Castrol India - Enduring and widening moat - Motilal Oswal

A cash machine for shareholders; Buy for 17% upside

- Castrol India, a 71% subsidiary of British Petroleum Group (BP), is a leading lubricants player in India, with ~19% market share in the auto lube bazzar segment.

- Castrol provides a vehicle to invest in a company with multiple and rare moats, huge free cash flows, high governance standards and reasonable valuations.

- Its key focus area is the premium personal mobility automobile segment, which is relatively insulated from economic cycles, unlike the freight and OE market.

- Over CY01-11, Castrol has posted revenue and net profit CAGR of 10% and 16% respectively, while it has generated shareholder returns of 22% (adjusted for dividends).

- Given its predictable and stable FCFs, low re-investment requirements and consistent payout ratio, we believe DCF is the best way to value the company.

- We initiate coverage with a Buy rating and a target price of INR629, 17% upside.

Source : Equity Bulls

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