This Oil & Gas Sector Stock Gave 9.38% In A Month, Buy For 15% Gains, Says Motilal Oswal

Motilal Oswal in its recent repory on the Castrol India Limited (CSTRL) stock maintains buy call witha a target price of Rs 140 per share. According to the given target price, the stock of the company is expected to jump 15% from its current level if purchased at the current market price. Castrol India is a small-cap oil & gas sector company engaged in the business of manufacturing & marketing of automotive and industrial lubricants and related services.

The Indian Lubricants market is expected to grow at 4% in CY23, with the management expecting Cars to be the fastest-growing segment, followed by CVs and Two-Wheelers. Industrial volumes are expected to see good traction as the economy recovers in CY23.

Stock Outlook & Returns

The shares of Castrol India last traded at Rs 122.50 apiece on NSE. Gained 0.37% as compared to its previous close. The stock recorded its 52 week high at Rs 142.50 on 2 November 2021 and 52 week low at Rs 99.05 on 30 March 2022, respectively. It has a market cap of Rs 12,116.75 crore. 
The shares in the past 1 month have jumped 9.38% and 6.61% in the past 3 months, respectively. However, over the past 1 year, the shares have fallen nearly 12.78%, in 3 years 20.99% and in 5 years 40.97%, respectively. 

Miss on EBITDA and PAT; revenue in line

Revenue was in line at INR11.2b, up 4% YoY, but down 10% QoQ. EBITDA fell 2% YoY and 10% QoQ to INR2.6b (est. INR3.1b). EBITDA margin was subdued at 22.9% (v/s 23%/24.5% in 2QCY22/3QCY21) due to forex pressures and volatile crude oil prices, which led to rising costs of additives and base oil. PAT grew 1% YoY, but fell 9% QoQ, to INR1.9b (est. INR2.2b). In 9MCY22, revenue/EBTIDA grew 16%/8% YoY to INR36b/INR8.6b, with EBITDAM declining by 190bp YoY. PAT grew 9% YoY to INR6.2b.

Strategic developments in 3QCY22

CSTRL expanded its Castrol Auto Service/Castrol Express Oil Change network to 210/42 across India. It launched POWER1 ULTIMATE in a 100% recycled bottle, aimed at reducing virgin plastic consumption and decreasing plastic waste. It introduced a unique EV-readiness training program for mechanics.

Valuation and view

Capex guidance for CY22/CY23 remains ~INR1b. It is venturing into new areas such as Castrol Auto Service. Its tie-ups with Jio-BP (which will require capex) will help it gain market share. CSTRL is the perfect candidate of a value play, with a return ratio of ~45% and dividend payout policy of over 70%, translating into a dividend yield of ~5%. On a one-year forward P/E basis, the stock trades at a discount of ~50% to its long-term P/E average of 25.2x. "We value the stock at 16x CY23E EPS to arrive at our TP target price of INR140. We maintain our Buy rating," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.