Buy Castrol India; target of Rs 135: Sharekhan

Sharekhan's research report on Castrol India

Q2CY22 PAT of Rs. 206 crore (down 10% q-o-q) missed estimates due to a slower-than-expected rise in volume/realisation and higher cost. PAT growth of 47% y-o-y was led by low base of Q2CY21 given the impact of COVID-19. Volume/blended realisations rose by 24%/12% y-o-y to 56 million litres/Rs. 222/litre was lower than our estimate; thus OPM of 23% also missed estimate by 119 bps and got further affected by 12% q-o-q rise in other expenses. Base oil price likely to rise by $100-150/tonne in Q3CY22 before seeing any signs of softness in Q4CY22. We thus expect margins to remain volatile. Parent company BP’s plan to invest 50 million pounds in R&D for EV batteries would provide Castrol a strategic edge in India’s transition toward EVs.

Outlook

We maintain Buy on Castrol India with an unchanged PT of Rs. 135. Valuation of 12x CY23E EPS is attractive and dividend yield of 4-5% and strong position lends comfort.

For all recommendations report, click here