Gulf Oil Lubricants (Visit Note) : Firing on all cylinders :: HDFC Securities

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Volume focus to aid market share expansion
 The lubricant industry is likely to benefit from the
revival in GDP growth (as per GOL’s management,
lube volumes grow 0.5x GDP). GOL is confident that it
will continue to outpace industry volume growth by
2x. Continuous advertisement and brand building
efforts (A&P 6-7% of sales) coupled with product
innovations have helped GOL post 8.4% volume CAGR
over the trailing four years in an adverse macro
environment.
 Unlike Castrol, GOL is focused on volume growth and
market share. Driven by product innovations and
brand building efforts, it has upped market share
from 4.4% in FY07 to 6.9% in FY14 in the Bazaar
(retail) segment, making it the third largest private
lubricant player in India after Castrol and Tide Water
(Veedol).
Base oil prices provides margin lever
 GOL directly benefits from the collapse in crude
prices (down ~40% YoY). Base oil prices (~63% of
COGS) are expected to witness a significant decline.
They have softened by 15% in the last month and
may correct even more. The benefit of lower RM
prices will completely reflect by 4QFY15.
 Ceteris paribus, for a 1% decline in base oil prices,
GOL’s margins will increase by 36bps. GOL is unlikely
to pass on the complete benefit to consumers. We
envisage an upside risk to our FY16E earnings
estimates.
LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010273