MOSL: CASTROL INDIA (Buy)-In-line EBITDA-strong volume growth led by pickup in CV volume

Castrol India: In-line EBITDA; strong volume growth led by pickup in CV volume

(CSTRL IN,Mkt Cap USD2.4b, CMP INR168, TP INR218, 30% Upside, Buy)

• CSTRL’s 2QCY18 revenue grew 17% YoY (and 10% QoQ) to INR10.2b, beating our estimate of INR9.4b, led by (a) higher volumes at 57m liters (+12% YoY, +11% QoQ; our estimate: 53m liters), and (b) better realizations at INR178/liter (+4% YoY, -1% QoQ; our estimate: INR177/liter). Sequential decline in realization despite price hikes can be attributed to shift in product mix.
• Reported EBITDA of INR2.5b (+20% YoY, -8% QoQ) was in line with our estimate despite beat on revenues, led by higher than expected raw material cost of INR90.8/liter (+8% YoY, +8% QoQ; our estimate: INR88.5/liter). EBITDA margin was 24.7% in 2QCY18 (24.1% in 2QCY17; 29.6% in 1QCY18).
• PAT grew 19% YoY (-10% QoQ) to INR1.6b against our estimate of INR1.7b, impacted by (a) lower other income of INR173m (our estimate: INR224m; +12% YoY, -24% QoQ), and (b) higher tax rate of 36%.
• Volumes up 12% YoY to 57m liters: CSTRL’s total volumes grew 12% YoY, led by double-digit volume growth in the PCMO segment (~41% volume share) and CVO segment (~46% volume share). CVO segment volume grew higher than PCMO segment; the growth was on account of pickup in economic activity.