Castrol India's current price offers healthy Free Cash Flow/Dividend Yield.

Chirag Batavia • 1 March 2021

Castrol India Ltd (CSTRL)

 The management remained optimistic on recovery in volume growth  given pickup in passenger and freight movement across the country  and uptick in realizations following a blended 4% price hike in Jan’21  to pass on higher RM costs.

 In CY20, revenues declined by 23% yoy, EBITDA declined by 28% yoy  and adjusted net profit declined by 28% yoy. Free cash flow increased  from Rs.770 cr in CY19 to Rs.850 cr in CY20 due to efficient working  capital and low capex.          

 A rebound in volumes during CY21 will augur well for the stock  not withstanding increase in RM costs. Expect earnings to grow by  49.8% in CY21E and 8.1% in CY22E.

 Current price offers healthy Free Cash Flow/Dividend Yield. Our Fair  value of Rs.165 is based on discounted cash flow method (DCF)  implying 17x PE multiple on Dec’22E EPS.

 Risk: Key base oil prices have increased sharply in recent months.  Castrol earnings are leveraged to exchange rate and raw material  prices.

Castrol India Ltd (CSTRL)
Dated: 1st March 2021
CMP: Rs.130
Fair Value: Rs.165
Potential Upside: 26.9%
Time Frame: 12 months

Note: The above is a brief note on the company, based on the inputs of KIE research  report dated 4th February 2021, which is available on their website  at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.  Disclaimer: http://bit.ly/2n5AxIE


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