Buy Castrol India; target of Rs 150: Sharekhan

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26 Aug, 2025 12:21

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Q4CY20 results lagged our expectations as revenue/adjusted operating profit at Rs. 935 crore/Rs. 274 crore, down 7.6%/19.6% y-o-y, missing our estimate by 9%/11%. The miss in operating performance was due to lower-than-expected OPM at 29.3% (down 438 bps y-o-y), volumes of 52 million litre (down 3.7% y-o-y) and weak realisations (down 4% y-o-y). However, gross margins improved by 172 bps y-o-y to 59.4%. However, the highlight was the strong operating cashflow of Rs. 893 crore (153% of CY20 reported PAT) due to strong working capital management and maintained DPS of Rs. 5.5 (payout of 93%). Alliance with Jio-BP retail network and focus on gaining market share bodes well for volume growth.

Attractive valuation of 13.5x CY22E EPS (close to decade-low valuations) despite strong cash positions, FCF/dividend yields of 6%/9% and RoE of ~56-60%. Hence, we recommend a Buy on Castrol with PT of Rs. 150.

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