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MOSL: CASTROL INDIA (Buy)-Realizations improve-volumes suffer on subdued industrial off-take

CASTROL INDIA: Realizations improve; volumes suffer on subdued industrial off-take

(CSTRL IN, Mkt Cap USD2.1b, CMP INR154, TP INR177, 15% Upside, Buy) 

3QCY19 net sales were down 8% YoY to INR8.5b (~7% miss), owing to 14% YoY decline in volumes. Realizations jumped 6% YoY. EBITDA was up 8% YoY to INR2.4b (in line with est.). PAT was up 25% YoY to INR1.9b. PBT was at INR2.4b (in line with est.); company took one-time tax advantage of the corporate tax cut. Tax for the quarter stood at 20.6% and a full tax rate of 25.17% is expected going forward.

For 9MCY19, Net sales were flat YoY at INR28.65b, while EBITDA was up 8% YoY to INR8.1b with net profit at INR5.6b (+12% YoY).

Volume decline continues: CSTRL's total volume stood at 44.2m liters (v/s 51.2m liters in 3QCY18 and 55.4m liters in 2QCY19). Personal mobility continues to be a key driver with an increase of +4% YoY, while commercial vehicle/industrial segment showed declines.

• Decline in quarterly volumes was majorly on account of double- digit YoY decline in the industrial segment, as factories took a shutdown and were running at lower utilization rates.
• PCMO constitutes ~45-50% of volumes and industrial constitutes ~12% while the rest is CVO. 2W continues to constitute ~2/3rd of the PCMO; with contribution of PCMO towards profits being higher.

Realization for 3QCY19 improved to INR192/liter v/s INR181/liter in 3QCY18 and INR188/liter in 2QCY19.

• Oil drain intervals are expected to rise in commercial segment for BSVI engines, however, BSVI products will be at a premium for improved quality; and will also be backward compatible (i.e. will be usable for even BSIV engines).