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Castrol India Ltd. recently announced its performance for the quarter ended June 30, 2021. Following are the key highlights

Highlights from the Quarter (Q2 CY21):

Building on the lower base of Q2 CY20 on account of nationwide lockdowns due to Covid-19 pandemic, the top-line showcased a growth of 81.3% YoY to Rs.889.6 cr during Q2 CY21. The volumes during the quarter stood at 4.5 cr liters (+55.2%, YoY) and the realization per liter improved ~16.9% YoY to Rs.197.7. Though volumes were lower than the previous quarter, but realization was better. During Q1 CY21, the company had sold 6.1 cr liters of lubricants and the realization/liter was at Rs.186.7. The Management stated that the muted demand on account of partial lockdowns in various regions of the country and rising input costs were the key challenges for the company during the quarter. The EBITDA margin expanded 278 bps from 19.4% in Q2 CY20 to 22.2% in Q2 CY21 primarily due to decline in staff costs and other expenses, partially offset by rise in raw material expenses, as a percentage of revenue. During Q2 CY21, the Personal Mobility share stood at ~40% while Industrial & Commercial Vehicle consisted the remaining ~60%.

At the net level, the company reported a profit of Rs.140.0 cr as against profit of Rs.65.4 cr in the corresponding quarter of previous year. Castrol reported an EPS of Rs.1.42 as against Rs.0.66 in Q2 CY20 and Rs.2.46 in Q1 CY21.

On half year basis, the company recorded a sales of Rs.2,028.3 cr as against Rs.1,178.6 cr (+72.1%, YoY); the net profit stood at Rs.383.6 cr vs Rs.190.6 cr (+101.3%, YoY).

During the quarter, the company launched a new concept of Castrol Express Oil change outlets which offer quick oil change service for consumers on-the-go. Castrol also leveraged digital platforms to continue building engagement with the biker community with their synthetics range of Castrol POWER1 ULTIMATE two-wheeler engine oils through performance imagery led impact properties.

On the balance sheet front, the cash and bank balance stood at Rs.1,162.2 cr as on June 30, 2021; the inventories stood at Rs.474.2 cr while the receivables and payables stood at Rs.302.4 cr and Rs.587.7 cr, respectively.

The Board of Directors recommended an interim dividend of Rs.2.50 per share (2020: interim dividend Rs.2.50 per share; final dividend Rs.3.00 per share). The record date is August 12, 2021 and the dividend would be paid on/before September 01, 2021.

OUTLOOK AND VALUATION

Castrol India reported healthy top-line growth driven by rebound in volumes albeit on lower base and better realizations. The Management sounded confident for future profitable growth, however, will be cautiously watching for the third wave of Covid-19. We believe, 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. Hence, we are keeping our estimates unchanged for now. We expect company to deliver an EPS of Rs.9.4 in CY22; assigning a target multiple of 16.5x, which is below its median P/E of last 3 Years and 5 Years, we maintain our target price of Rs.155 with an investment horizon of 12-18 months. Further, as the stock price has moved up since our previous report and offers ~11% upside from current levels, we are changing our rating from BUY to HOLD.

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