PremiumMUMBAI: The March quarter results of Gulf Oil Lubricants India Ltd are decent to begin with. Revenues rose 44% year-on-year to Rs517 crore on the back of a 39% robust volume growth. They were 7% higher sequentially. The lubricant manufacturing and marketing firm has said it recorded its highest quarterly revenues, crossing the Rs500 crore mark. In fact, the March quarter show helped overall revenue performance for fiscal 2021, with growth at 1% year-on-year.
Although, it’s worth noting that revenues of peer Castrol India Ltd rose at a much faster clip, almost 66% year-on-year, during the March quarter.
Commenting on Gulf Oil Lubricants, analysts from YES Securities Ltd said in a report on 31 May, “Realization of pent‐up demand, after lock‐down was lifted, contributed to stronger sales in the half year ending March (2HFY21). This helped shore up FY21 volume at 115mn litres (+4% YoY), contrary to wider expectation of decline in annual sales in FY21."
For the March quarter, Gulf Oil’s earnings before interest, tax, depreciation and amortization (Ebitda) increased 41% year-on-year to Rs78 crore. Even so, Ebitda declined 6% from the December quarter due to a sharp increase in raw material costs. Note that Ebitda margin contracted 220 basis point sequentially. One basis point is one-hundredth of a percentage point. Ebitda margin contracted 30 basis points year-on-year.
Going ahead, analysts maintain that the company will likely outperform the industry. Although, the second covid wave may have an adverse impact from a near-term perspective.
“With sustained outperformance (4% volume growth in FY21 versus decline for industry), we anticipate continued growth in market share for Gulf Oil Lubricants. Consequently, we estimate revenue CAGR of 15% over FY21-23," said analysts from Edelweiss Securities Ltd. CAGR is the compound annual growth rate.
To be sure, shares of Gulf Oil are nearly 18% away from its pre-covid highs seen in January 2020. To that extent, valuations aren’t expensive. Based on YES Securities’ FY22 earnings per share estimates, the stock currently trades at around 15 times. Higher prices of base oil, a crucial raw material, remain a key risk for the company. In general, investors should note that the company is able to pass on sharp increases in input costs to customers with some time lag.
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