Sharekhan's research report on Castrol India
Q1CY22 PAT of Rs. 228 crore, rose by 21% q-o-q and beat our estimates by 8% on strong margins and higher other income. Volumes stood at 59 million litres (up 14.6% q-o-q and above our estimate of 55 million litres); OPM improved 129 bps q-o-q to 25.7% and beat our estimate led by resilient gross margins of 50.2% (up 38 bps q-o-q despite elevated RM cost). The management guided for 24-27% EBITDA margin but hinted that base oil prices remain volatile with an upward trend and thus price hike (already taken price hike of Rs. 12-20/litre) remains key to margin improvement. We cut our CY22-CY23 earnings estimate to factor lower margin assumption.
Outlook
Recent under-performance of Castrol versus broader indices largely factors in margin concern and valuation of 11.7x/11x its CY22E/CY23E EPS is attractive. Strong cash balance of Rs. 1,600 crore, dividend yield of 5%, and RoE of ~50% provides comfort to investors. We thus retain a Buy on Castrol with a revised PT of Rs. 135.
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