Edelweiss' research report onCastrol India
Castrol India’s (Castrol) Q2CY17 revenue and volume fell 10% each while gross margin contracted 630bps YoY due to destocking (10% lower tax under GST), passing on of rebates, temporary surge in base oil price (up ~25% YoY) and dip in CVs post demonetisation. Management attributed 50% of the margin dip to GST and 30% to base oil price, both of which it envisages to recover. With volumes focus, management has guided for positive volume growth in FY18 and normalisation of margin in H2,
indicating 9-10% volume growth in H2CY17.
OutlookWe revise up target multiple to 30x (28x earlier), yet at ~20% discount to the consumer universe (with further scope for rerating), yielding TP of INR457.
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