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Gulf Oil Corp on a growth trajectory

December 30, 2007

Gulf Oil Corp (GOCL) is engaged in a blend of diverse business areas such as industrial explosives, lubricants, mining services and specialty chemicals, where almost 59% of revenues comes from lubricants. Strong organic growth is expected across segments driven by increased prices and robust economic growth. New mining policy will attract the investments in the sector benefiting the companies like GOCL. Government wants the contribution from mining sector to grow from current 2% of GDP to 5% of GDP in the next five years, which will boost the segmental revenues tremendously. Further, new mining contracts and venture into limestone mining will fuel growth.

GOCL planning to set-up an IT and ITES park at its Bangalore land and a knowledge city at its Hyderabad land with the investment of about Rs 10bn and Rs 8bn, respectively. These projects, when kick off, will unlock the shareholders’ wealth significantly. New product addition and venturing into new locations will provide a huge growth to its specialty chemicals business unit. The company expects the segment to be break even by FY09.

Using the Sum of the parts valuation [SOTP] approach, existing businesses are valued at Rs 162/share on EV/Sales multiple basis, while land bank at Rs 315/share. Religare initiates coverage with Buy with a target price of Rs 477.

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