CMP 440.20

Target Price 505.00

ISIN: INE172A01027

NOVEMBER 9th, 2015

12th h, 2013

CASTROL INDIA LTD.

Result Update (PARENT BASIS): Q3 CY15

BUY

Index Details

Stock Data

Sector Oil Marketing

BSE Code 500870

Face Value 5.00

52wk. High / Low (Rs.) 544.00/409.00

Volume (2wk. Avg.) 39000

Market Cap (Rs. in mn.) 217722.92

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS CY14A CY15E CY16E

Net Sales 33923.00 34043.39 36222.17

EBITDA 7648.00 10042.34 11160.57

Net Profit 4745.00 6285.94 6951.02

EPS 9.59 12.71 14.05

P/E 45.88 34.64 31.32

Shareholding Pattern (%)

(QUARTERLY) As on Sep-15 As on Jun-15

PROMOTER 71.03 71.03

FIIs 6.52 5.68

DIIs 7.31 8.12

OTHERS 15.14 15.17

1 Year Comparative Graph

CASTROL INDIA LTD. S&P BSE SENSEX

SYNOPSIS

Castrol is one of the world’s leading manufacturers

and marketers of premium lubricating oils, greases,

metal working fluids, control fluids and related

services to automotive, manufacturing, mining, marine

etc., across the world.

The company’s Net profit rose by 21.46% y-o-y in Q3

CY15 and stood at Rs. 1432.00 million against Rs.

1179.00 million in the corresponding quarter of the

previous year.

In Q3 CY15, Net Sales stood at Rs. 7843.00 million as

compared to Rs. 8023.00 million in Q3 CY14.

EBITDA or Operating profit was at Rs.2308.00 million,

an increase of 23.03% y-o-y in Q3 CY15 as against

Rs.1876.00 million in Q3 CY14.

During the quarter, other income grown by 29.57% y-

o-y of Rs. 149.00 million as against Rs. 115.00 million

in the corresponding period of the previous year.

In Q3 CY15, Profit before Tax grew by 24.19% y-o-y of

Rs. 2213.00 million compared to Rs. 1782.00 million in

Q3 CY14.

For the nine month period Jan–Sep 2015, Net Profit

was up by 38.51 % to Rs. 4744.00 million as against

Rs. 3425.00 million for the same period previous year.

The company received a number of external awards

during the quarter under review and was ranked #12

on the list of Brand Z® India’s Top 50 Most Valuable

brands.

Operating Profit and PAT of the company are expected

to grow at a CAGR of 13% and 12% over 2013 to

2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Castrol India Ltd. 440.20 217722.92 9.59 45.88 43.83 150.00

Indian Oil Corp Ltd. 409.95 997038.70 40.18 10.22 1.40 87.00

Petronet LNG Ltd. 210.70 156750.00 12.79 16.34 2.76 20.00

Gulf Oil Lubricants India Ltd 483.00 23943.50 16.96 28.48 12.80 275.00

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q3 CY15,

Castrol India manufactures and markets a range of automotive and industrial lubricants. The business continues

to be driven by strong performance in personal mobility segment with Castrol Active increasing its market share

and strengthening its leadership position in the two-wheeler engine oil category. Continuing on the automotive

performanc has reported its financial results for the quarter ended 30th September, 2015.

The company has achieved a turnover of Rs. 7843.00million for the 3rd quarter of the calendar year 2015 as

against Rs. 8023.00 million in the corresponding quarter of the previous year. Net profit rose by 21.46% y-o-y in

Q3 CY15 and stood at Rs. 1432.00 million against Rs. 1179.00 million in the corresponding quarter of the

previous year. EBITDA or Operating profit was at Rs.2308.00 million, an increase of 23.03% y-o-y in Q3 CY15 as

against Rs.1876.00 million in Q3 CY14. EPS of Rs. 2.90 for the 3rd quarter of CY15 as against an EPS of Rs. 2.38 in

the corresponding quarter of the previous year.

Break up of Expenditure:

Break up of Expenditure

Rs. Millions

Q3 CY15 Q3 CY14 Chg %

Cost of Materials Consumed 3352.00 4204.00 -20%

Depreciation 94.00 84.00 12%

Employees Benefit Expenses 467.00 445.00 5%

Other Expenditure 1398.00 1338.00 4%

Purchase of Stock-in-Trade 549.00 402.00 37%

MONTHS Sep-15 Sep-14 % Change

Net Sales 7843.00 8023.00 (2.24)

PAT 1432.00 1179.00 21.46

EPS 2.90 2.38 21.46

EBITDA 2308.00 1876.00 23.03

Segment Revenue

COMPANY PROFILE

Castrol India Limited is a Public Limited Company with 70.92% of the equity held by Castrol Limited UK (part of

BP Group). From a minor oil company, with a share of about 6% in 1991, Castrol India has grown to become the

second largest lubricant company in India with a market share of around 25%. Castrol India manufactures and

markets a range of automotive and industrial lubricants. It markets its automotive lubricants under two brands -

Castrol and BP. The company has leadership positions in most of the segments in which it operates including

passenger car engine oils, 4-stroke oils and multi-grade diesel engine oils. Castrol India has the largest

manufacturing and marketing network amongst the lubricant companies in India. The company has three

manufacturing plants, including a state-of-the-art plant in Silvassa. All three blending plants of Company are

certified for the environment Management system (ISO 14001) and occupational Health & Safety Management

System (OHSAS 18001).

Castrol is one of the world’s leading manufacturers and marketers of premium lubricating oils, greases, metal

working fluids, control fluids and related services to automotive, manufacturing, mining, marine, and oil

exploration and production customers across the world. Castrol couples high quality lubricant engineering with

an expert technical support network and supply capability to deliver quality solutions wherever customers need

them. Today, the company’s vast portfolio of high performance lubricants, including Castrol EDGE, Castrol

MAGNATEC and Castrol Power1, are available in almost 140 countries worldwide. Part of the BP group, the

company is headquartered in the UK. At the forefront of pioneering technology with its 13 R&D centers globally,

Castrol invests every year in research and development of lubricants. Castrol’s global teams of specialists have a

deep understanding of what customers need and advise on solutions designed to optimize performance and help

improve quality, productivity and the environmental, health and safety profiles of their customers. The brand

represents over 100 years’ experience in ‘liquid engineering’ : producing advanced lubricants for a wide range of

applications, from manufacturing processes and metalworking to mining, shipping and marine activities and

energy production. Castrol’s products and services play a critical role in lubricating the global economy through

what is mined, made and moved around the world.

Products & Services

Passenger Car Oil

Which Oil

Motorcycles

Engine Oil

Gearless Scooter Oil

Commercial Vehicle Oil

Specialty Range

Castrol Professional

Castrol Pitstop

Castrol Bike Point

GLOBAL BUSINESSES

Marine

Oil & Gas

Automotive Manufacture

Aerospace

Power Generation

Machinery

Metals

Mining

Aviation

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at DECEMBER 31, 2013A -2016E

CASTROL INDIA LTD. CY13A CY14A CY15E CY16E

I. EQUITY AND LIABILITIES:

A. Shareholders’ Funds:

a) Share Capital 4945.60 2472.80 2473.00 2473.00

b) Reserves and Surplus 2568.60 2495.00 3542.90 4145.19

Sub Total-Net worth 7514.20 4967.80 6015.90 6618.19

B. Non-Current Liabilities:

a) Long Term Provisions 108.30 110.30 103.68 107.21

b) Other Long Term Liabilities 24.80 26.40 27.84 29.06

Sub Total-Long term liabilities 133.10 136.70 131.52 136.27

C. Current Liabilities:

a) Trade Payables 4728.30 5398.60 6046.43 6651.08

b) Other Current Liabilities 1209.50 1373.50 1505.36 1625.78

c) Short Term Provisions 2565.00 3041.80 3802.25 4410.61

Sub Total-Current Liabilities 8502.80 9813.90 11354.04 12687.47

TOTAL EQUITY AND LIABILITIES (A+B+C) 16150.10 14918.40 17501.46 19441.93

II. ASSETS:

D. Non-Current Assets:

Fixed Assets

i. Tangible Assets 1432.20 1622.10 1810.26 1955.08

ii. Intangible Assets 2.40 98.60 140.01 170.81

iii. Capital work-in-progress 318.70 156.70 81.48 54.59

a) Sub-Total- Fixed Assets 1753.30 1877.40 2031.76 2180.49

b) Deferred tax assets 529.60 618.10 692.27 761.50

c) Long Term Loans and Advances 875.90 850.30 867.31 879.45

Sub Total- Non-Current Assets 3158.80 3345.80 3591.34 3821.44

E. Current Assets:

a) Inventories 3740.10 3654.70 3680.55 3776.24

b) Trade Receivables 2372.40 2715.00 3073.38 3396.08

c) Cash and Bank Balances 5942.20 4314.50 6005.78 7041.85

d) Short Term Loans and Advances 864.40 862.10 1103.49 1346.26

e) Other Current Assets 72.20 26.30 46.92 60.06

Sub Total- Current Assets 12991.30 11572.60 13910.12 15620.49

TOTAL ASSETS (D+E) 16150.10 14918.40 17501.46 19441.93

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) CY13A CY14A CY15E CY16E

Description 12m 12m 12m 12m

Net Sales 31796.00 33923.00 34043.39 36222.17

Other Income 836.00 481.00 854.60 1054.58

Total Income 32632.00 34404.00 34898.00 37276.75

Expenditure -24692.00 -26756.00 -24855.65 -26116.18

Operating Profit 7940.00 7648.00 10042.34 11160.57

Interest -17.00 -24.00 -7.25 -6.16

Gross profit 7923.00 7624.00 10035.09 11154.40

Depreciation -305.00 -361.00 -418.38 -476.95

Profit Before Tax 7618.00 7263.00 9616.71 10677.45

Tax -2532.00 -2518.00 -3330.77 -3726.43

Net Profit 5086.00 4745.00 6285.94 6951.02

Equity capital 4946.00 2473.00 2473.00 2473.00

Reserves 2568.00 2495.00 3542.90 4145.19

Face value 10.00 5.00 5.00 5.00

EPS 10.28 9.59 12.71 14.05

Quarterly Profit & Loss Statement for the period of 31st Mar, 2015 to 31st Dec, 2015E

Value(Rs.in.mn) 31-Mar-15 30-June-15 30-Sep-15 31-Dec-15E

Description 3m 3m 3m 3m

Net sales 7992.00 9236.00 7843.00 8972.39

Other income 435.00 152.00 149.00 118.60

Total Income 8427.00 9388.00 7992.00 9091.00

Expenditure -6085.00 -6474.00 -5684.00 -6612.65

Operating Profit 2342.00 2914.00 2308.00 2478.34

Interest -3.00 -2.00 -1.00 -1.25

Gross profit 2339.00 2912.00 2307.00 2477.09

Depreciation -111.00 -94.00 -94.00 -119.38

Profit Before Tax 2228.00 2818.00 2213.00 2357.71

Tax -761.00 -973.00 -781.00 -815.77

Net Profit 1467.00 1845.00 1432.00 1541.94

Equity capital 2473.00 2473.00 2473.00 2473.00

Face value 5.00 5.00 5.00 5.00

EPS 2.97 3.73 2.90 3.12

Ratio Analysis

Particulars CY13A CY14A CY15E CY16E

EPS (Rs.) 10.28 9.59 12.71 14.05

EBITDA Margin (%) 24.97 22.55 29.50 30.81

PBT Margin (%) 23.96 21.41 28.25 29.48

PAT Margin (%) 16.00 13.99 18.46 19.19

P/E Ratio (x) 42.81 45.88 34.64 31.32

ROE (%) 67.69 95.51 104.49 105.03

ROCE (%) 109.73 161.21 173.88 175.84

EV/EBITDA (x) 6.49 6.20 6.07 5.65

Book Value (Rs.) 15.19 10.04 12.16 13.38

P/BV 28.98 43.83 36.19 32.90

Charts

OUTLOOK AND CONCLUSION

At the current market price of Rs.440.20, the stock P/E ratio is at 34.64 x CY15E and 31.32 CY16E

respectively.

Earning per share (EPS) of the company for the earnings for CY15E and CY16E is seen at Rs. 12.71 and Rs.

14.05 respectively.

Operating profit and PAT of the company are expected to grow at a CAGR of 13% and 12% over 2013 to

2016E respectively.

On the basis of EV/EBITDA, the stock trades at 6.07 x for CY15E and 5.65 x for CY16E.

Price to Book Value of the stock is expected to be at 36.19 x and 32.90 x respectively for CY15E and CY16E.

The strong result during the first nine months of the year have been achieved in an environment which

continues to be challenging for Commercial Vehicle Oils and Industrial lubricant oils. Looking ahead, although

the drop in crude oil price has translated into lower base oil cost, the company is likely to experience

volatility in the cost of goods due to volatile Rupee exchange rate. In the longer run, the company continues

to remain optimistic about the Indian lubricant market and its business growth. The company is in a strong

position to benefit from growth prospects on account of its strong brand. Hence, we recommend ‘BUY’ in this

particular scrip with a target price of Rs. 505.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

The oil and gas sector is one of the six core industries in India. It is of strategic importance and plays a pivotal

role in influencing decisions across other important spheres of the economy. The oil and gas industry in India is

anticipated to be worth US$ 139,814.7 million by 2015. With India’s economic growth closely linked to energy

demand, the need for oil and gas is projected to grow further, rendering the sector a fertile ground for

investment.

To cater to the increasing demand, the Government of India has adopted several policies, including allowing 100

per cent foreign direct investment (FDI) in many segments of the sector, such as natural gas, petroleum products,

and refineries, among others. The government’s participation has made the oil and gas sector in the country a

better target of investment. Today, it attracts both domestic and foreign investment, as attested by the presence

of Reliance Industries Ltd (RIL) and Cairn India.

Market Size

Backed by new oil fields, domestic oil output is anticipated to grow to 1 MBPD by FY16.

IOCL operates 11,214 km network of crude, gas and product pipelines, with a capacity of 1.6 MBPD of oil and 10

million metric standard cubic metre per day (MMSCMD) of gas. This is around 30 per cent of the nation’s total

pipeline network. IOCL is the largest company, operating 10 out of 22 Indian refineries, with a combined capacity

of 1.3 MBPD.

Investment

Kirloskar Oil Engines Ltd (KOEL) and MTU Friedrichshafen, GmbH have signed a memorandum of

understanding (MoU). The MoU lays down exclusive cooperation on the building and commissioning of

emergency diesel gensets (EDG).

CDP Bharat Forge GmbH has acquired 100 per cent equity shares of Mécanique Générale Langroise (MGL) for

€ 11.8 million (US$ 12.91 million). The acquisition would consolidate Bharat Forge’s position in the oil and

gas sector by enhancing service offerings and geographical reach.

Technip has won a € 100 million (US$ 109.37 million) contract from Oil and Natural Gas Corporation (ONGC)

to build an onshore oil and gas terminal in Andhra Pradesh

RIL and Mexican state-owned company Petroleos Mexicanos (Pemex) entered into a memorandum of

understanding (MoU) for cooperation in the oil and gas sector.

GAIL Global USA LNG LLC (GGULL) signed an agreement with the US-based WGL Midstream Inc to source gas

required to produce 2.5 MT of liquefied natural gas (LNG) a year at the Cove Point Terminal in Maryland, US.

Russian oil major Rosneft and the Essar Group have entered into a contract for Rosneft to buy 49 per cent

stake in Essar’s Vadinar refinery and supply 100 million tonnes of oil to Essar for the next 10 years.

The Carlyle Group plans to invest US$ 500 million in Magna Energy Ltd, an India-focused upstream oil and

gas company that aims to secure local licenses in India with a primary focus on development and production.

RIL aims to invest US$ 31.7 billion in core oil and petrochemical business over the next 12-18 months.

IOCL targets to increase the capacity of its Panipat refinery by 34 per cent, to 20.2 million tonnes by 2020

through an investment of US$ 2.38 billion. IOC also plans to increase capacity of Koyali and Mathura

refineries.

Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

Government of India entered into bilateral discussion with Norway to extend co-operation between the two

countries in the field of oil and natural gas and hydrocarbon exploration.

To strengthen the country`s energy security, oil diplomacy initiatives have been intensified through

meaningful engagements with hydrocarbon rich countries.

PAHAL - Direct Benefit Transfer for LPG consumer (DBTL) scheme launched in 54 districts on November 11,

2014 and expanded to rest of the country on January 1, 2015 will cover 15.3 crore active LPG consumers of

the country.

24 x 7 LPG service via web launched to provide LPG consumers an integrated solution to carry out all

services at one place, through MyLPG.in, from the comfort of their home.

The Government of India launched the 'Give It Up' campaign on LPG subsidy that helped it save Rs 140 crore

(US$ 21.11 million) as on 22nd July 2015 with nearly 12.6 lakh Indians registering for the cause. As per

recent statistics from oil ministry, as many as 30,000 to 40,000 households are giving up LPG subsidy each

day.

Special dispensation for North East Region: For incentivising exploration and production in North East

Region, 40 per cent subsidy on gas price has been extended to private companies operating in the region,

along with ONGC and OIL.

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister has approved a mechanism

for procurement of Ethanol by Public Sector Oil Marketing Companies (OMCs) to carry out the Ethanol

Blended Petrol (EBP) Program.

Road Ahead

By 2015-16, India’s demand for gas may touch 124 MTPA against a domestic supply of 33 MTPA and higher

imports of 47.2 MTPA, leaving a shortage of 44 MTPA, as per projections by the Petroleum and Natural Gas

Ministry of India. Business Monitor International (BMI) predicts that India would account for 12.4 per cent of

Asia-Pacific regional oil demand by 2015.

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purchase or sale of any financial instrument or as an official confirmation of any transaction. The information

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it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be

in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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