Financially Strong Stock to Buy Now for an Upside of 32%; Do You Own It?
Synopsis: A quarter marked by broad-based beats on revenue, margins and profit hasn’t changed the covering brokerage’s view the target price stays exactly where it was. The bet now rests on sustained volume share gains, disciplined pricing, and an early-stage EV charging business scaling into a meaningful growth lever over the next few years.
Some quarters don’t need a brokerage to say much more than “as expected, only better.” That’s roughly the story here: a company that beat estimates across revenue, EBITDA and profit, protected its margins through a bout of input cost inflation, and kept growing volumes at two to three times the pace of its own industry. None of that was enough to move the target price, but it didn’t need to; the brokerage’s existing thesis already had room for exactly this kind of quarter.
With a market capitalization of approximately ₹5,966 crore, the shares of Gulf Oil Lubricants India Limited were trading at ₹1,204, with a 52-week range of ₹1,331 to ₹864, and the stock trades at a P/E of approximately 15x.
Choice Institutional Equities: Target Held, Conviction Undented
Choice Institutional Equities has maintained its Buy rating on the stock with an unchanged target price of ₹1,525, implying an upside of approximately 32% from current levels, alongside a dividend yield of 4.4%.
Q1FY27 revenue came in at ₹1,320 crore, up 32.5% YoY and 26.9% QoQ, comfortably ahead of the brokerage’s own estimate of ₹1,101 crore. EBITDA rose 34.6% YoY to ₹170 crore, beating the estimate by 22%, with margin at 12.9%, up 20 basis points YoY against a forecast of 12.7%. Profit after tax grew 31.9% YoY to ₹128 crore, roughly 30% above what the brokerage had pencilled in, even as PAT margin contracted slightly to 9.7% on a year-on-year basis.
The brokerage attributed the strength to disciplined pricing power rather than a one-off multiple retail price hikes and formula-driven adjustments in business-to-business contracts helped offset a spike in base oil costs triggered by geopolitical disruption in West Asia, allowing the company to protect its per-litre profitability.
Volume growth of 17% YoY was the other pillar, driven partly by dealers and OEMs stocking up amid supply security concerns during the crisis. The company is now expanding across 12 of its 15 operating segments, and its growth rate of two to three times the broader lubricants industry’s 3-4% pace points to steady market share gains.
While the brokerage has maintained its estimates for FY28E, the revised FY27E estimate marks a reduction of around 3% on both EBITDA and EPS, mainly due to expected margin pressure from the cost situation in the short term. It is still valuing the stock on the discounted cash flow approach, and the unchanged target implies an enterprise value/EPS multiple of 12.6x/10.8x, for FY28E/FY29E, respectively.
Business Updates
Capacity expansion in progress for the company as well with plans to increase production capacity from 140,000 KL to 240,000 KL in FY27. Additional production facilities in Chennai will be operational by Q3 FY27, while Silvassa plant will be fully operational by Q4 FY27 to achieve the company’s target of doubling to tripling of industry growth.
In relation to the EVs segment, the firm has further strengthened its position in the EV value chain by increasing its holding in its charging technology unit from 51% to 65% within the last financial year via an investment of approximately ₹38 crore.
This business segment, which, according to the broker, can grow up to a size of ₹300-400 crore in terms of revenue and contribute about 10% to the top line over the next few years with an EBITDA margin of 12-14%, has a market share of 8-10% in the DC charger space in India and supplies chargers to various automotive as well as construction equipment companies.
Regarding margins, the management reaffirmed its guidance range of 12-14% EBITDA margin in the short term with an aim to attain 14-16% in the medium term once the benefits of operating leverage start coming through. The company has indicated that it is seriously considering acquisitions, with the help of strong balance sheet and cash surpluses over ₹1,000 crore, along with higher dividend payout ratio of 72%. As far as product line is concerned, the company has been working on the development of liquid cooling technology for data centers in collaboration with its international team.
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