Buy Castrol India; target of Rs 140: Sharekhan

Sharekhan's research report on Castrol India

Q1CY23 PAT of Rs. 203 crore (down 11.3% y-o-y; up 4.7% q-o-q) was 12% below our estimate due to miss in margin, lower other income and higher tax rate while volume were inline. Lubricant sales volume of 55 million litres (down 6.8% y-o-y; up 14.6% q-o-q) was broadly in-line our estimate but EBITDA margin of Rs. 53.6/litre was below our expectations due to a sharp rise in opex while gross margins remained stable q-o-q. The management maintained its guidance of growing at a few percentage points above lube industry growth outlook of ~3-5% and maintain EBITDA margins in the range of 23-25%. The focus is to grow in India’s automotive aftermarket and thus building eco system, which would get support from recent investment in Ki Mobility Solutions.

Outlook

We maintain Buy on Castrol India with an unchanged PT of Rs. 140 given inexpensive valuation of 12.5x/11.2 CY23E/CY24E EPS, healthy dividend yield of ~5-6% and strong cash position.

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