Buy Castrol (India); target of Rs 170: Motilal Oswal

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Motilal Oswal's research report on Castrol (India)

Castrol (CSTRL)’s revenue grew 7% YoY to INR13.3b driven by 4% YoY growth in volumes and 4% YoY improvement in realizations. EBITDAM also improved marginally by 20bp YoY in 1QCY23. Volumes increased 4% YoY to 58m liters. Management highlighted that volumes were adversely impacted in 2HCY22 due to price hikes taken by the company to combat cost inflation. However, management expects volume recovery during 2HCY23 as inflation has moderated. Further, CSTRL does not expect any margin compression as it has adequate pricing power due to its strong brand. The company also constantly works on new formulations to reduce costs. The EBITDAM guidance stands at 23-26%. Management expects the Indian lubricant market to grow until 2040 driven by the car segment, which is expected to grow 20% over the next three to five years, due to low penetration of four-wheelers in India. CSTRL intends to grow at a faster rate than the overall lubricant market in each segment.

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 INR170.

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Castrol (India) - 02 -08 - 2023 - moti