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Castrol: Marketing push offsets costs - Views on News from Equitymaster

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Castrol: Marketing push offsets costs

Feb 23, 2011

Castrol India Ltd. has announced its CY 2010 annual results. The company has reported a 17.8% YoY increase in topline and 28.7% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline increases by 14.0%YoY during the quarter. For CY10, the revenues were up by 17.8% YoY.
  • Operating profits increased by 22.8% during the quarter, with margins expanding to 22.5% from 20.9% (YoY). For CY10, operating profits were up by 25.3% YoY, with margins expanding to 26.7% from 25.1% (YoY)
  • Bottomline registered an increase of 31.1% YoY during the quarter, with net profit margins expanding to 15.2% from 13.2% (YoY). For CY10, the net profits were up by 28.7% YoY, with net profit margins expanding to 17.9% from 16.4% (YoY).
  • The Board declared a final dividend of Rs 8.0 per share. The company has already paid an interim dividend of Rs 7 a share. Hence, the total dividend for the year amounts to Rs 15 a share.


(Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
Net sales 6,124 6,981 14.0% 23,280 27,429 17.8%
Expenditure 4,845 5,411 11.7% 17,428 20,097 15.3%
Operating profit (EBDITA) 1,279 1,570 22.8% 5,852 7,332 25.3%
EBDITA margin (%) 20.9% 22.5%   25.1% 26.7%  
Other income 31 87 180.6% 263 313 19.0%
Interest 14 7 -50.0% 35 24 -31.4%
Depreciation 68 62 -8.8% 272 243 -10.7%
Profit before tax 1,228 1,588 29.3% 5,808 7,378 27.0%
Profit before tax margin (%) 20.1% 22.7%   24.9% 26.9%  
Tax 420 529 26.0% 1,997 2,475 23.9%
Profit after tax/(loss) 808 1,059 31.1% 3,811 4,903 28.7%
Net profit margin (%) 13.2% 15.2%   16.4% 17.9%  
No. of shares (m)         247  
Diluted earnings per share (Rs)         19.8  
Price to earnings ratio (x)         21.0  

What has driven the performance in CY10?
  • The 14.0% YoY growth in Castrolís topline was driven by higher sales of premium products and higher unit realizations.

  • The growth in sales for the full year was followed by 25.3% YoY growth in operating profits. The EBITDA margins for the year grew by 1.6% YoY as a 2.2% increase in raw materials cost (as a % of sales) was more than offset by decline in advertising, staff, freight and other operating costs (as a % of sales).

  • The companyís net profits increased by 28.7% YoY on account of higher operating profits, increase in other income and decline in depreciation and finance charges.

    Cost break-up
    (Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
    Raw materials 2,996 3,634 21.3% 11,237 13,846 23.2%
    % sales 48.9% 52.1%   48.3% 50.5%  
    Staff cost 250 306 22.4% 1,122 1,035 -7.8%
    % sales 4.1% 4.4%   4.8% 3.8%  
    Advertising cost 462 509 10.2% 1,495 1,624 8.6%
    % sales 7.5% 7.3%   6.4% 5.9%  
    Carriage, Insurance & Freight 175 178 1.7% 703 809 15.1%
    % sales 2.9% 2.5%   3.0% 2.9%  
    Other expenditure 962 784 -18.5% 2,871 2,783 -3.1%
    % sales 15.7% 11.2%   12.3% 10.1%  
    Total cost 4,845 5,411 11.7% 17,428 20,097 15.3%
    % sales 79.1% 77.5%   74.9% 73.3%  

What to expect?
The company has managed to register impressive gains in the top line and bottomline despite a steep increase in raw material prices. Though raw material prices are expected to remain high, we believe that the company will be able to maintain a sustainable growth on the back of its marketing push and general growth in the economy, especially demand for transportation and growth in infrastructure segment.

At the current market price of Rs 417, the stock is trading at around 20x times its expected CY12 earnings per share (Research pro subscribers please click here. We believe that Castrol is fairly valued at this juncture.

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