Gulf Oil Corporation’s lubricants business was de-merged in April last year to form Gulf Oil Lubricants India. The new stock which listed in end-July has doubled since then. A few factors helped.

After a dismal two years, the auto industry — Gulf Oil Lubricants’ major customer — got back on the recovery path. Next, the rout of crude oil meant that base oil, the company’s key raw material, became cheaper. Also, compared with peers, the Gulf Oil Lubricants stock listed cheap and did some catching up. It helped that the company delivered on the ground.

In the nine months ended December 2014, revenue rose 14 per cent while profit grew a stronger 18 per cent, aided by good volume growth.

Despite the run up, the stock presents a good buying opportunity for investors with a long-term perspective. At ₹480, the stock trades at 32 times its annualised nine-month earnings until December 2014.

This is much lower than the 43 times market leader Castrol India trades at. Gulf Oil Lubricants, with its increasing market share and credible performance, should be able to narrow the valuation gap.

Almost three-fourths of Gulf Oil Lubricants’ revenue comes from the automotive segment with industrial lubricants making up the rest.

The slowdown in the auto industry and the economy resulted in the company’s healthy double-digit volume growth suffering in 2013 and 2014. This seems to be on the mend now.

With sales of both commercial and passenger vehicle sales picking pace and the economy expected to improve, Gulf Oil Lubricants’ volume growth should revert to double digits. In a fragmented automotive lubricants industry, the company through competitive pricing, product innovations, aggressive marketing and a wide distribution network improved its market share from under 4.5 per cent in 2007 to nearly 7 per cent in 2014.

With its volume growth continuing to be faster than that of the industry, market share gains should continue. This will be aided by the capacity expansion being undertaken at the Silvassa plant and the new plant being set up at auto hub Chennai.

Also, Gulf Oil Lubricants’ margins are expected get a leg-up with the decline in raw material cost. Coming after a lag of a few months to the fall in crude oil prices, the full benefit of lower base oil cost should be seen in the March quarter.

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