Comments
Emkay Global
Gulf Oil (Buy)
Target: ₹800
CMP: ₹577.7
We believe Gulf Oil's share price is adequately reflecting the upcoming, multi-decade EV transition; our Auto research team has modeled share of EVs in vehicle population (parc) at 10 per cent by FY30 and 41 per cent by FY40, with share of EV sales at 31 per cent/66 per cent in FY30/40.
Two-wheerler, three-wheeler and buses would see the fastest EV adoption followed by PVs and LCVs, while M&HCVs would see fairly muted impact over the next decade. We model Indian lube volumes to see a CAGR of nearly 2 per cent in FY21-30 and about 1 one per cent in FY30-40.
We shift to DCF-valuation from P/E, and reduce target price to ₹800 (September 2022) from ₹1,000 (March 2022). We expect GOLI to sustain volume growth at 2-3x of industry, and thus forecast volume CAGR of nearly 4 per cent over FY21-30, followed by a 2 per cent terminal FCFF growth post FY30.
With stabilising base oil prices, recent RSP hikes and volume recovery, EBITDA margin should return to 15 per cent+ by FY23, and RoICs to the earlier range of 40-45 per cent from FY24E. GOLI is valued attractively at FY23E/24E FCFF yield of 8 per cent/11 per cent and stock at a 5-year low (excl. Mar'20 Covid).
Key risk is capital allocation, even as we model a rising payout.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.