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MORNING INSIGHT October 25, 2012 We recommend REDUCE on Castrol India with a price target of Rs.302 Automotive Segment - YoY improved performance In Q3CY12, Castrol India shown net revenue de-growth of 16.9% QoQ but has shown growth of 10.5% YoY to Rs.6.25 Bn, partly due to base effect. Automotive segment had contributed ~86.8% of the revenue, up by 2.7% YoY but down by 1.5% QoQ. Further, operating profit was flat YoY basis but down by 30.9% on sequential basis. EBIDTA margin has fallen by 190bps YoY and by 340bps QoQ to 16.6%, EBIDTA for the quarter stand at Rs.1.04 Bn, down by 30.9% QoQ. Industrial and Building & Construction Segment In Q3CY12, Castrol India booked a revenue de-growth of 11% YoY and 4.9% QoQ to Rs.947 Mn. Industrial segment contributed ~13.2% of the total revenue down by 2.7% YoY but up by 1.5% QoQ. It terms of operating profit, this segment has contributed 12.6% of the total operating profit. EBIDTA margin has fallen by 840bps YoY and by 290bps QoQ to 15.7%, EBIDTA for the quarter stand at Rs.149 Mn. Industrial growth led to increase in lubricant consumption in manufacturing units Organisation for Economic Co-operation and Development (OECD) composite leading indicators (CLIs) is pointing slowdown in economy OECD composite leading indicators (CLIs) is designed to anticipate turning points in economic activity relative to trend, which point to an increasing pace of economic activity. Based on this, we believe India is a slowdown phase as the OECD (India) is at 97.5. We believe this will impact the industrial demand of lubricants in CY12. OECD Composite leading Indicators 102 101 100 99 98 97 99.0 100 Source: Bloomberg 100, long-term trend in industrial production INDIA CHINA OECD Reference series Slowdown Growth cycle phases of the CLI are defined as follows: expansion (increase above 100), downturn (decrease above 100), slowdown (decrease below 100), recovery (increase below 100). CLI data is of 29 OECD member countries and 6 OECD nonmember economies. Comments: The horizontal line 100 shows the long-term trend in industrial production (the reference series). Expansion denotes a CLI increasing above 100. Downturn a CLI decreasing but still above 100 Slowdown a CLI decreasing below 100; recovery a CLI increasing but below 100 Outlook and valuation: � Our revised earnings estimate with EPS of Rs.8.7 CY12E and Rs.9.7 CY13E and cash EPS of Rs.9.2 CY12E and Rs.10.3 CY13E � On the basis of our estimates, the stock at current market price of Rs.323 is expensively valued at 11.3x EV/EBIDTA, 33.2x P/E and 22.2x P/BV on the basis of CY13E earnings. � Based on our DCF valuation model, the 12-month target price of Castrol is Rs.302. We believe the current price discounts most of the positives and hence we maintain REDUCE. Castrol's management has also guided that the next few quarters are likely to be challenging. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 14
MORNING INSIGHT October 25, 2012 Bulk deals Trade details of bulk deals Date Scrip name Name of client Buy/ Quantity Avg. Sell of shares price 23-Oct Aishwarya Tele G Rama Manohar Reddy S 147,486 12.23 23-Oct Aishwarya Tele Hari Krishna Reddy Kallam B 116,000 12.22 23-Oct Associated Fin Tidal Securities Pvt Ltd B 27,240 37.55 23-Oct Boston Bio Payalben Purvin Patel S 50,000 4.24 23-Oct Boston Bio Yadav Chhatrasinh Cheeranjilal S 44,025 4.43 23-Oct Boston Bio Brijesh Parekh HUF B 50,000 4.22 23-Oct Boston Bio Brijesh Jitendra Parekh B 100,000 4.33 23-Oct Croitre Inds Rakesh Dua S 40,000 31.25 23-Oct Croitre Inds Atul Mittal S 40,000 31.01 23-Oct Croitre Inds Jehil Kalpesh Jhaveri B 40,000 31.25 23-Oct Diamonpower-$ The Royal Bank Of Scotland Asia Merchant Bank Singapore Lt B 550,000 113.40 23-Oct Diamonpower-$ Abn Amro Bank NV S 550,000 113.40 23-Oct Eastern Sugar Nnp Trading & Investments Pvt Ltd S 85,000 9.35 23-Oct Farry Inds Suresh Indravadan Jain B 24,870 18.75 23-Oct Farry Inds Sheela Ashok Soni S 21,874 18.75 23-Oct Gemstone Invest Ashirwad Investments Pvt Ltd B 400,839 18.00 23-Oct Indergiri Fin Bridgeway Fiduciary Advisors Pvt Ltd S 30,000 9.40 23-Oct Indergiri Fin Pritam Dutt B 61,570 9.40 23-Oct Jaihind Proj Jagdish Amritlal Shah B 77,250 69.35 23-Oct Jaihind Proj Anupam Narain Gupta S 50,475 69.50 23-Oct KGN Inds The Royal Bank Of Scotland Asia Merchant Bank Singapore Ltd B 1,520,000 18.00 23-Oct KGN Inds Abn Amro Bank NV S 1,520,000 18.00 23-Oct Liberty Phos Grebal Capital Services Pvt Ltd B 72,813 173.05 23-Oct Menon Pistons Savita Satish Gopi S 150,000 95.00 23-Oct Menon Pistons Sachin Ram Menon B 150,000 95.00 23-Oct Panchsheel Org Kishore Abhaychand Turakhia B 149,039 17.75 23-Oct Panchsheel Org Arti Kishore Turakhia S 149,039 17.75 23-Oct Panchsheel Org Paresha Rajesh Turakhia S 87,300 17.75 23-Oct Panchsheel Org Rajesh Abhaychand Turakhia B 86,400 17.75 23-Oct Pasupati Fin Orion Investmart Pvt Ltd B 170,266 28.62 23-Oct Pasupati Fin Charishma Engineering Limited S 94,592 28.65 23-Oct PFL Infotech The Royal Bank Of Scotland Asia Merchant Bank Singapore Lt B 342,726 26.25 23-Oct PFL Infotech Abn Amro Bank NV S 347,250 26.25 23-Oct Poly Medicure Vision Millenium Exports Pvt Ltd S 106,487 325.22 23-Oct RCL Retail Golden Enterprises B 70,000 9.42 23-Oct Shalibhadra Fin Shah Dhiren Anilbhai B 30,000 54.80 23-Oct Shalibhadra Fin Dave Rakin Shivprasad S 30,000 54.80 23-Oct Shreychem Kishor Valji Gohil S 35,000 74.07 23-Oct Shreychem Vasani Tarunkumar Dalichand B 75,000 73.87 23-Oct Tatia Global Battle Vyapaar Pvt Ltd S 1,347,725 3.50 23-Oct Venus Power Ven Srikrishna Vadlamudi B 94,000 15.99 23-Oct Visagar Fin Ser Chintpurni Distributors Pvt Ltd S 90,000 22.65 23-Oct Visagar Fin Ser Santokhi Merchandise Pvt Ltd S 119,300 22.65 23-Oct Visagar Fin Ser Chamunda Vinimay Pvt Ltd S 85,500 22.65 Source: BSE Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 15 (Rs)
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