Motilal Oswal's research report on Castrol (India)
CSTRL delivered a beat across all fronts, led by higher than estimated volumes of ~61m liters (up 62% YoY and 17% QoQ) – aided by pent up demand in Jan-Feb’21. Commercial and 2W segment performed well during 1QCY21, while demand from agriculture sector remains robust (led by higher Tractor sales). However, the management has guided that such volume growth won’t be sustainable going forward. Realization stood in line with our estimate at INR186.7/liter due to price action taken by the company in Jan’21. It has further increased product prices in Apr’21 – in line with an increase in base oil prices. Impact from the second COVID-19 wave: The management said additional restrictions/lockdowns are resulting in a market slowdown in various parts of India, thus posing a challenge to its 2QCY21 volume outlook.
Outlook
On a one-year forward P/E basis, the stock trades at a discount of ~47% to its long-term P/E average of 27.1x. Maintain BUY.
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