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Our view

The 4QCY22 operating earnings at Rs 2.51bn (-6% YoY; -3% QoQ) stood below our and street estimates primarily on a) weaker than estimated sales volume at 48mn liters and b) weaker than estimate gross margin. Price interventions along with higher sales of personal mobility oils, led to stronger realization during the quarter, however the same was partially offset by QoQ higher raw material costs. Indian lubricant market is expected to grow at ~ 4% YoY over CY23, and CSTRL intends to grow ahead of the market, even as the growth was rather tepid in CY22. CSTRL is also actively working to diversify its revenue stream and has acquired 7% stake at Rs 4.9bn in Ki Mobility, which is multi-brand vehicle servicing platform. In addition, CSTRL is also venturing into EV fluids. Maintain ADD with a TP of Rs 130/sh.

Result Highlights

* Profitability – Reported EBITDA and PAT stood at Rs 2.5bn (-5.7% YoY; -2.5% QoQ) and Rs 1.93bn (+2.5% YoY; +3.3% QoQ). The operating margin at 21.3%, stood weaker on YoY (307bps) and QoQ basis (162bps), primarily on higher raw material and operating expenses. The Ebitda and PAT for CY22 stood at Rs 11.1bn (+4.2% YoY) and Rs 8.15bn (+7.5% YoY)
* Sales Volume – The sales volume stood at 48mn liters, registering a de-growth of 6.8% YoY The CY22 volume therefore stood 1.4% YoY higher at 210mn liters. While the personal mobility oil witnessed a healthy demand traction, demand was softer on CV, Agri and Industrial side. A less competitive pricing in the CV segment, impacted sales for CSTRL during the quarter, which company intends to correct going ahead.
* Per Unit Metrics – Led by price revisions undertaken during the year and possibly on higher percentage of personal mobility oils in the sales mix, during the quarter the realizations stood 16% YoY and 4% QoQ higher at Rs 245/liter. Higher base oil prices along with depreciation in INR, fueled the raw material inflation, leading to the cost being 26% YoY and 4% QoQ higher at Rs 134/liter. The operating costs also stood higher during the quarter at Rs 44/liter (+5% YoY; +9% QoQ). As a result, the Ebitda stood YoY and QoQ lower at Rs 52/liter (3QCY22: Rs 54/ltr)

Valuation

We maintain our ADD rating on CSTRL, with a Dec’23 TP of Rs 130/sh. We value CSTRL at a P/E of 15x CY24e, as against 13.9x the stock is currently trading at.

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