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Motilal Oswal Report
Castrol India Ltd.'s revenue grew 2% YoY to Rs 13.3 billion in Q1 CY24, driven by 5% YoY growth in volumes; however, Ebitda margin declined to 22.2%, mainly due to higher raw material cost and other expenses during the quarter. The company has not taken any significant price hikes in Q1 CY24. Unfavorable sales mix also negatively impacted margin during the quarter.
Management highlighted that it remains focused on its commitment to brand building, widening its distribution network, and launching new products, all of which we believe will contribute positively to volume and market share expansion.
Management maintains a bullish outlook on India as a market, foreseeing robust demand for lubricants persisting until the late CY30s and early CY40s, largely attributed to the low penetration of cars in the country. While the threat from EVs is real, its adoption is expected to occur gradually.
Despite a weaker-than-expected start to CY24, we increase our volume growth to 4% each for CY24/25 versus 3% each previously. Management maintained its guidance of growing at higher than industry average growth rate of 4-5%, while simultaneously aiming for 22-25% Ebitda margin on a full-year basis.
We are building in 24/25% Ebitda margin in CY24/25.
Castrol India has always enjoyed strong brand legacy, and we are confident in its ability to maintain profitability through an improved product mix, stringent cost-control measures, and the launch of advanced products that command better realization.
We reiterate our Buy rating on the stock with a target price of Rs 240.
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