[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. It will be removed from the site in the future.]

Gulf Oil Corporation Limited (BSE :506480, NSE:GULFOILCOR), a midcap Indian company belonging to International Hinduja Group (flagship company Ashok Leyland Ltd, BSE:500477), has been investing in research, new technology and product development.

On the strength of Gulf Oil International, of the same group, with global presence, and its own R&D effort, it developed the state of art products such as SUPERDUTY VLE 15W-40 oils for new generation turbocharged naturally aspirated engines, as per OEM requirements such as VOLVO VDS3, API –CL-4/CH-4, and SUPER DUTY 15W-40 oils for low emission diesel engines with approvals of OEMs such as VOLVO, MAN, DAIMLER, MERCEDES BENZ. It is one among the top five private players in Indian lubricant market.

With the acquisition of Houghton International Inc. of US, a global leader in metal working fluids with 12% world market share, presence in 75 countries, and manufacturing facilities in ten countries, Gulf Oil Corporation is likely to have synergies in manufacturing, sourcing and distribution, as well as the advantage of large international industrial customer base. It is poised to take advantage of the technology of Gulf Oil International as well as Houghton International Inc. to provide end to end solutions to lubricant needs of its growing customer base.

The Hinduja Group

The Hinduja Group is a diversified conglomerate of closely held international businesses, with interests in Automobiles( e.g. Ashok Leyland Ltd), banking and Finance(e.g. Hinduja Bank, Switzerland and IndusInd Bank Ltd), OIL & GAS(Gulf Oil Corporation and Galois International), International Trading, IT, Media, and many other sectors of business and significant charitable contributions, under the leadership of Chairman, Srichand Hinduja and his brothers Gopichand, Prakash and Ashok. It has become one of the largest diversified conglomerates in the world spanning every continent.

When Gulf Oil India Limited was merged with IDL Industries Ltd in 2002, the present company Gulf Oil Corporation came into existence, as a large Chemical Hub of Hinduja Group. It diversified into property Development business with a new division coming up in 2006. Specialty Chemical business was converted into a subsidiary in 2006.

Houghton International Inc., now controlled by Hinduja Group, is a global market leader in the formulation, research and development, production, and distribution of specialty process chemicals, oils, and lubricants for metal working markets worldwide. It produces heat treatment products, such as cold quenching oils, hot quenching oils, and aqueous quenching solutions; metal cleaners like spray cleaners; metal finishing products, such as etching, and sealing fluids, and metal forging chemicals, drawing products; Corrosion preventives; Chemical fluids for the non-ferrous sheet production and rod producing process fluids; specialty fluid additives; fire-resistant high performance power hydraulic fluids and engineered metal process fluids for steel making. In addition, the company offers comprehensive fluid management services for industry customers. Gulf Oil Corporation is likely to benefit from the technical expertise and global marketing network of Houghton International Inc.

Product Portfolio

Lubricants Division of Gulf Oil Corporation produces and markets lubricants and accessories and provides technical services in lubricants, greases, fluids, lube and auto accessories and car care products and also exports lubricants.  Industrial Explosives Division of the company is involved in production, marketing, selling and technical services in industrial explosives and detonator devices. It is the largest exporter of explosives from India.

The Mining and Infrastructure Services Division provides mining services in large scale coal, iron ore, and other mines. It also takes engineering contract work in the infra sector such as underground metro, highways, industrial high rise building structures.

Property development division undertakes large scale development of properties at Bengaluru and Hyderabad comprising SEZ, IT, Industrial Parks etc.

Financial Results

The company has continuously increased the revenue from operations and maintained the record of good dividend.

When we consider Profit before Tax, interest, depreciation and extraordinary items the improvement in profits from operations is clearly apparent, thus indicating earning growth in spite of recession.

Lubricants division has brought major share of revenue and profits.

The Lubricants Division recorded robust growth in revenues and volumes in Q4of Financial Year 2012-13. The gross turnover for the quarter increased to Rs. 2350 million; from Rs. 2130 million in the corresponding Q4 of the financial year2011-12, giving a growth of 10% in spite of recession hit cargo movement.

PBIT for the quarter was up by 13% to Rs. 260million compared to Rs. 230 million in the corresponding quarter of FY2011-12 on account of improvements done by the Division.

For the financial year ended 31st March’13, the Division clocked a higher turnover of Rs. 8430 million, as compared to Rs. 7560million of the year 2011-12 , a rise of 12% and PBIT for the year rose by 13% to Rs. 1060 million as compared to Rs. 940 million of the previous year.

This was achieved in spite of the overall subdued demand for lubricants in the national and international market, due to recession and lower goods movement. The Lubricants Division gained the growth momentum and recorded strong volume growth across geographies to remain ahead of its competitors in certain sectors.

Lubricants division of Gulf Oil Corporation competes successfully with the Lubes division of state owned giant, Indian Oil Corporation Ltd (BSE Code: 530965) and globally known Castrol India ltd (BSE Code: 500870) and many others.

In Q4 of FY13, the Division strengthened its position in the new generation low emission diesel engine oil segment by increasing sale by developing market for new product range – Gulf Super Fleet Turbo 15W-40, and other products launched earlier to meet the specific requirements of latest generation of commercial vehicles like TATA MOTORS, EICHER etc. The product range has received very positive response from consumers, trade and Oil specialists.

Explosives Division

The Explosives Division ( the business of detonators and initiators), achieved sales of Rs.220 Million in Q4 this fiscal, as compared to Rs. 210 million in the corresponding quarter of the previous year. The business had to be curtailed on account of delayed export shipments and power shortages in Hyderabad since July 2012. For the year the turnover was Rs. 780 million (Previous Year: Rs. 89o million) due to several mining sites being closed on account of regulatory issues. Some iron ore mines are being reopened during May-June 2013.

The development of new programmable detonators has resulted in orders from mining companies and successful field trials with others. The trials have proved the new detonators are capable of precision blasting, as well as eco-friendly on account of low noise and vibration with higher productivity.

Mining and Infrastructure Division (IDL Consult)

IDL Consult Division reported lower service income of Rs 100million in Q4 of 2012-13 as against Rs 160 million in 2011-12. Volumes have reduced for the year due to the closure of the iron ore and other mines in Orissa.

Property Development

In Bengaluru and Hyderabad, projects are progressing as per plan, in association with Hinduja Realty Ventures Limited, and Hinduja Estates P Ltd.

Investor Perspective
Current market price of Rupees 69 (52 week high 104 and low of 56), discounts EPS of 5.34, at 12.92 times, as compared to industry average PE of 21.8. Considering the improvements in Lubricants division and expected reopening of mining activity, and signs of bottoming out of recession, the share is a good to hold and buy during dips, around 65-66, for long term appreciation.

Risk factors:

The Company has proposed spinning out the Lubricants business into a separate company, which is likely to benefit investors. The impact of this spinout on marketing network appears to be minimum. Making use of synergies with Houghton International Inc., can work in favor of the demerged lubricant business. Never the less the market reaction to the spinout needs to be watched, if and when it materializes. Other risks are related to political turmoil in India, which have potential for market fluctuations.

(Sources: www.bseindia.com, press releases of Gulf Oil Corporation Ltd)