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Growth in volumes trumps estimates  

CSTRL’s 1QCY21 EBITDA and PAT at Rs 3.4bn (+97% YoY; +32% QoQ) and Rs 2.4bn (+95% YoY; +30% QoQ), respectively, stood ahead of estimates on a strong 62% YoY growth in volumes. While the base quarter (1QCY20) was severely impacted by nationwide lockdown, the growth momentum picked up in 2HCY20 and 1QCY21was in effect a continuation of the same. As compared to 1HCY20 when growth slowed down (‐37% YoY), sales picked up in 2HCY20 (+1%YoY) with realization of pent up demand, as lockdown eased. The strong growth in 1QCY21 also carries an element of pent‐up demand which could be one‐time in nature.  

Key highlights: a) Sales volume at a strong  60‐61 mn litres ( +62% YoY; +17% QoQ); b) average realization improves to Rs 187/ltr (+4% QoQ) on account of price interventions in Jan’21 c) raw‐material cost at Rs 86/ltr (+10% YoY; 18% QoQ) as global base oil prices increased d) EBITDA/unit sequentially higher at Rs 56/ltr, (4QCY20: INR 50/ltr). Initiate with an ADD rating and a target price of Rs 135/sh.

Strong growth in volumes  

Riding on the momentum built in 2HCY20, CSTRL recorded highest quarterly sales in 1QCY21,  clocking in a strong 62% YoY & 17% QoQ growth. Impact of lockdown in base quarter coupled with realization of pent up demand, as higher marketing and branding investments drove sales, led to higher growth. In addition the demand traction also improved from tractor, SUV and motorcycle segments, with same being catered by launch of new products viz i)GTX‐SUV, ii) Power‐1 and iii) Castrol Active cruise

Price revision aid earnings growth  

In addition to strong growth in volumes, earnings were incrementally aided by price increase undertaken in selective products  in Jan’21 to offset increase in raw‐material costs. However the same was also offset by rationalizaton of price premium in the CV segment. In effect the realization improved by 4% QoQ to Rs 187/litre, leading to improvement in EBITDA margin to 30% (4Q: 27.5%) or Rs 56/liter (4Q: Rs 50/liter).

Raw material prices rise on supply chain challenges    

Increase in global crude oil prices to ~US$ 61/bbl (from US$ 45.8/bbl in 4Q) along with disruption in supply of base oil, led to an increase in raw material (RM) prices during the quarter. The RM cost as a result increased to Rs 86/liter (+18% QoQ). In order to offset the same, CSTRL undertook another price revison in early April’21.

CSTRL entered in strategic partnership with Ki Mobility Solutions  

CSTRL entered into a three year, strategic partnership with Ki Mobility Solutions, across latter’s multibrand workshops in India and also their online platform ‘goBumpr’, for supply of lubricants. This is the third startegic partnership after 3M and Jio‐BP. While pilot with 3M took a backstage due to covid lockdown, sales through Jio‐BP channel is encouraging.  

View & Valuation  

CSTRL is a dominant lubricant player in the country, with almost 20‐21% market share in the ‘Bazaar’ segment. CSTRL has strategic focus on the personal mobility segment, which continues to be earnings driver for the company with a 60‐65% revenue contribution. Personal mobility segment is well alligned with branding and uptrading opportunities, where CSTRL strongly believe in higher adoption of higher value synthetic products going ahead (current: ~10% of sales). While CSTRL has a  strong profitability and brand equity, but lubricants is inherently a competitive and  low growth market. Initiate with an ADD rating and a target price of Rs 135/sh. 

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