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Our view

The 2QCY23 operating revenue came at Rs 13.3bn (+7% YoY; +3% QoQ), Ebitda at Rs 3.09bn (+8% YoY; +5% QoQ), Ebitda margin reported at 23.2% improved by 18bps YoY & 42bps, expect margins to be around 25% range., Per unit realizations at Rs 230/liter improved YoY but decreased QoQ (1Q CY23: Rs 235). The Ebitda per unit improved YoY to Rs 53/liter on moderation in base oil prices. The automotive lubricant market in India is estimated to continue to grow at 3-5% p.a. for more than a decade driven by expectations of continued sales of ICE engine vehicles moving well into 2040. CSTRL expects to grow volume and value share by 5% during CY23. In addition to lubricants sales, CSTRL is actively diversifying into vehicle servicing & care where new products are launched every few months, EV charging in association with JIO-BP and EV fluids. Along with parent company viewing opportunity in thermal management fluids for Data centers. We revise our rating to REDUCE as we feel it is fairly valued at current price.

Result Highlights

? Profitability – Operating revenue during the quarter came at Rs 13.3bn (+7% YoY; +3% QoQ), Ebitda at Rs 3.09bn (+8% YoY; +5% QoQ), Ebitda margin was 23.5%, Pat stood at Rs 2.2bn (+9% YoY; +11% QoQ). Gross margins improved by 3% YoY and QoQ. Ebitda growth being supported by decrease in employee cost during the quarter.

? Sales Volume – The sales volume during the quarter stood at 58mn liters, registering a growth of 4% YoY and 5% QoQ. Volumes was supported by improved sales of personal mobility segment. Industrial activities uptick led to increase in industrial lubricant sales.

? Per Unit Metrics – The per unit realization at Rs 230/liter, while 4% higher YoY but stood 2% lower QoQ. Raw material price also declined 3% QoQ to Rs 121/liter due to moderation in base oil prices and resulting in higher per unit Ebitda at Rs 53/liter (+5% YoY & flat QoQ).

? Base Oil – Due to volatility in the price of Base oil during previous quarters had to take price hike which resulted in lower volumes. Prices have started cooling down, expect better volume off take in coming quarters.

Valuation

We revise our rating to REDUCE from ADD rating on CSTRL, with a Dec’23 TP of Rs 140/sh. We find CSTRL fairly valued at P/E of 15x CY24e,

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