Result Update: Castrol India Ltd - BUY - TP Rs.213 - Kotak

Revenue growth was supported by volume growth across categories and price hikes undertaken to combat higher raw material cost. Adjusting for one-time volume growth in Q1CY17, the overall volume growth is ~5% yoy in Q1CY18.

Key Highlights

- Castrol's performance is in-line with our expectation. Despite the sharp rise in input costs, it has reported profitable volume growth in Q1CY18.

- Along with personal mobility segment and it has also started focusing on commercial segment (CRB brand commands strong consumer loyalty) by broadening its participation.

- New launches to boost volumes: Launched Castrol MAGNATEC engine oil with DUALOCK technology in the passenger car segment which provides 50% better engine protection in congested city driving conditions. In the commercial vehicle segment, Castrol CRB Turbomax with DuraShieldTM boosters was launched which delivers up to two times longer engine life.

- Despite a 7% yoy increase in raw material cost and 7% yoy increase in other expenses, CIL has reported a PAT growth of 2% yoy basis to Rs.1.82 bn (vs our expectation of Rs.1.86 bn) supported by both higher sales volume (2.6% yoy)/better realization (2.4% yoy), and higher other income. Overall revenue increased by 5% yoy to Rs. 9.3 bn driven by volume growth across categories. Operating margin declined marginally by 30 bps to 29.6% in Q1CY18.

Valuation & outlook

- We expect CIL to report an EPS of Rs.7.4 (earlier Rs.7.6) for CY2018 and an EPS of Rs.7.9 for CY2019. On the basis of our estimates, the stock at CMP is attractively valued at 14.3x EV/EBIDTA, 23.3x P/E and 15.1x P/BV on the basis of CY19E earnings. Based on our valuation multiples model, the target price of Castrol is Rs.213/share (earlier Rs.220) and we maintain BUY rating on the stock. We value the stock at 27x CY19E EPS. CIL is focusing on new customer acquisition, and distribution expansion to boost Castrol's volume growth. New product launches with also boost lubricant sales.

Shares of CASTROL INDIA LTD. was last trading in BSE at Rs.182 as compared to the previous close of Rs. 184.5. The total number of shares traded during the day was 172813 in over 2717 trades.

The stock hit an intraday high of Rs. 186.8 and intraday low of 180.9. The net turnover during the day was Rs. 31488021.

Source : Equity Bulls

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