Buy Castrol India; target of Rs 165: Sharekhan

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Sharekhan's research report on Castrol India

Q2CY23 PAT of Rs. 225 crore (up 7.4% y-o-y; up 3.1% q-o-q) was 3% below our estimate due to miss in margin and a higher tax rate, while volume beat the estimate. Lubricant sales volumes of 58 million litres (up 3.5% y-o-y; up 5.5% q-o-q) was 1% above our estimate but EBITDA margin of Rs. 53.4/litre lagged our expectations mainly due to a higher operating as gross margin was inline. CY23 volume growth expectation of 5-7% and guided to sustain EBITDA margins in the range of 23-27%. Base oil prices see a deflationary trend and expect stable prices in H2CY23. The focus is to grow in India’s automotive aftermarket and thus building an ecosystem.

Outlook

We maintain a Buy on Castrol with a revised PT of Rs. 165 (rollover of PE multiple to CY24E EPS) given inexpensive valuation of 14x CY24E EPS, healthy dividend yield of ~4-5% and strong cash position.

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Castrol India - 03 -08 - 2023 - khan