X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Castrol: Slippery road ahead - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 2, 2004

    Castrol: Slippery road ahead

    Castrol India is a leading private sector lubricant major with a market share of 20%. However, over the past few years, the company's topline growth has been stagnating (growth of a mere 1.5% in FY04). The company's operating margins have reduced by 14% while the bottomline has suffered by 10% YoY.

    (Rs m) 4QFY03 4QFY04 Change FY03 FY04 Change
    Net sales 3,078 3,281 6.6% 11,543 11,712 1.5%
    Other income 37 53 45.6% 157 191 21.8%
    Expenditure 2,446 2,824 15.4% 9,188 9,691 5.5%
    Operating profit (EBDITA) 631 457 -27.5% 2,354 2,021 -14.2%
    Operating profit margin (%) 20.5% 13.9%   20.4% 17.3%  
    Interest 13 5 -61.7% 75 26 -65.5%
    Depreciation 35 37 4.6% 134 143 6.8%
    Profit before tax 620 469 -24.3% 2,303 2,044 -11.3%
    Tax 220 147 -33.1% 774 670 -13.5%
    Profit after tax/(loss) 400 322 -19.5% 1,529 1,374 -10.2%
    Net profit margin (%) 13.0% 9.8%   13.2% 11.7%  
    No. of shares (m) 123.6 123.6   123.6 123.6  
    Diluted earnings per share (Rs)* 12.9 10.4   12.4 11.1  
    P/CF ratio (x)         16.1  
    (* annualised)            

    The company's topline performance, though only a 6% growth in 4QFY04, is much higher than what we have seen during the course of FY04. Over the last three years, the company has been finding it hard to grow its topline in light of the aggressive promotions by PSU majors like IOC, BPCL and HPCL. Though Castrol continues to maintain its leadership position in the bazaar segment, it is slowly coming under threat. On the company sales front also (i.e. direct sales to auto manufacturers and the like), growth prospects remain challenging. However, on the back of the launch of CRB Plus, topline growth seem to have gained momentum as is reflected in the graph below.

    The company's vulnerability to rising raw material prices and the inability to increase prices to pass the rise in input cost is reflected in the operating margin in 4QFY04 as well for FY04 as a whole. Just to put things in perspective, raw material costs (primarily base oil) constitute around 55% of the topline. Although Castrol did benefit from the appreciating rupee, the overall impact of high operating expenditure outweighs the benefits, thereby resulting in a dramatic decline in EBIDTA margins YoY. While Castrol was able to control staff costs, high advertisement expenditure coupled with higher other expenditure impacted the margins adversely. Further, increasing competition and the fact of low entry barriers in the lubricants business, Castrol's performance is likely to deteriorate in the near term.

    The bottomline has declined by 20% during the 4QFY04 largely due to the trickle down effect of lower operating margins. However, the results would have been worse but for the low interest expenses during the quarter as compared to the corresponding period previous fiscal. To put things in perspective, Castrol was able to reduce its interest expenditure by 62% during the quarter.

    Currently, the stock is trading at a price to cash flow multiple of 16.1x its FY04 earnings. Going forward, we believe that increasing competition from existing players like IOC, BPCL and HPCL and likely entrants like Shell and Reliance would impact growth. Despite very strong brand equity on the bazaar side, Castrol shall find it tough to grow. All in all, we believe Castrol faces some serious challenge ahead. However, it remains to be seen how the MNC parent major, British Petroleum, shapes its future.

     

     

    Equitymaster requests your view! Post a comment on "Castrol: Slippery road ahead". Click here!

      
     

    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Castrol India: Volume Growth Continues (Quarterly Results Update - Detailed)

    Aug 2, 2016

    Castrol India Ltd has announced results for the second quarter of the current year ended December 2016. The company has reported a year on year (YoY) growth of 5.2% in the net sales while net profits for the quarter grew 12.1% YoY during the quarter.

    Castrol India: A smooth quarter (Quarterly Results Update - Detailed)

    May 10, 2016

    Castrol Ltd has reported 7.1% year on year (YoY) growth in the topline for the quarter ended March 2016 while the bottomline for the quarter grew 17.5% YoY.

    Castrol India: Lower input cost offsets volume decline (Quarterly Results Update - Detailed)

    Mar 1, 2016

    Castrol Ltd has reported 7.9% year on year (YoY) decline in the topline for the quarter ended December 2015 while the bottomline for the quarter grew 6.7% YoY

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    CASTROL INDIA SHARE PRICE


    Aug 17, 2017 (Close)

    TRACK CASTROL INDIA

    • Track your investment in CASTROL INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    CASTROL INDIA 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE CASTROL INDIA WITH

    MARKET STATS