Purchase Castrol (India); Motilal Oswal aims to earn Rs 160

 Purchase Castrol (India); Motilal Oswal aims to earn Rs 160

According to a research note dated October 30, 2023, Motilal Oswal is optimistic on Castrol (India) and has suggested buying the company with a target price of Rs 160.

The Castrol study report by Motilal Oswal (India)

Castrol (CSTRL) had a 6% YoY increase in revenue to INR11.8b, mostly due to a 9% YoY increase in volumes. However, YoY realization fell by 3%. There are still concerns about inflation, crude oil volatility, and world unpredictability. Due mostly to additive costs being 15-20% higher than in 3QCY22, EBITDAM decreased 20bp YoY to 22.7%. In the next three to six months, base oil prices are anticipated to increase. Volume was 51 million, a sequential decrease brought on by seasonality. The fall was ascribed to the weaker-than-expected demand in agriculture during the monsoon season. The management said that the PV sector accounted for 40% of total volume, the CV segment for 35%, and the industrial segment for 15%. In 4QCY23, the management is still hopeful about maintaining growth.  CSTRL is currently developing thermal solutions for EV batteries and already carries a line of EV-specific fluids. The corporation's strong interest in battery thermal management was highlighted last year when BP, the parent company of CSTRL, announced a worldwide investment of EUR50 million in this area.

Prospects

CSTRL has always taken pride in its brand heritage, and we think that with improved cost management, a more varied product line, and the introduction of cutting-edge goods with superior realisation, it will be able to maintain its profitability. With a target price of INR160, we maintain our BUY recommendation on the stock.