Castrol India Q3 Results Review - Margin Better Than Expected: IDBI Capital

IDBI Capital Report

While Castrol India Ltd.’s Q3 CY23 sales was in line with our forecast, its margins were above our expectations. Castrol’s top-line increased 5.5% YoY although it decreased by 11.3% QoQ to Rs 11,829 million due to monsoon season which led to weak demand in the quarter.

Volumes increased 8.5% YoY but decreased by 12% QoQ to 51 million liters (slightly below with our estimate). Ebitda increased by 4.4% YoY to Rs 2.7 billion. However, Ebitda margin contracted 23 basis points YoY and 52 bps QoQ to 22.7% as rising costs of key inputs muted its margin expansion.

Nevertheless, Castrol India expects Ebitda margin to remain in the range of 23-26%.

We maintain our CY23-24 forecasts and now value the stock at a price-to-earning ratio of 14 times (earlier 16 times) CY24 EPS to derive a target price of Rs 146 (earlier Rs 159). We maintain our 'Hold' rating on the stock.

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