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Castrol: Volumes offset input costs - Views on News from Equitymaster

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Castrol: Volumes offset input costs
Apr 27, 2011

Castrol India Ltd. has announced its 1QCY11 results. The company has reported a 14.8% YoY increase in topline and 16.6% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline increases by 14.8% YoY during the quarter.
  • Operating profits increased by 1.1% YoY during the quarter. However, operating margins for the quarter contracted to 24.2% from 27.4% (YoY).
  • Bottomline registered an increase of 16.6% YoY during the quarter, with net profit margins expanding to 18.1% from 17.9% (YoY).


Financial Performance snap shot
(Rs m) 1QCY10 1QCY11 Change
Net sales 6,560 7,532 14.8%
Expenditure 4,760 5,713 20.0%
       
Operating profit (EBDITA) 1,800 1,819 1.1%
EBDITA margin (%) 27.4% 24.2%  
Other income 81 278 243.2%
Interest 5 4 -20.0%
Depreciation 58 63 8.6%
Profit before tax 1,818 2,030 11.7%
Profit before tax margin (%) 27.7% 27.0%  
Tax 646 664 2.8%
Profit after tax/(loss) 1,172 1,366 16.6%
Net profit margin (%) 17.9% 18.1%  
No. of shares (m)   247  
Diluted earnings per share (Rs)   5.5  
Price to earnings ratio (x)   20.6  
* On a trailing 12 months basis

What has driven the performance in 1QCY10?
  • The 14.8% YoY growth in Castrol's topline was driven by higher volumes. Segmentwise, the revenues for automotive and non automotive segments registered a 15% YoY and 14% YoY respectively.

  • The operating profits were up by 1.1% YoY despite a sharp increase in raw material prices, mainly due to pro-active pricing. The EBITDA margins declined by 3.3% YoY on account of 3.5 % increase in raw materials cost (as a % of sales) .The EBIT margins for automotive and non automotive segments came at 25.3% (vs. 26.6% last year) and 26.6% (versus 29.2% last year) respectively.

    Segmental results
    (Rs m) 1QCY10 1QCY11 Change
    Automotive
    Sales 5664 6,507 14.9%
    EBIT 1506 1,646 9.3%
     Margin (%) 26.6% 25.3%  
    Non Automotive
    Sales 876 1,000 14.2%
    EBIT 256 266 3.9%
    Margin (%) 29.2% 26.6%  

  • The company's net profits increased by 16.6% YoY on account of higher lubricant product sales, more than a threefold increase in other income and most importantly, through lower effective tax rates.

    Cost breakup
    (Rs m) 1QCY10 1QCY11 Change
    Raw materials 3,224 3,965 23.0%
    % sales 49.1% 52.6%  
    Staff cost 216 259 19.9%
    % sales 3.3% 3.4%  
    Advertising cost 464 508 9.5%
    % sales 7.1% 6.7%  
    Carriage, Insurance & Freight 220 223 1.4%
    % sales 3.4% 3.0%  
    Other expenditure 636 758 19.2%
    % sales 9.7% 10.1%  
    Total cost 4,760 5,713 20.0%
    % sales 72.6% 75.8%  

What to expect?
We expect the base oil and additive cost environment to continue to be challenging over the short term. This may stifle volume growth and lead to a margin compression for the company. However, in the long term, we expect the company to perform better.

At the current stock price of Rs 480, the stock is trading at a TTM PE of 20.6.We are in the process of revising our estimates and will update the subscribers soon.

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