Target: ₹134

CMP: ₹114.95

Castrol’s EBITDA and PAT missed our estimate, given the volatile market environment, amid rising input costs and modest demand. Realisations improved 12 per cent year-on-year and 6 per cent quarter-on-quarter, led by higher crude prices in Q2 CY22.

Volume remains modest at 56 million litres in Q2 CY22, with personal mobility/CV volumes contributing 50 per cent/35-40 per cent to overall volumes in Q2 CY22 and industrial volumes constituting the balance. Castrol has taken another price hike in Q2 CY22. It had raised prices in March across various segments and product categories. Its market share in the Bazaar segment stood at 21-22 per cent. Castrol has strengthened its product portfolio with the launch of CRB Plus CI4 for agri vehicles and GTX Diesel CI4+ variants, and Castrol POWER1 3-in-1 with synthetic technology. The company has expanded the presence of Castrol Express Oil Change outlets at Jio-bp mobility stations across India, bringing its total count to 39.

The management expects demand for lubricants to sustain at least till CY35-40, as there is huge room for ownership penetration, which won’t be totally fulfilled by EVs (at least in the four-wheeler category). Prices of Base Oil are expected to remain high in the near term, but we expect the same to decline in line with the correction in Brent crude oil prices. Better volumes are expected to pare down operating costs, with a 26-29 per cent improvement in margin for CY22-23. Given rising input cost pressures, we lower our CY22/CY23 EBITDA estimate by 34 per cent/31 per cent.

Capex guidance for CY22/CY23 stands at about ₹100 crore each. The company is venturing into newer areas such as Castrol Auto Services and has tied-up with Jio-BP. Currently, 39 Express Oil Change outlets are operational at Jio-BP sites across India. It has also expanded its Castrol Auto Services network to 163 centres in over 90 cities across India.

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