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    Buy Gulf Oil Lubricants, target price Rs 870: Emkay Global

    Synopsis

    The brokerage has built in a 14 per cent/10 per cent cut in EBITDA/ltr. It values Gulf Oil at 20 times FY22E EPS.

    buy sellThinkStock Photos
    Emkay Global has given a buy rating to Gulf Oil Lubricants India with a 12-month target price of Rs 870. The share price moved up by 0.10 per cent from its previous close of Rs 629.20. The stock’s last traded price is Rs 629.85.

    For FY20, Gulf Oil’s revenue/EBITDA/PAT was down 4 per cent/up 1 per cent/up 14 per cent at Rs 16.4/2.87/2.03 bilion (Rs 40.4/sh EPS). PAT was driven by the lower tax rate. EBITDA was largely flat due to a 7 per cent volume decline (110.5mn ltr), offset by 9 per cent EBITDA/ltr growth. Core volumes fell 2 per cent vs. 6-7 per cent for the industry. The board recommended the final dividend of Rs7/sh (total Rs14/sh, 35 per cent payout).

    Investment Rationale

    March-end usually sees major schemes and sale activities, but the Covid-19 lockdown has severely impacted volumes this time. The brokerage maintains 2-3 times industry guidance, though estimates pointed to double-digit industry decline in FY21. Lube is a semi essential. Base oil prices saw softness with crude, though weak rupee was an offset. The brokerage expects margin retention as things stabilize. Number of retail outlets increased to 78,000 (10 per cent year on year). New B2B-OEM tie ups are under works and cash position is healthy according to the brokerage.

    GulfOil-EmkayJune222020

    The brokerage says estimating FY21 volume is difficult due to the lack of clarity. However, it expects material recovery in FY22. The brokerage has also built in a 14 per cent/10 per cent cut in EBITDA/ltr. It values Gulf Oil at 20 times FY22E EPS.

    Key risks are adverse base oil prices-currency, competition, economic slowdown, delay in Covid-19 recovery and technological changes.

    Financials

    For the quarter ended March 31, 2020, the company reported standalone sales of Rs 359.68 crore, down -14.74 per cent from last quarter sales of Rs 421.86 crore and down -17.54 per cent from last year's same quarter sales of Rs 436.20 crore. The company reported net profit after tax of Rs 35.94 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 72.29 per cent stake in the company as of March 31, 2020, while FIIs held 11.96 per cent, DIIs 5.71 per cent and public and others 10.04 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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