Motilal Oswal's research report on Castrol (India)
Castrol India (CSTRL) missed our estimates, weighed by lower-than-expected sales volumes and realization. Volumes stood at ~52m liters (-4% YoY; +11% QoQ), with realization at ~INR180/lit (-4% YoY/QoQ). This was attributable to corrective price action in commercial vehicles segment – in line with the competition. The board recommended final dividend of INR3/share (resulting in full-year dividend of INR5.5/share, similar to CY19 levels); this translated to a dividend payout of ~93% (dividend yield at 4.2%) in CY20. CSTRL reiterated that it would continue to focus on the Personal Mobility segment on the back of a) a better product mix, b) cost optimization initiatives, and c) necessary pricing actions to maintain lucrative margins. The company has announced a price hike (~4% on average) in Jan’21 due to cost pressures on account of an increase in base oil prices. .
Outlook
We value the stock at 20x CY22E EPS to arrive at Target Price of INR170.
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