buy consistent and solid industry lubricants cmp rs 830 oil - update... · 2019-07-11 · players...

COMPANY UPDATE 10 JULY 2019

Gulf Oil Lubricants BUY

Consistent and solidOur recent meeting with the management of Gulf Oil reinforces our view about the company’s industry leading volume growth and superior execution. We expect Gulf to continue to deliver 3-4x industry volume growth and gain market share. Reiterate BUY; TP of Rs 1,052 @ 22x FY21E EPS.

INVESTMENT RATIONALE

Industry leading volume growth: In a structurally slow growth industry of ~3-4% p.a., Gulf has registered a healthy 12.4% CAGR growth over FY09-19. Albeit In recent past (FY16-19) the growth accentuated to 16%. PBT grew by a healthy 31%/21% over the respective period.

In sweet spot: Despite healthy growth, Gulf’s market share is a modest 6%, which provides enough opportunity for growth. Gulf is well positioned as it is gaining market share from (1) National oil companies (45-50% share) due to their inherent inefficiencies and (2) MNCs which have protracted decision making processes/ heightened focus on profitability. The market leader has reported flat volumes over the trailing decade.

Outlook: Gulf expects to deliver 12-18% volume growth in FY20 led by multiple initiatives. We remain conservative and have estimated 11/10% growth in FY20/21E (excluding for the one-off order in FY19).

Battery business – potential growth driver: Gulf has forayed in the battery segment in FY14. After enhancing the product quality, the management is now gearing up to scale up the batteries segment. They have created a separate team internally to scale this business. Gulf’s distribution strength is the key

rationale for its entry into this segment. Gulf has registered revenues of ~Rs 0.5bn in FY19 from this segment. It aims to scale this up to Rs 2.5-3bn over next 3-4 years with ~Rs 0.5bn EBITDA contribution (20% of current EBITDA).

Gulf is well poised to grow at 3-4x industry growth rate. The near term outlook remains mixed due to weak sentiments in the auto segment.

STANCE Over FY15-19, Gulf's volume/ revenue/EBITDA/PAT has grown by 17/19/21/20% vs. market leader Castrol's 3/6/4/4%. Gulf’s superior growth is led by increase in capacity (75 to 90mn KL p.a. in FY16 and 150mn KL in FY19), expansion in distribution reach by ~15% p.a. (~70k retailers vs. 150k for Castrol), and improving product and customer (B2C) mix.

We reiterate our Buy, as Gulf’s growth story is solid led by a focused management. We expect market-share gains to be driven by an expanding distribution network. Short-term weakness, if any should be an add-on opportunity. Consolidated Financial Summary (Rs mn) FY17 FY18 FY19P FY20E FY21E Net Sales 11,007 13,323 17,058 18,625 20,911 EBITDA 1,783 2,357 2,831 3,082 3,574 APAT 1,184 1,586 1,745 1,964 2,382 AEPS (Rs) 23.9 31.9 35.0 39.4 47.8 P/E (x) 34.7 26.0 23.7 21.0 17.3 EV / EBITDA (x) 22.7 17.2 14.6 12.7 10.5 RoE (%) 39.3 38.6 33.1 30.4 30.7 Source: Company, HDFC sec Inst Research

INDUSTRY LUBRICANTS CMP (as on 09 Jul 2019) Rs 830 Target Price Rs 1,052 Nifty 11,556 Sensex 38,731 KEY STOCK DATA Bloomberg GOLI IN No. of Shares (mn) 50 MCap (Rs bn) / ($ mn) 41/602 6m avg traded value (Rs mn) 24 STOCK PERFORMANCE (%) 52 Week high / low Rs 940/618 3M 6M 12M Absolute (%) (6.9) 10.0 (8.8) Relative (%) (11.3) 4.5 (14.5) SHAREHOLDING PATTERN (%) Dec-18 Mar-19 Promoters 72.7 72.7 FIs & Local MFs 6.0 5.6 FPIs 7.9 9.3 Public & Others 13.3 12.4 Pledged Shares* - - Source : BSE, * % of total

Himanshu Shah [email protected] +91-22-6171-7315 Aditya Makharia [email protected] +91-22-6171-7316 Mansi Lall [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

liters p.a. (~7.5% of world markets) India is the third largest market globally after the US and China. The market growth at ~3-4% is higher than the global average of ~1-2% primarily led by APAC.

The Indian lubricant market can be broadly classified into three segments: automotive, industrial and process/white oils. Gulf Oil is present in automotive and industrial oil segment.

Automotive Segment: Automotive lubricants dominate the market in India, with applications for Commercial Vehicles (CV), Passenger Vehicles (PV) and two-wheelers. Diesel Engine Oils (DEO) lead the automotive lubricant market as they form ~45% of the total market, followed by Motorcycle Oils (MCO) and Passenger Car Motor Oils (PCMO).

The demand for automotive lubricants is a direct function of vehicle movement on the roads, as well as growth of vehicle population and automobile sales.

Improving vehicle engine technologies coupled with superior products has been leading to an increase in drain intervals and is thus negative for the lubes industry. Customers though are willing to upgrade to branded products. Automotive segment has been growing at average 4-5% p.a. and is expected to continue in the foreseeable future.

Industrial segment: The industrial lubricant segment comprises of hydraulic fluids, metal working fluids, greases and industrial gear oil. These products are used in the construction, manufacturing, textile, power generation, mining, food processing, light-heavy engineering, marine operations and metal working sectors.

Demand for industrial lubricant depends on the Index of Industrial Production (IIP) and overall growth trends in the economy. The growth of industrial segment has been muted at 1-2% due to sluggish economic activity.

Infrastructure segment: The infrastructure segment can be classified separately as it leads the demand for both industrial and automotive lubricants through products finding application in both on-highway vehicles and off-highway construction equipment. Improving prospects of the infrastructure sector will benefit the domestic lubricant market.

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.

India is the third largest lubricant market globally after US and China and is growing ahead of ROW

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GULF OIL LUBRICANTS : COMPANY UPDATE

Overview of the lubricants industry

Source:Industry, Company discussion, HDFC Sec Inst Research

Gulf’s Go-to-market strategy

Source:Industry, Company discussion, HDFC Sec Inst Research

Gulf’s market share is modest ~6% in the automotive and industrial segment

Total Market 100%

Process Oils (~27-28%)

Auto (~43-44%)

Replacement (~38%)

Fuel station (~2%)

Factory workshop

(~8-9%)

Bazaar (~27-28%)

OEM factory fill (~5%)

Industrials (~28-29%)

GULF Lubricant

Domestic Exports

B2B Automotive Channel

Industrial (Direct industries, STUs, etc) Infra, Mining & Fleet (IMF)

~38-40%

OEM Distributor/FranchiseeWorkshop

Retailer/Mechanics/Workshops/Spare Parts

Consumer

~60-62%

2.7bn ltr industry (7.5-8% of world market)

Gulf’s market share is ~6% in Automotive + Industrial segment

Gulf’s market share in high margin B2C segment is ~7%

95-96% 3-4%

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Key market participants: India’s lubricant market constitutes over 20 organized 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.

Player-wise market share (%)

Source: Media articles, Industry and Company discussion, HDFC Sec Inst Research

Apar, Savita group, Panama group, Raj Oil etc are key players in the process/transformer/white oil market segment.

Gulf Oil – Surging ahead in a crowded market: In an industry that is clocking an annual volume growth rate of 1-2% globally and about 3-4% in India, Gulf’s growth rate is significantly ahead of the market. It’s pure play lubricant focus has led to its higher growth. Continuing to be one of the fastest growing lube companies, its volume has grown at an impressive 16% CAGR in the last three years.

Gulf vs Castrol: Volume growth trend

Source: Industry, Company discussion, HDFC Sec Inst Research

37 46

53

61

65

64

68 75

84 95

119

216

205 21

9

208

204

197

195

195

199 206 21

2

20

60

100

140

180

220

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Gulf CastrolMn Ltr

Gulf is now at second position along with Shell in market share in FY19 Gulf has significantly outperformed the market leader Castrol Gulf’s volumes have grown ~3x in trailing decade vs. flat volumes for Castrol

OMCs46%

Castrol11%

Shell6%

Gulf Oil6%

Valvoline5%

Veedol4%

Total4%

Others17%

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Key enablers of growth: Gulf witnessed an uninterrupted execution of a well-conceived business plan that encompassed steady expansion of market and distribution network, enhancement of manufacturing capacity and brand portfolio, intensification of customer relations in the institutional and OEM segment and a sharp and sustainable surge in brand and customer connect initiatives.

Gulf’s carefully selected segment-wise approach has strongly positioned their brands, products and services. It has fortified companies pure-play lubricant propositions. It has penetrated into new segments with strategic OEM tie-ups.

Key interventions that enabled to deliver superior growth

2007 New generation diesel engine oils with long drain intervals

2008 Focus on Motorcycle Oil 2008 to 2019

Chest branding partnership on T-shirts for Chennai Super Kings

2008 New vertical for Infrastructure, Mining and Fleet 2010 Special focus on industrial business 2011 OEM focus with dedicated team put in place 2011 Signs MS Dhoni as brand ambassador 2014 Tractors 2015 Scooter Oils 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

Gulf’s pure-play lubricants focus, investments in brand, distribution, capacity expansion, attracting talent from leading companies, efficiency in decision making, are the key driving factors for its industry leading performance

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Marketing initiatives

Source: Company, HDFC Sec Inst Research

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In the recent past, Gulf has been able to attract talent from the leading and competing peers; a feet it was unable to break-through a few years ago.

As a global brand, Gulf is ready to meet the requirements of BS VI emission norms. Their products have approvals from the leading global OEMs. Gulf’s plan to increase exposure to the B2B segment will enable them to benefit from any revival in the road construction, industrial & OEM activities. It also plans to ramp up retail presence in the next two years as well as continue brand initiatives to leverage global & India specific brand associations. We strongly believe Gulf can grow sustainably in future with innovative and people-driven customer-centric initiatives.

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

The difference is primarily on account of Gulf’s lower gross margin due to business mix and higher A&P spends. Gulf’s investment behind brands and promotion at 13-14% of revenue is 2x of Castrol. In our view, Gulf can easily expand its margin by 200-300bps; however it has chosen to grow 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.

There is a misconception of margins being lower in B2B/Industrial segment. However adjusted for the A&P spend in the B2C business; margins are broadly comparable.

A&P spend as % of Revenue: Castrol vs. Gulf

Source: Company, HDFC Sec Inst Research * Castrol CY14 is considered as FY15 and so on

With higher proportion of B2B sales (38-40% vs. ~25% for Castrol); Gulf’s effective marketing spend on B2C is higher. This too is strategically positive from business perspective, though margin dilutive in near term.

6.9 7.3

7.3

6.6

12.2

14.2

12.8

13.5

3

6

9

12

15

FY15 FY16 FY17 FY18

Castrol* Gulf

Gulf’s investment behind brands and promotion at 13-14% of revenue is 2x of Castrol Adjusted for higher proportion of B2B business, the A&P spend on B2C business would look even higher

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Increase in working capital – temporary!: Gulf’s working capital increased sharply owing to incremental raw material inventories at newly opened Chennai plant and also higher procurements due to favorable RM prices. We foresee this as a temporary phenomenon and expect the working capital to stabilize.

Further, Gulf’s working capital at ~35 days (FY19 63 days) vs. negative for Castrol offers it a significant opportunity to improvise on the same. We foresee this as a long term opportunity and could unleash cash besides boosting return ratios.

Net working capital (excluding C&CE)/Revenues

Source: Company, HDFC Sec Inst Research * Castrol CY14 is considered as FY15 and so on

Key risk: Slowdown in auto and industrial sector is a near term risk. Sharp increase in crude oil (and thus base oil) prices, rupee depreciation are other business risks.

Persistently gaining market share in a low volume growth industry may pose challenge in medium term and thus limit the scope of re-rating/multiple expansion.

Sharp rise in Electric vehicle may pose challenge to the lubricant industry. However, EV at this stage is a medium term threat due to higher costs of batteries, lack of infrastructure (charging stations etc). Nevertheless, the thrust of government on EVs is higher and thus may pose a challenge.

However, both Gulf and Castrol management have ruled it out as a threat atleast over the next decade. Castrol’s management in a recent interview pointed out that it expects the lubricants demand to peak over the next 20 years from now. https://www.dnaindia.com/automobile/report-ev-segment-will-not-dent-demand-for-lubricants-castrol-2744430

Further, Gulf derives less than 25% of its volumes from PCMO and MCO which is more likely to be impacted in the long term. DEO contributes ~45% of its volumes with the rest coming from industrials and others.

(4) (5) (4) 1

34 39

34

63

(8)

4

16

28

40

52

64 FY

16

FY17

FY18

FY19

Castrol Gulf OilRs mn.

Gulf’s working capital days are significantly higher vs. Castrol due to the difference in mix and stage of business In the longer run we expect this gap to moderate and it could unleash significant capital for Gulf

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https://www.dnaindia.com/automobile/report-ev-segment-will-not-dent-demand-for-lubricants-castrol-2744430




Gulf Oil - PE trend Castrol - PE trend

Source: HDFC Sec Inst Research Source: HDFC Sec Inst Research Castrol vs. Gulf - PE trend Castrol vs. Gulf – Price performance

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

10.0

20.0

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50.0

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9

P/E Mean

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Castrol Gulf

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17.0

22.0

27.0

32.0

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Castrol Gulf

Gulf Oil since its demerger from Gulf Oil Corporation has traded at avg 23x 1-yr forward PE vs. 29x for Castrol since 2010 Castrol’s PE has corrected to 18x due to its persistently low single digit volume/revenue and thus earnings growth

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Quarterly Volumes & Growth Trend Realization/KL

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Revenue: Steady Growth

Gross Margins: have been rangebound

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

30.2

8.7

3.1

3.4

(5.5

)

13.1

22.0

27.5

32.2

30.0

34.0

9.8

-10

0

10

20

30

40

18

21

24

27

30

33

36

1QFY

17

2QFY

17

3QFY

17

4QFY

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1QFY

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2QFY

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3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Volumes (Mn KL) - LHS % YoY - RHS

(9.1

)

(2.6

) 0.3

9.1

8.6

8.4

(2.2

)

5.4

(0.6

)

(3.1

)

6.4

-10

-5

0

5

10

120

125

130

135

140

145

150

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

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2QFY

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18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Realisation per KL (Rs) - LHS % YoY - RHS

18.3

5.9

1.8

10.2

-1.2

22.6

34.4 24

.6

39.4 29

.2

29.8

16.8

-10

0

10

20

30

40

2,400

2,800

3,200

3,600

4,000

4,400

4,800

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

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2QFY

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19

Net Revenues (Rs mn) - LHS YoY Growth (%) - RHS

46

46

45

47

47

49

48

46

46

45

43

46

40

42

44

46

48

50

1QFY

17

2QFY

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3QFY

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4QFY

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Gross margin (%)

Gulf continues to gain market share and is one of the fastest growing lubricants company Its volume growth is 3-4x industry growth in the B2C segment and even higher in the B2B segment

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EBITDA EBITDA Margin

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research PAT

PAT Margins

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

38.5

12

.0

(0.7

) 3.4 1.

8

43.3

51

.0

35.3

30.8

15.3

18.4

17.9

(10.0)

-

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200

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1QFY

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18

4QFY

18

1QFY

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

17.5

16.4

15.4

15.5

17.6

19.2

17.3

16.9

16.5

17.1

15.8

17.0

14

16

18

20

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EBITDA margin (%)

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0.2

0.0 6.

8 13.0

38.0

59.1

28.9

17.0

(0.3

)

17.2

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(10.0)

-

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30.0

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200

300

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1QFY

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4QFY

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1QFY

19

2QFY

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3QFY

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19

PAT (Rs mn) - LHS YoY Growth (%) - RHS

11.1

11.1

10.1

10.7

12.2

12.5

11.9

11.1

10.3

9.7

10.8

10.1

8

9

10

11

12

13

1QFY

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PAT margin (%)

In FY19, Gulf’s volumes were benefitted from a one-off government order These orders have low margins with negligible contribution to EBITDA. Therefore, the reported numbers (Realization, Gross, EBITDA and PAT margin) are under-stated to that extent

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FY16 FY17 FY18 FY19P CAGR FY16-19 Volumes (Mn ltr) Gulf 75.2 83.5 94.8 119.3 16.6% Castrol 195.2 199.4 205.7 212.4 2.9% Revenue (Rs Mn) Gulf 10,113 11,007 13,323 17,058 19.0% Castrol 33,452 33,969 36,292 39,537 5.7% Realization (Rs Mn) 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) Gulf 4,604 5,064 6,346 7,675 18.6% Castrol 17,640 18,530 19,380 20,198 4.6% Gross Profit (%) Gulf 45.5 46.0 47.6 45.0 Castrol 52.7 54.5 53.4 51.1 Gross Profit (Rs/ltr) Gulf 61.2 60.7 66.9 64.4 Castrol 90.4 92.9 94.2 95.1 EBITDA (Rs Mn) Gulf 1,592 1,783 2,357 2,831 21.2% 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

Gulf’s industry leading volume growth is the key outperformance driver vs. Castrol. This is without compromising on realization, margin or mix. We believe, Gulf has significant headroom for growth from here-on especially in the high margin automotive and bazaar segment. Gulf has been gaining market share of between 60-100bps p.a.

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Key Assumptions Particulars FY15 FY16 FY17 FY18 FY19P FY20E FY21E Volumes (Mn KL) 53.1 75.2 83.5 94.8 119.3 125.8 137.1 Revenue (Rs Mn) 9,675 10,113 11,007 13,323 17,058 18,625 20,911 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 EBITDA (Rs Mn) 1,294 1,592 1,783 2,357 2,831 3,082 3,574 EBITDA Margin (%) 13.4 15.7 16.2 17.7 16.6 16.5 17.1 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 EBITDA (Rs/KL) 24.4 21.2 21.4 24.9 23.7 24.5 26.1 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

Source: Company, HDFC sec Inst Research, # For Castrol FY is CY17, CY18, CY19 and CY20 respectively, *NR= Not Rated

Company Mcap (Rs bn)

CMP (Rs) Reco. TP

(Rs) EPS (Rs) P/E (x) RoE (%)

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

The new plant in Chennai was soft launched in Dec17 and became fully operational from May18. It will contribute to volume growth in FY20/21E. The plant will help to reduce freight costs, as South India accounts for ~30% of volumes

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Consolidated Income Statement Year ending March (Rs mn) FY17 FY18 FY19P FY20E FY21E Net Sales 11,007 13,323 17,058 18,625 20,911 Growth (%) 9.1 21.1 28.0 9.2 12.3 Material Expenses 5,943 6,976 9,383 10,158 11,349 Employee Expenses 703 826 1,017 1,099 1,187 Other Operating Expenses 2,578 3,163 3,827 4,287 4,801 EBIDTA 1,783 2,357 2,831 3,082 3,574 EBIDTA (%) 16.2 17.7 16.6 16.5 17.1 EBIDTA Growth (%) 12.0 32.2 20.1 8.9 16.0 Depreciation 72 104 224 247 267 EBIT 1,711 2,253 2,607 2,835 3,307 Other Income 215 261 295 304 313 Interest 105 85 185 164 12 PBT 1,822 2,429 2,718 2,975 3,609 Tax 637 843 973 1,012 1,227 APAT 1,184 1,586 1,745 1,964 2,382 APAT Growth (%) 18.1 33.9 10.0 12.6 21.3 AEPS 23.9 31.9 35.0 39.4 47.8 AEPS Growth (%) 18.1 33.9 9.8 12.6 21.3 Source: Company, HDFC sec Inst Research

Consolidated Balance Sheet Year ending March (Rs mn) FY17 FY18 FY19P FY20E FY21E SOURCES OF FUNDS Sh Capital 99 99 100 100 100 R&S 3,442 4,575 5,768 6,954 8,378 Shareholders Fund 3,541 4,674 5,867 7,053 8,478 Gross Debt (Short term) 2,094 2,481 2,831 2,406 2,045 Other Non Current Liabilities 72 155 243 285 342 TOTAL LIABILITIES 5,707 7,309 8,942 9,745 10,865 APPLICATION OF FUNDS PPE 1,180 2,601 2,705 2,608 2,492 CWIP 292 60 7 7 7 Other Non Current assets 165 136 373 280 359 Non Current Assets 1,637 2,797 3,085 2,896 2,858 Inventories 1,499 2,368 3,388 2,920 3,422 Sundry Debtors 1,096 1,346 1,507 1,879 2,118 Other Current Assets 254 516 519 600 610 Current Assets 2,849 4,230 5,413 5,398 6,149 Trade Payables 1,331 2,229 1,959 2,654 3,130 Other Current Liabilities 344 751 523 516 651 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

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Consolidated Cash Flow Statement Year ending March (Rs mn) FY17 FY18 FY19P FY20E FY21E Reported PBT 1,822 2,429 2,718 2,975 3,609 Interest Expenses 105 85 185 164 12 Depreciation 72 104 224 247 267 Working Capital Change (234) (76) (1,680) 702 (141) Tax Paid (637) (843) (973) (1,012) (1,227) OPERATING CASH FLOW ( a ) 1,128 1,700 473 3,077 2,520 Capex (456) (1,294) (275) (150) (150) Free Cash Flow 672 406 198 2,927 2,370 Non current movements (35) 112 (148) 135 (22) INVESTING CASH FLOW ( b ) (491) (1,182) (423) (15) (172) Debt Issuance / (Repaid) 142 386 350 (425) (361) Interest Expenses (105) (85) (185) (164) (12) FCFE 709 707 364 2,338 1,997 Dividend (128) (453) (552) (778) (957) FINANCING CASH FLOW ( c ) (91) (152) (386) (1,367) (1,330) NET CASH FLOW (a+b+c) 545 366 (336) 1,695 1,018 Closing Cash & Equivalents 2,896 3,262 2,926 4,621 5,638 Source: Company, HDFC sec Inst Research

Key Ratios

FY17 FY18 FY19P FY20E FY21E PROFITABILITY (%) GPM 46.0 47.6 45.0 45.5 45.7 EBITDA Margin 16.2 17.7 16.6 16.5 17.1 EBIT Margin 15.5 16.9 15.3 15.2 15.8 APAT Margin 10.8 11.9 10.2 10.5 11.4 RoE 39.3 38.6 33.1 30.4 30.7 RoIC (Core ROCE) 44.9 42.9 33.3 33.6 42.2 RoCE 24.5 25.2 22.9 22.2 23.2 EFFICIENCY Tax Rate (%) 35.0 34.7 35.8 34.0 34.0 Asset Turnover (x) 9.3 5.1 6.3 7.1 8.4 Inventory (days) 50 65 72 57 60 Debtors (days) 36 37 32 37 37 Other Current Assets (No of days) 8 14 11 12 11 Payables (days) 44 61 42 52 55 Other CL & Provisions (No of days) 11 21 11 10 11 Cash Conversion Cycle (days) 39 34 63 44 41 Net Debt/EBITDA (x) (0.4) (0.3) (0.0) (0.7) (1.0) 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

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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period 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

Date CMP Reco Target 9-Jul-18 861 BUY 1,028

9-Aug-18 872 BUY 1,027 10-Oct-18 723 BUY 886 13-Nov-18 785 BUY 946 9-Jan-19 831 BUY 963

14-Feb-19 888 BUY 1,037 10-Apr-19 875 BUY 1,041 16-May-19 830 BUY 1,052 10-Jul-19 830 BUY 1,052

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Gulf Oil TP

RECOMMENDATION HISTORY

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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. 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