Castrol India
BSE SENSEX
28,413
S&P CNX
8,743
16 September 2016
Update
| Sector:
Oil & Gas
CMP: INR440
TP: INR518(+18%)
Buy
Volume revival places Castrol on strong footing
Favorable mix change to help negate any adverse RM impact
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
CSTRL IN
494.6
513/360
7/5/-9
229.1
3.4
331
40.5
We met Castrol India’s (CSTRL) Managing Director, Mr Omer Dormen, and
Director Finance, Ms Rashmi Joshi. Over the last 6 months Castrol witnessed
7% volume growth as against -1.7% in CY05-15. We believe this is due to a
combination of overall market revival and CSTRL’s focus on profitable growth.
Our key takeaways:
Management focus on profitable volume growth
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.
Low base oil prices and favourable product mix change boosted margins
CSTRL has effectively used its brand power to negate volume decline in the
long term (by improving realization) and to boost margins in the last two
years (by retaining the benefit of fall in base oil price).
In the recent period of CY14-16, despite a sharp fall in crude/base oil prices
(~45%/25% respectively), CSTRL's realization declined by just ~2%, as it
retained the benefit of lower costs.
If the crude prices remain benign, this shift in sales mix should help further
improve margins. And in event of sharp oil price increase, the mix change
should help negate to the extent possible any adverse impact on margins.
CSTRL will continue to focus on personal mobility and power brands,
increase distribution network, launch new products and create new
categories. It recently launched a new category for mini trucks (Castrol
CRB
Mini-truck).
Financials Snapshot (INR b)
Y/E Dec
2015 2016E 2017E
Sales
33.0
34.6
37.8
EBITDA
9.3
10.6
11.4
NP
6.4
7.1
7.8
EPS (Rs)
12.8
14.3
15.7
EPS Gr (%)
33.8
11.2
10.0
BV/Sh (Rs)
11.6
13.0
14.6
P/E (x)
34.3
30.8
28.0
P/BV (x)
37.8
33.8
30.2
EV/EBITDA (x)
22.8
19.6
17.9
EV/Sales (x)
6.4
6.0
5.4
RoE (%)
118.4 115.8 113.9
RoCE (%)
118.5 116.0 114.0
Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
59.5
13.4
9.7
17.4
Mar-16
71.0
7.9
5.9
15.2
Jun-15
71.0
7.1
6.7
15.2
FII Includes depository receipts
Stock Performance (1-year)
Castrol India
Sensex - Rebased
510
470
430
390
350
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale
(Abhinil.Dahiwale@motilaloswal.com); +91 22 3980 4309
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.