Castrol India Ltd. share price target

Impacted by demonetisation, Castrol India Ltd (CIL) reported muted numbers for Q4CY16, though they were slightly better than what we had anticipated. Net revenue de-grew by 1.1% YoY, while PAT growth stood at 10.7% (helped largely by higher other income). Led by lower material cost and moderation in ad spends, EBITDA margins expanded 126 bps YoY to 28.1%.

Results surprise positively: Volumes rose 2% YoY, while realizations fell 3%. Revenues declined 1% YoY to Rs7.8 bn (est. Rs7.23bn). Margins rose 126bps YoY to 28.1% on the back of a one-off benefit impacting gross margins. PAT rose 11% on the back of a property sale boosting other income. +23% For the year, the mobility segment saw double digit growth, offset by flat CV lubricant volumes. The industrial segment rose ~6-7% on the back of new customer additions. Profitable volume growth remains the focus for the management, with a favourable mix and emission norm changes to aid growth. We remain confident of Castrol's improving growth prospects, and believe Castrol remains an excellent defensive play. Castrol's RoEs of 110%+, margins of 28% and global brand strength remain unmatched....

Enhances Branding Strategy to Fight Stagnant Volumes: Castrol India Ltd (CIL) posted revenue of Rs. 7822 Mn in Q4CY16 up by 2.7% driven by volume growth of 2.0% QoQ and declined by 1.1% YoY due to reduction in average realization by ~ 3.0%. EBITDA for Q4CY16 has improved by 3.5% YoY due to some one-time benefit in their cost of raw materials and restructuring ofworkforce; however, margins remain contained at 28.1% level for both Q3CY16 and Q4CY16. PAT posted a substantial growth of 11.4%/10.7% in QoQ/YoY respectively, due to additional income from sale of property.

Castrol India reported its Q4CY16 numbers, which were largely in line with our estimates on the operational front. Reported revenues declined 1.1% YoY to | 782.2 crore (our estimate: | 808.6 crore) due to the impact of demonetisation during the quarter. Overall volumes...

Results impacted by monsoons & discounting: Revenues fell 3% (est. growth of 4%) to Rs8.2bn (vol. growth of 1%), due to selective promotion schemes affecting realizations. Heavy rainfall and floods (acc. to management) impacted sales to certain industrial/fleet customers (via supply disruptions), specifically...

Castrol to Expand Market Share Through Pricing Schemes: Trade discounts lead to lower realizations than expected: Castrol sales stood at Rs. 7617Mn in Q3CY16, 21.5% lower than Q2CY16 and 2.9% lower than Q3CY15. This can be attributed to the seasonality in the sales and selective price discounts that the company offered in July and also due to floods in certain regions,thus, taking a toll on volumes and realizations. However, YTD (Jan-Sep) CY16 sales volumes grew by 4.4% YoY at ~ 151 Mn Lt due to higher sales in the second quarteras compared to ~ 145 Mn Lt in YTD (Jan-Sep) CY15.

ICICI Securities Ltd | Retail Equity Research Castrol India reported its Q3CY16 numbers, which were below our estimates. The reported revenues declined 2.9% YoY to | 761.7 crore below our estimate of | 818.2 crore. Modest volume growth of ~1% YoY to ~45.8 million litre mainly contributed to the decline in the topline YoY with net realisation declining 3.8% YoY to ~| 165.7/litre EBITDA declined 1.4% YoY to | 212.9 crore below our estimate of | 234.8 crore due to lower gross margins of ~| 88.1 per litre in...

Leading automotive and industrial lubricant manufacturing company in India Castrol's strong brand position & superior distribution network allows it to command higher pricing power and premium for its products over its competitors in spite of decline in base oil prices. Castrol, which is the price maker in the Indian automotive lubricant market, will maintain stable realizations, going forward. With revival in industrial lubricants business in half-year ended June 2016, industrial...

Key takeaways : Over CY05-15, while Castrol’s realization improved at 11% CAGR, its volume declined by 1.7% CAGR. This we believe is led by (a) lengthening drain intervals, (b) not aggressively pursuing low margin OEM business and (c) tepid economic activity in recent years, impacting CV segment (45-50% of total volumes). Taking cognizance of the continued volume decline, Castrol management reset its focus on profitable volume growth in the last few quarters.The volume trend has reversed in the last six months – volumes grew 7% in 1HCY16. The growth has been broadbased, with continued high single-digit growth in the personal mobility segment and recovery in the CV segment.India’s economic indicators have improved and the economic recovery should feed turnaround in CV volumes. Seasonally, 2H is usually weaker than 1H, however, management expects volume growth to sustain year-on-year. Of CSTRL's total volumes, CVs contribute ~47%, personal mobility ~40% (v/s 10% a decade back), and industrials ~13%. With personal mobility continuing to grow at high single digits, revival in the CV cycle would help to sustain volume growth.

Valuation : Maintain Buy: Motilal Oswal assume volume growth at 6%/7% in CY16/CY17 and largely stable realizations. CSTRL’s >80% payout policy, RoE/RoCE of ~100% and FCF to PAT conversion at >80% reflects its superior balance sheet and high quality cash flows, which warrant higher valuation multiples, in our view. The stock is trading at 28x CY17E EPS of INR15.7.Their fair value estimate is INR518 (33x CY17E EPS; in line with last 3-year average), implying 18% upside. Maintain Buy

Castrol India (CSTRL), represents the Indian operations (59.5% stake owned indirectly by British Petroleum) of global lubricant leader Castrol. Castrol operates in the domestic B2C automotive lubricants industry (~89% of sales) where it has a ~20% market share, with remaining sales from industrial lubricants. Globally, the lubricant industry is fairly stable as gradual declines due to extended oil replacement intervals (led by better lubricants) are offset by strong realization growth. Key Investment Rationales: 1) While long term volumes of Castrol have been subdued (-1% CAGR over CY01-15) Castrol is likely to see improved growth on the back of a rising share of the faster growing personal mobility segment (PV,2W lubricants - now ~40% of volumes). Personal mobility holds stronger...