MOSL: CASTROL INDIA (Buy)-EBITDA below estimate-lower volumes due to pre-GST destocking
​Castrol India: EBITDA below estimate; lower volumes due to pre-GST destocking
(CSTRL IN, Mkt Cap USD3.2b, CMP INR391, TP INR489, 25% Upside, Buy)
CSTRL’s 2QCY17 revenue declined 10% YoY (-1% QoQ) to INR8.7b (our estimate: INR9.4b), driven largely by lower volumes due to the impact of GST transition and lingering effect of demonetization. Total volume declined 10% YoY (grew 1% QoQ) to 50.9m liters. Implied realization declined to INR171/liter (flat YoY; -3% QoQ) due to the rebates given in June 2017.
Reported EBITDA of INR2.1b (-33% YoY, -20% QoQ) was significantly below our estimate of INR2.9b, led by an increase in base oil prices due to major supply-demand imbalance in Asia. EBITDA margin shrank to 24.1% in 2QCY17 v/s 29.8% in 1QCY17 and 32.5% in 2QCY16. PAT declined 33% YoY and 23% QoQ to INR1.4b (our estimate: INR1.9b).
CSTRL declared an interim dividend of INR4.5/share for CY17; record date: September 6, 2017.
Volumes down 10% YoY: CSTRL’s total volumes were lower due to pre-GST destocking and decline in volume growth for CVO category (~45% volume share). Volumes grew in PCMO category (~42% volume share), power brands and industrial segment (~13% volume share).
Reducing estimates: On lack of visibility on volume growth, we reduce our volume growth estimates to ~1%/2% v/s 5% earlier for CY17/18. This results in 5/8% cut in our earnings estimates for CY17/18.
Castrol India is a manufacturer, distributor and marketer of lubricating oils, greases and related services to automotive, industrial, marine, aviation, oil exploration and production customers across the world. For automotive lubrication (including motorcycles 2-stroke and 4-stroke engines, car petrol and diesel engines), Co.'s products include a range of manual and automatic transmission fluids, chain lubricants and waxes, coolants, suspension fluids, brake fluids, greases, cleaners and maintenance products. Co. also produces products for agricultural machinery, plant, general industry and marine engineering uses.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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