Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Castrol India (CSTRL)
Energy
Disappointments galore; be watchful of quarter number four. Castrol reported
3QCY11 EBITDA at `1.33 bn (-21.7% yoy and -33.2% qoq), significantly below our
estimate of `1.63 bn. The sharp yoy decline in earnings was led by slump in volumes at
46 mn liters (-8.7% yoy, -15% qoq); our expectation was 51.2 mn liters. We find the
stock valuations expensive at 22.8X CY2012E EPS, especially in light of 10.9% yoy
decline in 9MCY11 EBITDA. We maintain our SELL rating with a target price of `410.
No respite from plunging volumes; 10.9% yoy decline in EBITDA in 9MCY11
Castrol reported 3QCY11 net income at `951 mn (-18.6% yoy, -33.3% qoq), 14% below our
expected `1.11 bn. The company reported 21.7% yoy decline in EBITDA to `1.33 bn despite
stable net realizations qoq reflecting 8.7% decline in volumes to 46 mn liters. We note that
Castrol has reported sharp 10.9% yoy decline in EBITDA in 9MCY11 led by (1) 5.6% decline in
volumes and (2) lower EBITDA margins at 23.1% versus 28.2% in 9MCY10.
Volumes have been sluggish and will likely remain so
We highlight that Castrol has reported weak sales volumes for the past five quarters (see Exhibit
2). This reflects (1) structural slowdown in the industry and (2) loss of market share due to
significant pricing premium for Castrol products. We have long-highlighted that volumes growth
will be modest given (1) increase in oil-drain intervals and (2) lower lubricants consumption at the
time of oil-drain. The recent slowdown in the economy will further accentuate the problem given
(1) slowdown in sales of passenger cars and commercial vehicles and (2) slower industrial activity.
4QCY11E may be a difficult quarter; expectations of better volumes but pressure on margins
We expect margins to remain under pressure in 4QCY11E as the sharp depreciation in the Rupee
has completely offset the decline in LOBS prices. We note that the Rupee has depreciated by ~6%
versus the average exchange rate of `45.8/US$. In comparison, LOBS prices have declined by 4-
5% (across various categories) over the same period. We expect the volumes to pick up in
4QCY11E as the difference in pricing of Castrol’s products and competition subsides. The
management has guided flat yoy sales volumes in 4QCY11E.
Current valuations expensive given likely volume de-growth and peak margins
We maintain our SELL rating on the stock given 17% potential downside to our revised target
price of `410 (`425 previously) based on 19X CY2012E EPS of `21.6. We note that the stock is
currently trading at 22.8X CY2012E EPS which is above its historical P/E band of 14-18X (see
Exhibit 3). We currently assume a net realization (gross realization less raw material cost) of
`62.2/liter for CY2011E and `66.4/liter for CY2012E versus `63.4 in CY2010.
Revised earnings
We have revised our CY2011-13E EPS estimates to `19.7, `21.6 and `22.7 from `21.9, `22.3 and
`22.7 to reflect (1) weaker Rupee assumptions, (2) lower volumes, and (3) 3QCY11 results.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Castrol India (CSTRL)
Energy
Disappointments galore; be watchful of quarter number four. Castrol reported
3QCY11 EBITDA at `1.33 bn (-21.7% yoy and -33.2% qoq), significantly below our
estimate of `1.63 bn. The sharp yoy decline in earnings was led by slump in volumes at
46 mn liters (-8.7% yoy, -15% qoq); our expectation was 51.2 mn liters. We find the
stock valuations expensive at 22.8X CY2012E EPS, especially in light of 10.9% yoy
decline in 9MCY11 EBITDA. We maintain our SELL rating with a target price of `410.
No respite from plunging volumes; 10.9% yoy decline in EBITDA in 9MCY11
Castrol reported 3QCY11 net income at `951 mn (-18.6% yoy, -33.3% qoq), 14% below our
expected `1.11 bn. The company reported 21.7% yoy decline in EBITDA to `1.33 bn despite
stable net realizations qoq reflecting 8.7% decline in volumes to 46 mn liters. We note that
Castrol has reported sharp 10.9% yoy decline in EBITDA in 9MCY11 led by (1) 5.6% decline in
volumes and (2) lower EBITDA margins at 23.1% versus 28.2% in 9MCY10.
Volumes have been sluggish and will likely remain so
We highlight that Castrol has reported weak sales volumes for the past five quarters (see Exhibit
2). This reflects (1) structural slowdown in the industry and (2) loss of market share due to
significant pricing premium for Castrol products. We have long-highlighted that volumes growth
will be modest given (1) increase in oil-drain intervals and (2) lower lubricants consumption at the
time of oil-drain. The recent slowdown in the economy will further accentuate the problem given
(1) slowdown in sales of passenger cars and commercial vehicles and (2) slower industrial activity.
4QCY11E may be a difficult quarter; expectations of better volumes but pressure on margins
We expect margins to remain under pressure in 4QCY11E as the sharp depreciation in the Rupee
has completely offset the decline in LOBS prices. We note that the Rupee has depreciated by ~6%
versus the average exchange rate of `45.8/US$. In comparison, LOBS prices have declined by 4-
5% (across various categories) over the same period. We expect the volumes to pick up in
4QCY11E as the difference in pricing of Castrol’s products and competition subsides. The
management has guided flat yoy sales volumes in 4QCY11E.
Current valuations expensive given likely volume de-growth and peak margins
We maintain our SELL rating on the stock given 17% potential downside to our revised target
price of `410 (`425 previously) based on 19X CY2012E EPS of `21.6. We note that the stock is
currently trading at 22.8X CY2012E EPS which is above its historical P/E band of 14-18X (see
Exhibit 3). We currently assume a net realization (gross realization less raw material cost) of
`62.2/liter for CY2011E and `66.4/liter for CY2012E versus `63.4 in CY2010.
Revised earnings
We have revised our CY2011-13E EPS estimates to `19.7, `21.6 and `22.7 from `21.9, `22.3 and
`22.7 to reflect (1) weaker Rupee assumptions, (2) lower volumes, and (3) 3QCY11 results.
No comments:
Post a Comment