Castrol: Sales and profits drop… - Views on News from Equitymaster

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Castrol: Sales and profits drop…

Feb 6, 2001

Castrol has reported its full year results for FY01. Sales of the company have declined for the first time since FY92. The company has been affected by the negative growth in the lubricants industry.

(Rs m) FY00 FY01 Change
Sales 10,275 10,201 -0.7%
Other Income 231 187 -19.0%
Interest 26 72 175.2%
Profit after Tax/(Loss) 2,044 1,344 -34.2%
Net profit margin (%) 19.9% 13.2%  
No. of Shares (eoy) 124 124  
Diluted Earnings per share 16.5 10.9  
P/E Ratio   26  

The company has been hit by a double whammy. With soaring crude oil prices its basic feedstock - base oil - prices have been on the rise. Further, Castrol imports its feedstock and with the rupee depreciating their costs have spiraled. The increased costs could not be passed on, as the company faces increasing competition from the oil PSU's whose products are positioned at lower price points. Consequently, margins have come under squeeze.

The company has written off Rs 54.7 m as voluntary retirement costs (VRS). This has further impacted the bottomline. The company has reported net earnings below our FY01 estimates of Rs 1,491 m, which excludes VRS costs.

The stock price has surged over the last 3 months due to the announcement of a buyback. At Rs 284 the company trades at a multiple of 26x on FY01 earnings.

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