Mumbai: Kotak Institutional Equities has upgraded Castrol India to buy from sell and raised fair value to Rs 180 from Rs 130.
Castrol ended calendar year 2019 on a strong note led by record-high margins reflecting raw material cost tailwind and steady volumes, said Kotak Institutional."We upgrade the stock to BUY from SELL raising our FV (fair value) to Rs180 from Rs130 earlier to reflect increase in estimates, rollover and higher P/E multiple of 18 times as compared to 15 times earlier," said Kotak Institutional.
"We find the reward-risk balance favorable amid (1) near-term tailwind of lower crude/base oil prices, (2) inexpensive valuations at 14X CY2021E EPS and (3) high dividend yield of 5-6%," said the brokerage.The brokerage said Castrol's valuations are inexpensive at 14 times CY2021 estimated EPS and dividend yield is attractive at 5-6%.
Long-term risks to volumes from adoption of electric mobility are adequately priced in, said Kotak.
Shares of Castrol India ended up 5.6% at Rs 147.15 on Monday.Kotak Institutional said the sharp de-rating of Castrol stock over the past 2-3 years has adequately lowered volume and earnings growth expectations amid long-term risks from adoption of electric mobility, particularly in two-wheelers segment.
The managements focus on volumes growth trajectory and other strategic initiatives, such as partnership with 3M in India, may help in alleviating that risk albeit partly, said the brokerage.