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Highlights from the Quarter (Q2 CY22):

* The top-line showcased a growth of 39.6% YoY to Rs.1,241.7 cr driven by good rebound in volumes and two price-hikes during Q2 CY22 and, of course, on a lower base of covid-19 affected Q2 CY21. The volumes during the quarter stood at 5.6 cr liters (24.4%, YoY) and the realization per liter increased ~12.2% YoY to Rs.221.7. During Q1 CY22, the company had sold 5.9 cr liters of lubricants and the realization/liter was at Rs.209.4.

* The cost of goods sold continued to be challenging due to sharp rise in input costs. Further, the Management stated that the inflationary pressure may continue during 2022 amidst geo-political issues. The EBITDA margin jumped 84 bps from 22.2% in Q2 CY21 to 23.0% in Q2 CY22. At the net level, the company reported a profit of Rs.206.3 cr against profit of Rs.140.0 cr in the corresponding quarter of previous year. Castrol reported an EPS of Rs.2.09 as against Rs.1.42 in Q2 CY21 and Rs.2.31 in Q1 CY22.

* During the quarter, CIL launched CRB Plus CI4 for Agri vehicles and GTX Diesel CI4+ variants; expanded the reach of Castrol Auto Service network to 163 multi-brand passenger car workshops in 90+ cities across India. Further, expanded presence of Castrol Express Oil Change outlets in Jio-BP mobility stations across India, bringing the total count to 39. The outlets offer two-wheeler consumers swift & reliable oil change on the go.

* On the Balance Sheet front, the net worth increased from Rs.1,645.5 cr on December 31, 2021 to Rs.1,794.4 cr on June 30, 2022. The cash & bank balance also jumped from Rs.1,300.2 cr to Rs.1,503.7 cr during the same period.

* The Management stated that "Our key focus is to drive growth for Castrol and protect our profitability. An integral element of our future-ready strategy is our foray into service and maintenance with new formats such as Castrol Auto Service and Castrol Express Oil Change outlets. In addition, we are also exploring collaborations with electric vehicle OEMs to help advance electric mobility in India, while continuing to launch new, superior-performing products in the traditional lubricants space.”

* The board announced an interim dividend of Rs.3.00 per share as compared to an interim dividend of Rs.2.50 per share in H1 CY21.

OUTLOOK AND VALUATION

Castrol India reported healthy set of numbers for the quarter driven by rebound in volumes & realizations. The gross margins continued to be under pressure amidst rising raw material prices. Nevertheless, we believe that the leadership position of Castrol India, robust back-up by the parent, strong fundamentals and consistent technological advancements keeps the company best placed to benefit from the opportunity in lubricants space, personal mobility in particular. Robust balance sheet and attractive dividend yield makes it a good investment candidate with long term horizon. We have kept our estimates for CY22 and CY23 unchanged. Thus, we maintain our BUY rating for the stock. We expect company to deliver an EPS of Rs.9.1 in CY23; maintaining our previous target multiple of 16.5x, we retain our target price of Rs.150 with an investment horizon of 18-24 months, which is an upside of ~29.3% from current levels.

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