Edelweiss is bullish on Castrol India has recommended buy rating on the stock with a target price of Rs 239 in its research report dated May 04, 2018.
Edelweiss' research report on Castrol India
Castrol India’s (Castrol) Q1CY18 revenue, at INR9.3bn, was up 5% YoY driven by ~2.6% YoY volume growth. However, adjusted for a one-off large institutional (B2B) order in the base quarter, volume grew ~5% YoY. Castrol has hiked prices ~3-4% to cover base oil price rise, ahead of competition. We prune CY18/CY19E EPS 3%/4% as rising crude prices is likely to impact margin amidst Castrol’s focus on volume growth. Management expects imminent pricing actions by competition and Castrol raising its dealer margins to lead to higher-than-industry volume growth. Hence, maintain ‘BUY’ with TP of INR239 (30x CY19E EPS).
Price hikes precluded Castrol from surpassing industry’s volume growth and enhancing market share. However, imminent pricing actions by competitors and the company paying higher dealer margin are likely to lead to Castrol’s volume growing at above-industry rate in CY18. Further, led by Castrol’s shift in focus to volume growth, GST benefits and strong RoCE of ~150% over CY18‐19E, we maintain ‘BUY’ with TP of INR239 based on 30x CY19E EPS. At CMP, the stock trades at 23.1x CY19E EPS.
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