Stock Update 21 Dec 2017

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Castrol India Ltd
Industry CMP Recommendation Add on dips to Sequential Targets Time Horizon
Lubricants Rs. 206 Buy at CMP and add on declines Rs. 188.50-191.50 Rs. 224.50 and 256 4-6 quarters

We had issued a Stock Note on Dec 14, 2017 (when its CMP was Rs.405) with a recommendation to “Buy at CMP and add on
HDFC Scrip Code CASINDEQNR
declines to price band of Rs. 377-383” for sequential targets of Rs. 449 and Rs. 512 over the next 4-6 quarters. Refer:
BSE Code 500870 https://www.hdfcsec.com/hsl.research.pdf/Castrol%20Stock%20Note%20-%20141217.pdf.
NSE Code CASTROLIND
Corporate Action (Issue of Bonus share)
Bloomberg CSTRL IN
Company had recommended bonus shares in the ratio of 1:1 on 07th Dec 2017 on Rs. 5/- each fully paid up Equity Share. Ex-
CMP Dec 21 2017 Rs. 206 date for issuing Bonus Share (1:1) as approved by company was on 21st Dec 2017 (Record date 22nd of Dec 2017). Now,
Equity Capital (Rs crs) 494.6 stock is trading at bonus adjusted price of Rs 206 and investors can hold for sequential targets of Rs 224.50 and Rs 256 in 4-6
quarters.
Face Value (Rs) 5.0
Equity Share O/S (crs) 98.9 Company Description
Market Cap (Rs crs) 20377.50 Castrol India Ltd (CIL) is the second largest player in Indian lubricant industry mainly catering to the automotive and
industrial segments. The company has a market share (in value terms) of 20% in the domestic lubricants market. Parent
Book Value (Rs) 6.02
Company Castrol Ltd (a British Petroleum (BP) group company) owns 51% stake in CIL and CIL gets advantage from exclusive
Avg. 52 Wk Volumes 883823 tie-ups with original equipment manufacturers (OEM) due to global tie-ups of automobile companies with BP. Castrol has
52 Week High 226.9 one of the largest manufacturing and marketing networks amongst the lubricant companies in India. It has manufacturing
plants located at Silvassa, Patalganga and Paharpur.
52 Week Low 176.6

View and Valuation:

Shareholding Pattern % (Sept 30, 17) Given the rapid pace of industrialization and good growth in automobile sales, we are comfortable about the growth
Promoters 51.0 prospects for lubricants market and business growth of Castrol in the medium term. The company is in a strong position to
benefit from growth prospects on account of its strong brands and enduring relationships with key stakeholders. CIL
Institutions 30.6 continues to remain optimistic about the Indian lubricant market and its business growth.
Non Institutions 18.4 After a subdued CY17, Castrol looks forward to a much better CY18. The Castrol management is confident about prospects of
Total 100.0 its business in India over the long term and has decided to continue making investments in India unabated by recent slow
growth. Lower crude oil and lube oil prices augur well for the margin trajectory. We believe the stock makes for good
Fundamental Research Analyst investment over the short to medium long term. The stock deserves to get valuation of an FMCG player given the brand pull
Abdul Karim it carries especially as volume growth seems to have resumed. We feel investors could buy and add on dips to Rs. 188.50 –
abdul.karim@hdfcsec.com 191.50 bands (~24.5x of CY18E EPS) for sequential targets of Rs 224.50 and Rs 256 (29.0x and 33x of CY18E EPS). At the CMP
of Rs 206 the stock trades at 26.6x of CY18E EPS.

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Financial Summary
Particulars (Rs cr) Q3CY17 Q3CY16 YoY-% Q2CY17 QoQ-% CY15 CY16 CY17E CY18E
Total Income from Operations 861.4 761.7 13.1% 870.4 -1.0% 3285.3 3357.9 3465.4 3725.3
EBITDA 253.6 212.9 19.1% 209.5 21.1% 895.8 1004.9 994.6 1138.1
APAT 178.2 139.8 27.5% 137.9 29.2% 616.2 674.9 673.7 767.2
Diluted EPS (Rs) 3.6 2.8 27.5% 2.8 29.2% 6.2 6.8 6.8 7.8
P/E (x) 33.1 30.2 30.2 26.6
P/BV (x) 35.4 34.2 30.1 25.8
RoE-% 86.7% 96.7% 88.1% 85.1%
(Source: Company, HDFC sec)

Quarterly Financials
Particulars (Rs cr) Q3CY17 Q3CY16 YoY-% Q2CY17 QoQ-% 9MCY17 9MCY16 YoY-%
Total Income from Operations 861.4 761.7 13.1% 870.4 -1.0% 2614.0 2588.2 1.0%
Changes in inventories 10.7 -2.2 -586.4% -11.2 -195.5% -27.7 -15.8 75.3%
Cost of materials consumed 351.6 311.6 12.8% 388.7 -9.5% 1105.2 1014.6 8.9%
Purchase of Stock in trade 31.3 48.8 -35.9% 51.9 -39.7% 149.7 169.2 -11.5%
Employee Expenses 46.2 45.8 0.9% 48.9 -5.5% 144.9 132.5 9.4%
Other Expenses 168 144.8 16.0% 182.6 -8.0% 515.5 502.3 2.6%
Total Expenditure 607.8 548.8 10.8% 660.9 -8.0% 1887.6 1802.8 4.7%
EBITDA 253.6 212.9 19.1% 209.5 21.1% 726.4 785.4 -7.5%
Depreciation 11.1 10.7 3.7% 11.8 -5.9% 35.2 34.2 2.9%
EBIT 242.5 202.2 19.9% 197.7 22.7% 691.2 751.2 -8.0%
Other Income 33.3 15.5 114.8% 15.5 114.8% 67.3 51.5 30.7%
Interest 0.2 0.1 100.0% 0.1 100.0% 0.6 1.2 -50.0%
PBT 275.6 217.6 26.7% 213.1 29.3% 757.9 801.5 -5.4%
Tax (including DT & FBT) 97.4 77.8 25.2% 75.2 29.5% 262.8 282.4 -6.9%
Reported Profit After Tax 178.2 139.8 27.5% 137.9 29.2% 495.1 519.1 -4.6%
Adjusted PAT 178.2 139.8 27.5% 137.9 29.2% 495.1 519.1 -4.6%
EPS (Rs.) 3.6 2.8 27.5% 2.8 29.2% 10.0 10.5 -4.6%
(Source: Company, HDFC sec)
Key drivers-Physical Metrics
Particulars (Rs cr) Q4CY15 Q1CY16 Q2CY16 Q3CY16 Q4CY14 Q1CY17 Q2CY17 Q3CY17
Volume (mn ltrs) 46.1 50.1 56.5 45.7 47.0 50.2 50.9 49.1
Volume Growth-% -4% 9% 5% 1% 2% 0% -10% 7%
Realization per ltr 171.0 169.9 171.3 166.1 165.8 175.7 171.0 175.4
Cost per ltr 80.8 78.2 74.0 78.4 77.4 80.5 84.4 80.2
Contribution 90.2 91.8 97.3 87.7 88.4 95.2 86.6 95.3
(Source: Company, HDFC sec)

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18 Months daily closing Prices

(Source: Company, HDFC sec)

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Fundamental Research Analyst: Abdul Karim (abdul.karim@hdfcsec.com)

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