Sharekhan has given Buy recommendation for Castrol India with a target price of Rs. 150 in its research report issued on Apr 27, 2021
Sharekhan’s research report on Castrol India
Revenues/Operating profit at Rs. 1,139 crore/Rs. 340 crore, rising by 66%/97% y-o-y and sharply beating our estimates by 24%/46% led by a strong beat of 22% in sales volume at 61 million litres and a 447 bps in OPM at 29.9%. Volumes surged driven by growth across CV, two-wheeler, four-wheeler and industrial segments as demand was robust in January/February’ 21 and there was benefit of pent-up demand. Cost efficiency and price hikes in January led to better margin. Q2CY21 volumes to get impacted given lockdowns but may be better on y-o-y given low base of last year (full shutdown in Apr/May’20). Despite concern on near-term volumes, Castrol’s alliance with Jio-BP and Ki Mobility would aid volume growth & market share gain.
Valuation of 13.3x CY22E EPS is attractive (46% discount to historical level) despite decent earnings growth, FCF/dividend yield of 9%/6% and RoE of ~55-60%. We maintain Buy on Castrol with an unchanged PT of Rs. 150.