Buy Castrol (India) Ltd for the Target Rs. 260 by Motilal Oswal Financial Services Ltd
Volume growth remains strong
* Castrol (CSTRL)’s 3QCY25 performance was in line. EBITDA margin expanded 150bp YoY/30bp QoQ. Volumes were in line at 59m liters (up 7% YoY).
* Management highlighted that it remains focused on brand building, widening the distribution network, and launching new products, all of which we believe will drive volume growth and market share expansion.
* CSTRL has always enjoyed a strong brand legacy, and we are confident in its ability to maintain profitability through an improved product mix, stringent cost-control measures, and the launch of advanced products that command better realization. We reiterate our BUY rating with a TP of INR260.
Stable 3Q performance
* CSTRL’s 3QCY25 revenue came in at ~INR13.6b, in line (up 6% YoY).
* EBITDA came in above our estimate at INR3.2b (up 13% YoY).
* EBITDA margin expanded 150bp YoY/30bp QoQ.
* Gross margin expanded 200bp YoY/140bp QoQ.
* PAT also came in 7% above our estimate at INR2.3b.
* Other income came in above our estimate.
* Other key highlights:
* CSTRL expanded its footprint and strengthened market presence:
* It expanded national network to ~1,50,000 outlets across India.
* Service network now encompasses over 750 Castrol Auto Service centers, around 33,000 independent bike workshops, and about 11,500 multi-brand workshops.
* With nearly 40,000 rural outlets and 500 Rural Express points, the company continues to deliver consistent double-digit growth in rural markets.
* The full Auto Care product range is now accessible via e-commerce platforms, modern trade channels, and more than 67,000 physical outlets nationwide.
* Signed an MoU with VinFast Auto India to provide reliable and easily accessible after-sales support for EV customers through select Castrol Auto Service workshops.
* CSTRL is building momentum through new launches and localization:
* Expanded the Auto Care portfolio with the introduction of Castrol All-in-One Helmet Cleaner.
* Localization of high transmission EV fluids and industrial products Alusol SL 41 XBB and NPI-Spheerol SM 00.
* Upgraded Castrol Magnatec to align with the latest API SQ specifications.
* The company is driving brand preference:
* Conducted large-scale city activations across key markets, engaging over 5m biking enthusiasts under the Castrol POWER1 brand.
* The ‘SuperDRIVE with Castrol EDGE’ initiative enabled around 10,000 consumer trials across 10 major cities.
* The Super Mechanic Saptah program garnered participation from more than 5,000 mechanics nationwide.
Key takeaways from the management commentary
* Volume stood at 59m lit (up 7% QoQ)
* Volume split in segments: Personal mobility/CV/Industrial segment – 48-50%/38- 40 %/13-14%
* Segment-wise growth in volumes: Personal mobility/CV/Industrial segment – 6%/8%/double-digit (%) growth.
* The company deals in industrial lubricants such as high-performance lubricants, rust preventives, and metalworking lubricants. These contribute around 12 to 14% volumes.
* About 50-55% of the base oil is imported, while the rest is sourced domestically.
Valuation and view
* Our EBITDA margin assumptions are already within the company’s guided range of 22-25%.
* We value the stock at 26x Dec’27 EPS to arrive at our TP of INR260. We reiterate our BUY rating.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
