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

Highlights from the Quarter (Q3 CY21):

The top-line showcased a growth of 21.5% YoY to Rs.1,073.2 cr during Q3 CY21. The volumes during the quarter stood at 5.0 cr liters (+6.4%, YoY) and the realization per liter improved ~14.2% YoY to Rs.214.6 as the company took three price hikes during the year – January, April & June. During Q2 CY21, the company had sold 4.5 cr liters of lubricants and the realization/liter was at Rs.197.7.

The Management stated that cost of goods sold continued to be challenging due to sharp rise in input costs. However, the company responded through timely pricing interventions and continued investment in brands’ advertising and marketing spends to support value delivery to customers and reinforce brand salience.

The EBITDA margin fell 818 bps from 32.6% in Q3 CY20 to 24.5% in Q3 CY21 primarily due to substantial fall in gross margin which fell from 60.1% in Q3 CY20 to 49.6% in Q3 CY21. However, on the sequential basis, the EBITDA margin improved 226 bps. At the net level, the company reported a profit of Rs.185.9 cr against profit of Rs.204.6 cr in the corresponding quarter of previous year. Castrol reported an EPS of Rs.1.88 as against Rs.2.07 in Q3 CY20 and Rs.1.42 in Q2 CY21.

On nine months basis, the company recorded a sales of Rs.3,101.5 cr in 9M CY21 as against Rs.2,061.7 cr (+50.4%, YoY) in 9M CY20; net profit stood at Rs.589.0 cr vs Rs.395.2 cr (+49.0%, YoY) during the same period.

During the quarter, the company launched new products with the latest BS-VI ready technology such as Castrol MAGNATEC for cars, and four BS-VI ready variants for Castrol CRB Turbomax and CRB Minitruck for commercial vehicles. With the automotive sector rapidly gearing up for electric mobility in the passenger vehicle segment, Castrol is exploring options with two-wheeler electric vehicle (EV) manufacturers for development of EV fluids. At the same time, the company continues supplying EV fluids to two of the top OEMs in India.

The company continued to expand its ‘Express Oil Change’ service at Jio-bp fuel stations with the objective of providing a convenient and reliable service to their customers. Further, Patalganga plant successfully commercialized a low temperature blending process for select product variants. This will enable them to reduce their overall energy consumption and reduce carbon emissions.

Outlook and Valuation

Castrol India reported healthy top-line growth driven moderate growth in volumes but better realizations. The gross margins took a hit amidst rising raw material prices and the COGS is likely to remain under pressure in the upcoming quarters. 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. We have increased our estimates for the current fiscal to factor in the nine months performance. We expect company to deliver an EPS of Rs.9.4 in CY22; maintaining our previous target multiple of 16.5x, we retain our target price of Rs.155 with an investment horizon of 12-18 months. Thus, we maintain our HOLD rating for the stock.

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