1
May 7, 2018
Castrol India Ltd
Materials-Chemicals-Specialty Chemicals
Castrol India Ltd
India Research - Stock Broking
BUY
Bloomberg Code: CSTRL IN
Recommendation (Rs.)
CMP (as on May 04, 2018) 185
Target Price 235
Previous Target Price 233
Upside (%) 27
Stock Information
Mkt Cap (Rs.mn/US$ mn) 182641/2767
52-wk High/Low (Rs.) 226/172
3M Avg. daily value (Rs. mn)
354.2
Beta (x) 0.8
Sensex/Nifty 34914/10618
O/S Shares(mn) 989
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 51.0
FIIs 10.6
DIIs 17.9
Others 20.5
Stock Performance (%)
1M 3M 6M 12M
Absolute (11) 3 (11) (15)
Relative to Sensex (16) 3 (14) (27)
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Vivek Ranjan Misra
040 - 3321 6296
vivekr.misra@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Dec (Rs. Mn) CY15 CY16 CY17 CY18E CY19E
Net Sales 32980 33703 35843 37889 39744
EBITDA 8949 9994 10330 10708 11505
EBITDA Margin (%) 27.1 29.7 28.8 28.3 28.9
Net Prot 6152 6703 6918 7220 7760
EPS (Rs.) 6.2 6.8 7.0 7.3 7.8
RoE (%) 114.7 114.4 85.6 69.4 72.9
PE (x) 29.7 27.2 26.4 25.3 23.5
Source: Company, Karvy Research;
Operating Efficiency Contributes to Earnings Growth
Castrol reported revenue of Rs. 9271 Mn during Q1CY18, up by 5.1% YoY driven
by realization growth of 2.4% and volume growth of 2.6% clocking 51.5 Mn Lt
which is in line with our estimates.
EBITDA margins reported above 29.0% driven
by premiumization because of which EBITDA/Lt has improved to Rs. 53.3 during
Q1CY18 as compared to Rs. 52.5 during Q1CY17 despite an increase in Cost/Lt by
3.6% at Rs. 83.4. In addition to a price hike during the quarter, employee costs have
been restructured. Therefore, we are positive on the stock performance owing to
operating eciency and better product-mix which makes it more of a value-led.
Product innovation to help retain market share: Besides focusing on the
personal mobility segment, Castrol has launched two new products to cater to the
commercial vehicle segment in the new generation technology (BS VI compliant).
Therefore, these launches are expected to boost lubricant sales in the CV space
which has been a primary concern due to lower oil consumption per vehicle.
New OEM contracts to increase revenue visibility: Castrol has signed a
3-year contract with FORD India to supply engine and transmission oils for all
FORD vehicles produced in India for domestic and international markets.
Valuation and Risks
The main downside risks are rising potential base oil prices and potential
depreciating rupee which is likely to be passed on to the customers through
periodic price hikes. However, the auto industry sets a lucrative environment for
Castrol to grow as the passenger vehicle segment grew at 7.9% and commercial
vehicle segment reported a growth of 19.9% YoY during FY18. We expect that the
economic buoyancy will help sustain these growth levels. In addition to that, new
product launches and technological upgradation for BS-VI vehicles in 2020 coupled
with brand building can be considered as the future growth drivers. The company
has spent ~3% of the revenue for branding during Q1CY18.
We are optimistic on the business strength of Castrol based on its brand credibility
and maintain our estimates on the upper side. Besides that, high asset turnover ratio
at 18.5x, cash reserves at 40.0% of the total assets and healthy dividend payout
indicate the operational strengths of the rm. Therefore, we value the company
based on 5-year average 1-yr P/E of 30.0x for CY19E EPS of Rs. 7.8 for a target
price of Rs. 235 having an upside of 27%.
Earnings Revision (%)
YE Dec CY18E CY19E
Sales (%) 1.2 2.2
EBITDA (%) 0.2 3.5
PAT (%) 0.2 3.6
Source: Karvy Research
L
L
L
L
Company Update
70
90
110
130
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov
-17
Dec-17
Jan-18
Feb-18
Mar -18
Apr-18
Castrol India Ltd
Sensex
L L
2
May 7, 2018
Castrol India Ltd
Key takeaways from quarterly earnings
Price hikes at the range of 2-4% have been taken during the quarter.
Brand building exercises to promote new launches comprises ~3.0% of the revenue
during Q1CY18.
Reported volume of 51.5 Mn Lt during Q1CY18 driven by the personal mobility
space while the commercial vehicle segment was at and industrial segment
declined.
In the industrial space, the company has exited from certain businesses because of
which there was a decline in that segment.
Power brands contribute more than 50.0% of the volume leading to higher
realizations.
Employee costs have reduced in Q1CY18 at 5.4% to sales and are expected to be
maintained at these levels.
Volumes for Q1CY18
reported 51.5 Mn Lt as
compared to our estimates
of 51 Mn Lt.
Castrol holds a market
share of 21.0%
Exhibit 2: Q1CY18
YE Dec (Rs. Mn) Q1CY18 Q4CY17 QoQ % Q1CY17 YoY %
Turnover 9271 9703 (4.5) 8822 5.1
Expenditure 6528 6637 (1.6) 6189 5.5
EBITDA 2743 3066 (10.5) 2633 4.2
Depreciation 143 103 38.8 123 16.3
Interest 7 6 16.7 3 133.3
Other Income 228 164 39.0 185 23.2
PBT 2821 3121 (9.6) 2692 4.8
Ta x 1003 1154 (13.1) 902 11.2
PAT 1818 1967 (7.6) 1790 1.6
EBITDA Margin (%) 29.6 31.6 (201) 29.8 (26)
EBIT Margin (%) 28.0 30.5 (249) 28.5 (41)
Net Prot Margin (%) 19.6 20.3 (66) 20.3 (68)
Source: Company, Karvy Research
Exhibit 3: Karvy Estimate Analysis for Q1CY18
Item (Rs Mn) Actual Consensus Karvy Estimate
Variation %
Karvy Estimate Consensus
Net sales 9271 9521 9089 2.0 (2.6)
EBITDA 2743 2710 2736 0.3 1.2
EBITDA Margin (%) 29.6 28.5 30.1 (51) bps 112 bps
EPS (Rs.) 1.8 1.9 1.9 (3.7) (3.3)
Source: Company, Karvy Research
3
May 7, 2018
Castrol India Ltd
Exhibit 4: Distribution mix
Source: Company, Karvy Research
Exhibit 5: Segment mix
Source: Company, Karvy Research
Bazaar
75.0%
OEMs
10.0%
Heavy Duty
15.0%
Exhibit 6: Volume Estimation
Source: Company, Karvy Research
Exhibit 7: Personal mobility & Commercial Vehicle growth
Source: SIAM, Karvy Research
CY08
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
2W (%)
Cars (%)
CV (%)
PMO
43.0%
CV
43.0%
Industrial
14.0%
Exhibit 8: Quarterly Volume and Realization Trend
Source: Company, Karvy Research
Exhibit 9: Operating metric per litre
Source: Company, Karvy Research
50
54
45
48
49
53
46
48
46
54
45
46
50
57
46
47
50
51
49
54
52
157
160
161
169
167
172
174
179
174
171
174
172
171
172
166
166
176
171
176
178
180
140
150
160
170
180
190
0
20
40
60
Q1CY13
Q2CY13
Q3CY13
Q4CY13
Q1CY14
Q2CY14
Q3CY14
Q4CY14
Q1CY15
Q2CY15
Q3CY15
Q4CY15
Q1CY16
Q2CY16
Q3CY16
Q4CY16
Q1CY17
Q2CY17
Q3CY17
Q4CY17
Q1CY18
Volum e ( M n Lt) (LHS)
Realization (Rs./Lt) (RHS)
0
50
100
150
200
Q1CY13
Q2CY13
Q3CY13
Q4CY13
Q1CY14
Q2CY14
Q3CY14
Q4CY14
Q1CY15
Q2CY15
Q3CY15
Q4CY15
Q1CY16
Q2CY16
Q3CY16
Q4CY16
Q1CY17
Q2CY17
Q3CY17
Q4CY17
Q1CY18
Realization (Rs./Lt)
Cost/Lt
EBITDA/Lt
Q1CY18 realization growth
came in at 2.4% YoY
196
191
199
205
208
212
-0.5%
-2.6%
4.4%
2.6%
1.7%
1.8%
CY14
CY15
CY16
CY17
CY18E
CY19E
Volume (Mn Lt)
Growth (%)
4
May 7, 2018
Castrol India Ltd
5-Year average P/E is
30.5x
Exhibit 12: 5yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 13: S & P Chemical Industries - 10 yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 11: Change in Earnings Estimates
YE Dec - Standalone (Rs. Mn)
CY18E CY19E
Old New % Change Old New % Change
Net sales 37445 37889 1.2 38874 39744 2.2
EBITDA 10683 10708 0.2 11113 11505 3.5
EBITDA Margin (%) 28.5 28.3 (27) bps 28.6 28.9 36 bps
Adj PAT 7202 7220 0.2 7492 7760 3.6
EPS (Rs.) 7.3 7.3 0.2 7.6 7.8 3.2
Source: Karvy Research
Exhibit 10: Quarterly sales trend
Source: Company, Karvy Research
8170
9137
8023
8593
7992
9236
7843
7909
8557
9708
7617
7822
8822
8704
8614
9703
9271
-15%
-5%
5%
15%
25%
0
2500
5000
7500
10000
Q1CY14
Q2CY14
Q3CY14
Q4CY14
Q1CY15
Q2CY15
Q3CY15
Q4CY15
Q1CY16
Q2CY16
Q3CY16
Q4CY16
Q1CY17
Q2CY17
Q3CY17
Q4CY17
Q1CY18
Sales (Rs. Mn)
YoY growth (%)
0
200
400
600
800
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec
-13
Apr-14
Aug-14
Dec
-14
Apr-15
Aug-15
Dec-15
Apr-16
Aug-16
Dec-16
Apr-17
Aug-17
Dec-17
Apr-18
Price (Rs.)
23.3x
20.6x
17.9x
15.2x
12.5x
20
25
30
35
40
45
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct
-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
I Yr Forward P/E
Average P/E
1 STD
-1STD
5
May 7, 2018
Castrol India Ltd
Financials
Exhibit 14: Income Statement
YE Dec (Rs. Mn) CY15 CY16 CY17 CY18E CY19E
Revenues 32980 33703 35843 37889 39744
Growth (%) (2.8) 2.2 6.3 5.7 4.9
Operating Expenses 24032 23709 25513 27180 28240
EBITDA 8949 9994 10330 10708 11505
Growth (%) 24.9 11.7 3.4 3.7 7.4
Depreciation & Amortization 390 450 455 465 481
EBIT 8559 9544 9875 10243 11024
Other income 959 873 837 871 914
Interest Expenses 8 15 12 7 0
PBT 9509 10402 10700 11108 11938
Tax 3357 3699 3782 3888 4178
Adjusted PAT 6152 6703 6918 7220 7760
Growth (%) 29.6 9.0 3.2 4.4 7.5
Source: Company, Karvy Research
Exhibit 15: Balance Sheet
YE Dec (Rs. Mn) CY15 CY16 CY17 CY18E CY19E
Cash & Cash Equivalents 6965 8219 7841 8549 8324
Trade receivables 2365 2552 2850 3171 3145
Inventory 3046 3439 3196 3827 3418
Loans & Advances 1822 2070 2808 2955 3100
Other assets 566 751 1111 1118 1129
Net Block 1853 1842 1963 2048 2117
Total Assets 16616 18873 19769 21669 21234
Current Liabilities 10711 12774 9408 10884 10331
Other long term liabilities 149 141 160 190 200
Total Liabilities 10860 12915 9568 11074 10531
Shareholders Equity 2473 2473 4946 4946 4946
Reserves & Surplus 3283 3485 5256 5649 5758
Total Networth 5756 5958 10202 10595 10704
Total Networth & Liabilities 16616 18873 19769 21669 21234
Source: Company, Karvy Research
Revenue to grow at CAGR
of 5.3% CY17-19E.
Zero debt, cash reserves
at 40% and high asset
turnover indicate balance
sheet strength
6
May 7, 2018
Castrol India Ltd
Exhibit 16: Cash Flow Statement
YE Dec (Rs. Mn) CY15 CY16 CY17 CY18E CY19E
PBT 9509 10402 10700 11108 11938
Depreciation 390 450 455 465 481
Net Interest ow (425) (518) (459) (871) (914)
Tax Paid (3277) (3804) (3892) (3888) (4178)
Inc/dec in Net WC 1128 144 (645) 400 (265)
Others 74 (96) (68) 7 0
Cash ow from operating activities 7400 6579 6092 7221 7061
Inc/dec in capital expenditure (379) (358) (563) (550) (550)
Others 401 651 2077 871 914
Cash ow from investing activities 23 293 1514 321 364
Dividend paid (4762) (5655) (6548) (6827) (7651)
Interest paid (10) (26) (20) (7) 0
Cash ow from nancing activities (4772) (5680) (6567) (6834) (7651)
Net change in cash 2651 1191 1038 708 (225)
Source: Company, Karvy Research
Exhibit 17: Key Ratios
YE Dec CY15 CY16 CY17 CY18E CY19E
EBITDA Margin (%) 27.1 29.7 28.8 28.3 28.9
EBIT Margin (%) 26.0 28.3 27.6 27.0 27.7
Net Prot Margin (%) 18.7 19.9 19.3 19.1 19.5
Dividend Payout Ratio (%) 72.3 81.2 67.9 79.5 82.9
Net Debt/Equity (x) (1.2) (1.4) (0.8) (0.8) (0.8)
RoE (%) 114.7 114.4 85.6 69.4 72.9
RoCE (%) 159.6 163.0 122.2 98.5 103.5
Source: Company, Karvy Research
Exhibit 18: Valuation Parameters
YE Dec CY15 CY16 CY17 CY18E CY19E
EPS (Rs.) 6.2 6.8 7.0 7.3 7.8
DPS (Rs.) 4.5 5.5 4.8 5.8 6.5
BVPS (Rs.) 5.8 6.0 10.3 10.7 10.8
PE (x) 29.7 27.2 26.4 25.3 23.5
P/BV (x) 31.7 30.7 17.9 17.2 17.1
EV/EBITDA (x) 19.5 17.5 16.9 16.3 15.2
EV/Sales (x) 5.3 5.2 4.9 4.6 4.4
Source: Company, Karvy Research;
Working capital cycle is
expected to improve
Issued 1:1 bonus shares
during Dec 2017.
Dividend yield is expected
to be maintained above
3.0%.
7
May 7, 2018
Castrol India Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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Analyst certication: The following analyst(s), Vivek Ranjan Misra, who is (are) primarily responsible for this report and whose name(s) is/are mentioned
therein, certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no
part of his (their) compensation was, is or will be directly or indirectly related to the specic recommendation(s) or views contained in this research report.
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