Accumulate Castrol (India); target of Rs 131: Dolat Capital

Dolat Capital's research report on Castrol (India)

Results were below our estimates on revenue front and profitability front. CSTRL’s Q1CY20 volumes were below our estimates at 37.6 TKL. Realization was at Rs 183/L. Revenue decreased 29.5% YoY and 32% sequentially due to sales lost in second half of March in the personal mobility segment and loss of sales from distributors end, as most of the schemes for distributors close in March end. Bazaar segment contributes 75-80% of the revenues. Gross spreads decreased by 3.4% on a sequential basis. We expect spreads to remain stable/expand going forward, as CIL has already taken price hike in Sep’19 and another pricing action in Dec’20. Cost per litre was flat on a sequential basis and declined by 13.3% YoY due to strategic sourcing of raw material.

Outlook

CIL has been continuously working on protecting margins with sustainable growth. Given the under performance of the stock price for a prolonged period, CSTRL business performance in the next two quarters will be crucial for the long term stock outlook. Recommend Accumulate, with a target price of Rs 131, to trade at 15x CY21 EPS.

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