Buy Castrol (India); target of Rs 160: Motilal Oswal

Motilal Oswal's research report on Castrol (India)

Castrol (CSTRL)’s revenue grew 6% YoY to INR11.8b, driven by 9% YoY growth in volumes, although realization declined 3% YoY. Volatility in crude oil, inflationary pressures, and global uncertainties still exist. EBITDAM declined 20bp YoY to 22.7%, led by additive prices being 15-20% higher than in 3QCY22. Base oil prices are expected to rise in the next three to six months. Volume stood at 51m, down sequentially due to seasonality, with the decline attributed to the weakened demand in Agriculture during the monsoon season. Management highlighted that volumes from the PV segment stood at 40%, CV at 35%, and industrial volumes at 15%. The management remains optimistic about sustaining growth in 4QCY23.  CSTRL is actively working toward thermal solutions for EV batteries, with existing fluids designed for EVs already in its portfolio. Last year, BP (parent of CSTRL) announced a global investment of EUR50m in thermal management of batteries, underscoring the company’s keen interest in this field.

Outlook

CSTRL has always enjoyed its brand legacy, and we believe it will be able to secure its profitability with a better product mix, cost control, and the launch of advanced products with better realization. We reiterate our BUY rating on the stock with a TP of INR160.