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: Tough road ahead - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 10, 2003

    Castrol: Tough road ahead

    Castrol India is one of the leading players in the lube oil industry. The lube oil industry is divided into two categories, the bazaar segment and the retail segment. By bazaar segment, we mean lube oils available at non-petrol pump outlets. Retail segment encompasses lube oil available at petrol pumps.

    Castrol is a leader in the bazaar segment while the major players in the retail segments are IOC, BPCL and HPCL. This is also because, the PSU refining and marketing majors, did not allow Castrol to sell through their own outlets and hence Castrol had to develop the non-petrol pump segment to generate business. In the current article we take a look at the business of Castrol India.

    The business of Castrol can be classified into two broad segments: one automotive and the other industrial. In automotives, the consumers are commercial vehicles (trucks), agriculture related (tractors) and personal vehicles (two wheelers and four wheelers). On the other hand, in the industrial segment we have Original Equipment Manufacturers (OEM), machinery and transport equipments and non-equipment segment (mining, cement, etc.) as the key consumers.

    The automotives account for a major portion of the net sales (about 86%), while the non-automotive segment contributes remaining 14%. In the category of automotives, personal vehicles account for about 16% of net sales. This segment is likely to grow in future on account of increasing affluence levels and also increased consumer desire for owing personal vehicles. Increased growth in this segment directly increases the demand for lube as this is correlated to the auto industry.

    On the other hand, the commercial and agricultural segments, which constitute the bulk of lubricant market, have been under pressure since last few years. This was on account of over capacity, increased fuel prices and stagnant freight rates. This led to the reduction in frequency of lube change and also usage of low quality lubes. This apart, increased use of new euro norm compliant engines, which consume less lube, also adversely affected growth prospects. Due to draught like situation continuing for the third consecutive year, the sales of tractor have declined and consequently affected lube demand.

    Industrial segment has shown some signs of recovery since the third quarter of 2002 and it is expected that it will continue in 2003 also. This will drive growth in non-automotive segment going forward. This apart, growth in personal vehicles and increased tendency to use better quality lube oil for maintenance will also improve the demand scenario for the company.

    But the biggest threat for Castrol has come in the form of pro-active PSU oil refining majors. In the last couple of years, the big 3 oil refining and marketing companies, HPCL, BPCL and IOC have become market savvy and have focused on brand building for their lube products. Also, their retail outlets (petrol pumps) are being spruced up for customer attraction. This has undermined Castrol's marketing push. Moreover, going forward, companies like Shell and Reliance are set to make their debut on the marketing front by opening a chain of new petrol pumps. Shell already has its own brand of lube. Though Reliance does not have its own brand of lube, it is not difficult for it to create one owing to its refining strengths.

    (Rs m) 1993 1999 CAGR 2002 CAGR
    Sales 4,006 11,956 20.0% 13,389 3.8%
    Net Profit 404 2,044 31.0% 1,529 -9.2%
    OPM 16.4% 20.6%   17.6%  

    To put things into perspective, while the company's topline saw a CAGR of 20% in the seven-year period between 1993-1999, its bottomline improved by an encouraging 31% during the period. With the increased activism shown by oil PSUs and sluggish economy, the scenario changed completely for Castrol from then on. Case in point, from 1999-2002, the topline CAGR slowed down to a sobering 4%. What's more, the net profit during this period actually declined at 9% CAGR.

    At Rs 202, the company is trading at a P/E multiple of 17.4x its 1QFY04 annualised earnings. The Castrol product range is known for its quality and marketing push. With the acquisition of BP brand under its portfolio, the product offering has enhanced further. But the company will have to think fast on strategies to take on current as well as upcoming new competition, or else it may lose its privilege position on the consumer's mind space.

     

     

    Equitymaster requests your view! Post a comment on "Castrol: Tough 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.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    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 03:37 PM

    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 - CHINA PETRO. COMPARISON

    Compare Company With Charts

    COMPARE CASTROL INDIA WITH

    MARKET STATS