 10-Jul-19 830 BUY 1,052
700
650
600
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Apr-19
Sep-18

Feb-19

Jun-19
Jul-18

Jul-19
Mar-19
Dec-18
Oct-18
Aug-18

Nov-18

Jan-19

May-19

NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period

Page | 16
 GULF OIL LUBRICANTS : COMPANY UPDATE

Disclosure:
We, Himanshu Shah, CA, Aditya Makharia, CA & Mansi Lall, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views
about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or
indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have
beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities
Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

Disclaimer:
This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general
nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. Nothing in this document should be
construed as investment advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in securities of the companies
referred to in this document (including merits and risks) and should consult their own advisors to determine merits and risks of such investment. The information and opinions contained herein have been compiled
or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or
implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned
herein are not intended to be complete. HSL is not obliged to update this report for such changes. HSL has the right to make changes and modifications at any time.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or
other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement
within such jurisdiction.
If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to the attention of the sender. This document may not be
reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in any manner.
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition,
investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any
security.
This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation
to do business with HSL. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments.
HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report,
including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other
deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve
months.
HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or
co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor
Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any
compensation/benefits from the subject company or third party in connection with the Research Report.
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600
HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657; SEBI
Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN - U67120MH2000PLC152193
Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

Page | 17
 GULF OIL LUBRICANTS : COMPANY UPDATE

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

Page | 18