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http://www.kotaksecurities.com/pdf/dmb/MorningInsight17042012.pdf
CASTROL INDIA LTD. (CIL)
PRICE: RS.538 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.570 CY13E P/E: 18.3X
Castrol's net profit is exactly in line with our estimates. The Company
has reported a PAT of Rs.1.23 Bn as against our estimate of Rs.1.22 Bn.
PAT has increased by 15.1% QoQ but was lower by 10% YoY. On a sequential basis, Castrol's bottom line has increased mainly due to 1).
Higher other income, 2). Lower staff cost, 3). Better sales mix and 4).
Marginally lower depreciation cost.
In Q1CY12, Castrol has launched Castrol GTX Modern Engine. It has also
re-launched its flagship brands Castrol CRB plus and Castrol CRB Turbo
with "Durashield Booster" that provide up to two times engine life. The
full benefit of the same is expected to come in next few quarters, which
will improve volumes and margins.
The company is also focusing on driving volume growth through increasing distribution reach and strengthening advocacy amongst key stakeholders. Wider distribution network will improve the sales volume of the
Company, going forward.
Revenue has grown both in the automotive and non-automotive segment on YoY and QoQ basis. Higher net revenue growth was witnessed
in the non-automotive segment as compared to automotive segment.
Further, it must be noted that non-automotive segment enjoys higher
operating margins.
Other Income (OI) has increased by 10.6% YoY and by 127.9% QoQ to
Rs.335 Mn. OI has increased party due to some provisions written back
and partly due to higher cash balance, along with this higher interest
rates brought in higher interest income. Also, note that other income to
PBT has increased by 3.3% YoY to 18.2% in Q1CY12.
Its PAT margin was up by 180 bps but fell by 250 bps YoY to 15.7% in
Q1CY12.
Blended operating margin up by 20 bps QoQ but fell by 380 bps YoY to
20.1% in Q1CY12. Going forward, we expect ease in raw material prices
and better realization due to better sales mix and expected price hike.
The Company's management has indicated the lubricant market growth
has been slower due to the economic slowdown and inflationary pressures. This has been compounded by continuing input cost pressure and
rupee depreciation which have impacted margins.
Outlook and valuation:
Our revised earnings estimate with EPS of Rs.23.1 CY12E and 29.3 CY13E. We
expect raw material prices to fall along with the crude oil prices. Also, management has indicated for price hike going forward. In Q1CY12, average Base oil
prices have fallen to $1300/ MT from average $1450/MT in Q4CY11. This shows
that raw material cost pressure is easing and margins can improve going forward.
On the basis of our estimates, the stock at current market price of Rs.538 is fairly
valued at 16.1x EV/EBIDTA, 23.2x P/E and 19.7x P/BV on the basis of CY12E
earnings.
Based on our DCF valuation model, the 12-month target price of Castrol is
Rs.570 (Rs.430 earlier) and we now recommend ACCUMULATE (earlier REDUCE) because we expect raw material prices to fall significantly. We are bullish
on Castrol's healthy balance sheet, wide product portfolio and established brand,
which will help in boosting volumes. Castrol is a zero debt company and has
cash of ~Rs.5000 Mn in its books.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight17042012.pdf
CASTROL INDIA LTD. (CIL)
PRICE: RS.538 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.570 CY13E P/E: 18.3X
Castrol's net profit is exactly in line with our estimates. The Company
has reported a PAT of Rs.1.23 Bn as against our estimate of Rs.1.22 Bn.
PAT has increased by 15.1% QoQ but was lower by 10% YoY. On a sequential basis, Castrol's bottom line has increased mainly due to 1).
Higher other income, 2). Lower staff cost, 3). Better sales mix and 4).
Marginally lower depreciation cost.
In Q1CY12, Castrol has launched Castrol GTX Modern Engine. It has also
re-launched its flagship brands Castrol CRB plus and Castrol CRB Turbo
with "Durashield Booster" that provide up to two times engine life. The
full benefit of the same is expected to come in next few quarters, which
will improve volumes and margins.
The company is also focusing on driving volume growth through increasing distribution reach and strengthening advocacy amongst key stakeholders. Wider distribution network will improve the sales volume of the
Company, going forward.
Revenue has grown both in the automotive and non-automotive segment on YoY and QoQ basis. Higher net revenue growth was witnessed
in the non-automotive segment as compared to automotive segment.
Further, it must be noted that non-automotive segment enjoys higher
operating margins.
Other Income (OI) has increased by 10.6% YoY and by 127.9% QoQ to
Rs.335 Mn. OI has increased party due to some provisions written back
and partly due to higher cash balance, along with this higher interest
rates brought in higher interest income. Also, note that other income to
PBT has increased by 3.3% YoY to 18.2% in Q1CY12.
Its PAT margin was up by 180 bps but fell by 250 bps YoY to 15.7% in
Q1CY12.
Blended operating margin up by 20 bps QoQ but fell by 380 bps YoY to
20.1% in Q1CY12. Going forward, we expect ease in raw material prices
and better realization due to better sales mix and expected price hike.
The Company's management has indicated the lubricant market growth
has been slower due to the economic slowdown and inflationary pressures. This has been compounded by continuing input cost pressure and
rupee depreciation which have impacted margins.
Outlook and valuation:
Our revised earnings estimate with EPS of Rs.23.1 CY12E and 29.3 CY13E. We
expect raw material prices to fall along with the crude oil prices. Also, management has indicated for price hike going forward. In Q1CY12, average Base oil
prices have fallen to $1300/ MT from average $1450/MT in Q4CY11. This shows
that raw material cost pressure is easing and margins can improve going forward.
On the basis of our estimates, the stock at current market price of Rs.538 is fairly
valued at 16.1x EV/EBIDTA, 23.2x P/E and 19.7x P/BV on the basis of CY12E
earnings.
Based on our DCF valuation model, the 12-month target price of Castrol is
Rs.570 (Rs.430 earlier) and we now recommend ACCUMULATE (earlier REDUCE) because we expect raw material prices to fall significantly. We are bullish
on Castrol's healthy balance sheet, wide product portfolio and established brand,
which will help in boosting volumes. Castrol is a zero debt company and has
cash of ~Rs.5000 Mn in its books.
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