Gulf Oil Lubricants' business looks very attractive; buy with a target price of Rs 550: Avinnash Gorakssakar

In a chat with ET Now, Avinnash Gorakssakar, Miintdirect.com, shares his wealth creation ideas.

ET Now: You are bullish on Gulf Oil Lubricants, run us through what factors do you think will board well for the company?

Avinnash Gorakssakar: Gulf Oil Lubricants is a branded play in the lubricant space and within the lubricant space, it definitely enjoys a very strong brand pull, has a very extensive kind of customer base both from the auto and non-auto segments. What is interesting is after the demerger, this will be the first full financial year where we will be seeing only numbers from the lubricant business and not from the property business which is now being hived off. So this business is very attractive with a ROE of almost 40%, return on capital of 25%. More importantly, with the kind of recovery we are seeing in the auto segments especially the commercial vehicles and passenger car segments, my sense is FY16 and 17 also will be very good. Clearly, the management had reiterated that both volume as well as price increase would come in and the fall in the crude prices is also going to act as a short-term margin lever for them. Our sense is that probably this year we could see an earnings of Rs 15-16 and which could possibly move up to something like Rs 24-25 by FY17. So earnings growth is going to be pretty strong, the equity base is also pretty small at around 10 crores and there is a strong management commitment to actually further enhance value to shareholders. So current price on declines is definitely a buying opportunity. We are looking at a target price of 550 here.