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Accumulate Castrol (India); target of Rs 134: Dolat Capital Market

CSTRL’s Q3CY20 volumes were above our estimates at 47 TKL. Realization was at Rs 187.9/L. Revenue increased by 4% YoY and 80% QoQ owing to agri demand and partial revival of pent up demand. However, there was slow demand pick up in the industrial segment and volume recovery was mainly seen from CV and 2W space. Gross spreads improved by 7.2% on a YoY basis and by 30.2% on a sequential basis. CIL is taking pricing actions as and when required and will take necessary steps to keep cost in control. Cost per litre declined by 13.7% on a sequential basis and by 9.1% YoY. Gross margins expanded to 60.1% and was the highest ever as base oil prices were slightly lower, but these levels will not sustain due to tightness in market and input cost will increase.
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 couple of quarters will be crucial for the long term stock outlook. Recommend Accumulate, with a target price of Rs 134, to trade at 15x CY22 EPS.
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