27 October 2016
Q3CY16 Results Update | Sector: Oil & Gas
Castrol India
Buy
BSE SENSEX
27,916
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
8,615
CSTRL IN
494.6
226.3 / 3.4
495 / 360
-1/6/-4
592
49.0
CMP: INR458
TP:INR529(+16%)
Earnings miss on lower-than-expected volumes, realization and margins
Castrol’s (CSTRL) 3QCY16 reported revenues at INR7.6b (est. of INR8.2b; -3%
YoY, -22% QoQ) were impacted by lower volume growth and realizations.
While volumes were up YoY, they were below estimate due to a dip in the
heavy duty (extended monsoon impact) and marine segments. Personal
mobility and power brands showed stable growth. Implied realizations were
also lower, and given that prices were not cut by the company, we believe it
would have given higher rebates.
Lower realizations and marginally higher RM costs impacted gross margin.
Hence, despite control on other expenses, EBITDA stood at INR2.1b (-1% YoY; -
33% QoQ), below estimate of INR2.5b. EBITDA margin stood at 27.7% (v/s
27.2% in 3QCY15 and 32.5% in 2QCY16).
Reported PAT stood at INR1.4b (-3% YoY, -33% QoQ).
The current quarter’s weak growth, in our view, can be primarily ascribed to
heavy and elongated monsoon, and expect volume growth trajectory to
resume in 4QCY16. We expect more clarity in the results concall.
Outlook:
Castrol’s strong 9MCY16 performance was driven by continued
strength in its personal mobility segment, power brands (double-digit growth)
and revival in CV segment. Future earnings growth will be contingent on
management’s ability to (a) increase the share of high-margin personal
mobility/power brands in the product mix and (b) introduce premium
synthetic products.
Valuations and view
CSTRL’s >80% payout policy, RoE/RoCE of ~100% and FCF to PAT conversion at
>80% reflect its superior balance sheet and high-quality cash flows, which
warrant higher valuation multiples, in our view.
Our CY16/CY17 earnings stand reduced by ~4%, led by marginally higher base
oil prices and lower realizations. Our fair value stands at INR529 (35x CY17),
implying 16% upside (18% including dividend). The stock trades at 30x CY18E
EPS of INR15.1. Maintain
Buy.
CY15
2Q
3Q
9,202 7,811
1.1
-2.3
6,474 5,684
2,728 2,127
45.1
22.7
29.6
27.2
94
94
2
1
186
181
2,818 2,213
973
781
34.5
35.3
1,845 1,432
1,845 1,432
43.7
21.5
20.0
18.3
CY16
2Q
3Q
9,679 7,589
5.2
-2.8
6,535 5,488
3,144 2,101
15.2
-1.2
32.5
27.7
149
107
7
10
202
183
3,190 2,167
1,121
778
35.1
35.9
2,069 1,389
2,069 1,389
12.1
-3.0
21.4
18.3
CY15
4QE
8,319
5.5
5,855
2,464
17.7
29.6
113
5
193
2,539
894
35.2
1,645
1,645
16.8
19.8
32,853
-2.8
24,032
8,821
24.4
26.8
390
8
781
9,204
3,357
36.5
5,847
5,847
22.2
17.8
CY16E
34,108
3.8
23,883
10,225
15.9
30.0
455
26
801
10,545
3,718
35.3
6,827
6,827
16.8
20.0
(INR Million)
CY16 Var (%)
3QE
8,157
-7%
4.4
5,581
-2%
2,576
-18%
21.1
31.6
115
-7%
5
100%
175
5%
2,631
-18%
926
-16%
35.2
1,705
-19%
1,705
-19%
19.1
20.9
Financials & Valuations (INR b)
Y/E Dec
2015 2016E 2017E
Sales
33.0
34.1
37.2
EBITDA
9.3
10.2
11.0
NP
6.4
6.8
7.5
EPS (Rs)
12.8
13.8
15.1
EPS Growth (%)
33.8
7.1
9.9
BV/Share (Rs)
11.6
13.0
14.4
P/E (x)
32.7
33.4
30.4
P/BV (x)
36.0
35.4
31.8
EV/EBITDA (x)
21.7
21.3
19.6
EV/Sales (x)
6.1
6.4
5.8
RoE (%)
118.4 111.7 110.3
RoCE (%)
118.5 112.0 110.4
Estimate change
TP change
Rating change
Quarterly Performance
Y/E December
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
YoY Change (%)
Margins (%)
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
1Q
7,958
-2.4
6,085
1,873
29.9
23.5
111
3
164
1,923
761
39.6
1,162
1,162
15.9
14.6
4Q
7,882
-7.9
5,789
2,093
2.8
26.6
91
2
250
2,250
842
37.4
1,408
1,408
6.7
17.9
1Q
8,521
7.1
6,005
2,516
34.3
29.5
86
4
223
2,649
925
34.9
1,724
1,724
48.4
20.2
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.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale
(Abhinil.Dahiwale@motilaloswal.com); +91 22 3980 4309

Castrol India
Exhibit 1: Operational performance: Volumes up ~1% YoY; realization declined -3.7% YoY
CY12
Volume (m litres)
Data in per litres:
Realisations
Raw material
Gross Margin
EBITDA Margin
149 150 156 156 156 159 161 169 167 171 175 178 173 171 172 171 170 171 166
87
61
30
88
62
30
94
62
26
90
67
34
88
68
34
86
73
35
91
69
33
99 100 98
70
35
67
30
73
35
99
77
38
99
79
42
87
86
41
83
89
51
84
88
47
81
90
45
78
92
50
74
97
56
78
88
46
(3.7))
(7.0)
(0.5)
(2.1)
(3.1)
5.9
(10.0)
(17.4)
53
57
46
49
50
CY13
54
45
48
49
CY14
53
46
48
46
CY15
54
45
46
50
56
46
CY16
YoY
0.9
QoQ
-19.1
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE
Source: Company, MOSL
Exhibit 2: Castrol’s volumes (m ltr) grew at 0.9% YoY (9MCY16 growth of 5%)
53
57
46
49
50
54
45
48
49
53
46
48
46
54
45
46
50
56
46
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
CY16
3QE
CY12
CY13
CY14
CY15
Source: Company, MOSL
Exhibit 3: Realizations declined along with increase in raw material costs resulted margin decline
Realisations
149
87
150
88
156
94
156
90
156
88
68
1Q
159
161
91
169
99
167
100
Gross Margin
171
175
178
Raw material
173
171
172
171
170
171
166
86
73
98
99
99
79
87
86
89
83
88
84
90
81
92
78
97
88
78
61
1Q
62
2Q
62
3Q
67
4Q
69
3Q
70
4Q
67
1Q
73
77
74
2Q
CY16
2Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
3QE
CY12
CY13
CY14
CY15
Source: Company, MOSL
Valuation and view
CSTRL’s >80% payout policy, RoE/RoCE of ~100% and FCF to PAT conversion at
>80% reflects its superior balance sheet and high quality cash flows, which
warrant higher valuation multiples, in our view.
Our CY16/CY17 earnings stand reduced by ~4% led by marginally higher base oil
prices and lower realizations. Our fair value stands at INR529 (35x CY17),
implying 16% upside (18% including dividend). The stock trades at 30x CY18E
EPS of INR15.1. Maintain
Buy.
27 October 2016
2

Castrol India
Story in charts
Exhibit 4: Castrol’s revenue growth declined in recent
years…
Revenue (INRb)
13
16
10
13
10
9
3 Yr CAGR (%)
(0.7)
Exhibit 5: …led by continuous decline in lubricant sales
volume…
Volumes (m litres)
(0.3) (0.6)
0.2
3 Yr CAGR (%)
0.7
3.2
4
4
2
2
3
(1.9)
(3.4)
(3.2) (2.1) (2.2)
20
23
24
28
30
31
32
34
33
34
37
219 213 203 217 209 204 197 196 191 201 215
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: …but was supported by increase in realizations
Realization (INR/ltr)
14
18
13
13
10
9
10
3 Yr CAGR (%)
9
7
Exhibit 7: Castrol’s PAT grew at 10% CAGR in the last 14
years
EBITDA (INRb)
PAT (INRb)
9.3
10.2
11.0
2
0
3.3
4.0
2.6
5.7
7.2
6.6
6.2
7.1
7.2
6.4
6.8
7.5
85
101 112 122 134 143 162 173 173 170 173
2.2
3.8
4.9
4.8
4.5
5.2
4.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 8: Though lower than previous highs return CY16
ratios expected to remain ~100%
RoE (%)
93
92
RoCE (%)
118 112
110
71
71
75
75
76
76
119 112
110
Exhibit 9: Castrol’s raw material (base oil) shows strong
correlation to crude oil prices as expected
Brent (INR/ltr)
81
50
19
62
27
55
19
64
23
33
38
89
Raw Material (INR/ltr)
99
91
84
77 80
40
38
21
17
19
78
52
49
58
76
56
82
82
Source: Company, MOSL
Source: Company, MOSL
27 October 2016
3

Castrol India
Financials and Valuations
Standalone - Income Statement
Y/E December
Net sales
Change (%)
Raw Materials
Gross Margin
Employees Cost
Other Expenses
Total Expenditure
EBITDA
Margin (%)
Depreciation
EBIT
Interest Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Income tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
CY12
31,209
4.3
18,243
12,966
1,284
5,453
24,979
6,229
20.0
266
5,963
21
722
6,663
0
6,663
2,189
32.9
4,474
4,474
-6.2
14.3
CY13
31,796
1.9
17,885
13,912
1,460
5,349
24,693
7,103
22.3
305
6,798
17
1,064
7,846
228
7,618
2,532
33.2
5,086
5,238
17.1
16.5
CY14
33,923
6.7
19,375
14,548
1,616
5,766
26,756
7,167
21.1
361
6,806
24
481
7,263
0
7,263
2,518
34.7
4,746
4,746
-9.4
14.0
CY15
32,980
-2.8
16,008
16,972
1,766
5,952
23,726
9,255
28.1
390
8,865
8
959
9,816
306
9,510
3,357
35.3
6,153
6,351
33.8
19.3
CY16E
34,083
3.3
15,504
18,579
1,801
6,578
23,883
10,200
29.9
455
9,745
26
801
10,520
0
10,520
3,718
35.3
6,802
6,802
7.1
20.0
(INR Million)
CY17E
37,198
9.1
17,255
19,943
1,981
6,993
26,229
10,969
29.5
514
10,455
8
1,006
11,453
0
11,453
3,974
34.7
7,479
7,479
9.9
20.1
CY18E
41,394
11.3
19,236
22,158
2,179
7,782
29,197
12,197
29.5
566
11,631
8
1,141
12,763
0
12,763
4,429
34.7
8,334
8,334
11.4
20.1
Standalone - Balance Sheet
Y/E December
Equity Share Capital
Total Reserves
Net Worth
Deferred Tax Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Deferred Tax assets
Appl. of Funds
E: MOSL Estimates
CY12
4,946
1,547
6,492
5
0
6,497
3,287
2,026
1,261
310
0
12,574
3,158
2,166
5,746
1,504
8,303
4,366
1,269
2,668
4,271
656
6,497
CY13
4,946
2,569
7,514
13
0
7,528
3,366
1,931
1,435
319
0
13,867
3,740
2,372
5,942
1,813
8,636
4,888
1,158
2,590
5,231
543
7,528
CY14
2,473
2,495
4,968
0
0
4,968
3,762
2,041
1,721
157
0
12,426
3,655
2,715
4,315
1,742
9,954
5,492
1,377
3,084
2,472
618
4,968
CY15
2,473
3,283
5,756
0
0
5,756
3,915
2,427
1,488
364
0
14,265
3,046
2,365
6,965
1,889
10,860
5,645
1,457
3,758
3,404
499
5,756
CY16E
2,473
3,945
6,418
0
0
6,418
4,355
2,882
1,474
200
0
17,950
3,043
2,444
10,589
1,875
13,705
5,235
1,505
6,965
4,245
499
6,418
(INR Million)
CY17E
2,473
4,673
7,146
0
0
7,146
4,815
3,395
1,420
100
0
20,188
3,342
2,667
12,133
2,046
15,061
5,749
1,643
7,669
5,127
499
7,146
CY18E
2,473
5,484
7,957
0
0
7,957
5,284
3,961
1,324
0
0
22,916
3,720
2,968
13,952
2,277
16,782
6,399
1,828
8,554
6,134
499
7,957
27 October 2016
4

Castrol India
Financials and Valuations
Ratios
Y/E December
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoIC
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Debt/Equity
CY12
9.0
9.6
13.1
7.0
89.9
CY13
10.6
11.2
15.2
7.0
79.6
CY14
9.6
10.3
10.0
7.5
92.7
47.7
44.4
45.6
6.5
31.0
1.6
76.0
504.4
76.2
6.8
39
25
59
0.0
CY15
12.8
13.6
11.6
9.0
87.1
35.7
33.6
39.4
6.7
23.7
2.0
118.4
-1,065.7
118.5
5.7
34
23
62
0.0
CY16E
13.8
14.7
13.0
10.3
90.3
33.3
31.2
35.3
6.3
21.2
2.3
111.7
-212.0
112.0
5.3
33
23
56
0.0
CY17E
15.1
16.2
14.4
11.3
90.3
30.3
28.3
31.7
5.8
19.5
2.5
110.3
-144.4
110.4
5.2
33
23
56
0.0
CY18E
16.9
18.0
16.1
12.6
90.3
27.2
25.5
28.5
5.1
17.4
2.8
110.4
-137.1
110.4
5.2
33
23
56
0.0
1.5
71.4
1,072.1
71.3
4.8
37
22
51
0.0
1.5
74.8
531.3
74.9
4.2
43
24
56
0.0
Standalone - Cash Flow Statement
Y/E December
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
Others
CF from Investments
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
CY12
6,663
266
-392
-2,165
223
4,596
76
4,672
-437
4,235
353
-84
-21
-3,709
-602
-4,332
256
5,490
5,746
CY13
7,618
305
-469
-2,548
-698
4,207
-243
3,965
-261
3,704
559
299
-16
-3,462
-588
-4,067
196
5,746
5,942
CY14
7,263
361
-297
-2,470
580
5,438
38
5,476
-504
4,972
366
-137
-23
-3,462
-3,482
-6,966
-1,628
5,942
4,315
CY15
9,510
390
-425
-3,277
1,128
7,326
74
7,400
-370
7,031
392
23
-10
-3,956
-805
-4,772
2,651
4,315
6,965
CY16E
10,520
455
-775
-3,718
2,783
9,265
0
9,265
-276
8,989
801
525
-26
-6,140
0
-6,166
3,624
6,965
10,589
(INR Million)
CY17E
11,453
514
-998
-3,974
663
7,657
0
7,657
-360
7,297
1,006
646
-8
-6,751
0
-6,759
1,544
10,589
12,133
CY18E
12,763
566
-1,132
-4,429
811
8,579
0
8,579
-369
8,209
1,141
771
-8
-7,523
0
-7,532
1,818
12,133
13,952
27 October 2016
5

Castrol India
Corporate profile
Company description
Exhibit 1: Sensex rebased
Castrol India (CSTRL), a ~59.4% subsidiary of BP, is a
leading lubricants player in India, with ~22% market
share of the domestic automotive lubricants
industry. It manufactures and markets a range of
automotive and industrial lubricants. It markets its
automotive lubricants under two brands - Castrol
and BP. The company enjoys leadership in most of
the segments it operates in, including tractor oils,
car engine oils, two-wheeler 4-stroke oils, and
multi-grade diesel engine oils.
Exhibit 2: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
Others
51.0
17.5
12.3
19.2
Jun-16
59.5
13.4
9.7
17.4
Sep-15
71.0
7.3
6.5
15.1
Source: Capitaline
Source: MOSL/Bloomberg
Exhibit 3: Top holders
Holder Name
Life Insurance Corpoartion of india
ICICI prudential balanced advantage fund
Reliance Capital Trustee Co. Ltd A/c Relaince
Equity Opportunties Fund
Birla Sun Life Trustee Company Private
Limited A/c Birla Sun Life Frontline Equity
Fund
Aberdeen Global Indian Equity Limited
% Holding
5.7
3.3
2.2
1.4
1.2
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
S M Datta
Omer Dormen
Rashmi Joshi
Designation
Chairman
Managing Director
Director (Finance)
Exhibit 5: Directors
Name
R Gopalakrishnan
Peter Wiedner
Sashi Mukundan
Name
Uday Khanna
Ralph Hewins
Jayanta Chatterjee
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Kishore Bhatia & Co
S R Batliboi & Co LLP
Type
Cost Auditor
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
CY16
CY17
MOSL
forecast
13.8
15.1
Consensus
forecast
13.8
15.0
Variation
(%)
0.3
0.3
Source: Bloomberg
Source: Capitaline
27 October 2016
6

Disclosures
Castrol India
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Served as an officer, director or employee
CASTROL INDIA
No
No
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