INSUBCONTINENT EXCLUSIVE:
IDBI Capital has a buy call on Castrol India with a target price of Rs 237.
The current market price of Castrol India is Rs 164.80.
Time
period given by the brokerage is one year when Castrol India price can reach the defined target
Investment rationale by IDBI Capital:Volume growth strong: Sales volumes grew 12 per cent YoY to 57mn ltrs, much higher than industry
Nearly 80 per cent of the volume growth during the quarter was due to new products launched during the last three quarters
Apart from volume growth in personal mobility segment, commercial vehicle engine portfolio also delivered record volume growth.
Realization
Nevertheless, EBITDA/ltr improved 7.3 per cent YoY to Rs 44.2.
Outlook and Valuation: Historically Castrol has reacted to contracting
With nearly 500bps QoQ contraction in Q2CY18 margins, we expect pricing actions by Castrol in H2CY18
Strong free cash flow generation, minimal capital requirements, high ROEs and strong payouts make Castrol an attractive franchise
Dividend yield at 4.0 per cent on our CY19E remains attractive
Castrol is currently trading at a PE of 19.8x CY19E
We value Castrol at 26.0x on its CY19E EPS to derive a target price of Rs237 and maintain our BUY rating.
