Broker’s call: Gulf Oil (Buy)

Target: ₹650

CMP: ₹519.05

We attended Kline’s ‘Shining Bright’ conference on the Indian lube sector which saw participation by major players.

Key takeaways and our understanding of the sector: The Indian lube market should see 2 per cent volume CAGR in coming 10 years; value growth would be higher at 5-6 per cent; Industrial segment will play a larger role, and offer multiple opportunities and new-segment prospects; MCO would see EV impact (possibly 100 per cent by CY40), but PCMO should fare better; domestic base-oil capacity would improve in 3-4 years, with about 70 per cent availability vs about 30 per cent now; and usage of recycled oils should expand and become cost economical, thereby benefitting lube players.

Overall, our positive view on Gulf Oil Lubricants India is reaffirmed. Stock trades at undemanding PER of 8-9x FY24-25E EPS, with >20 per cent sustainable ROE/6-7 per cent div. yield. We reiterate BUY; TP: ₹650. Gulf Oil’s earnings outlook remains steady on strong volume CAGR (>2x of the industry’s), scale-up of AdBlue and gradual easing of input cost pressures.

Key risks: adverse base-oil prices/currency fluctuation; competition; technology-based changes.