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: It's the industry - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jul 13, 2002

    Castrol: It's the industry

    Considered to be the pioneer of the bazaar segment, Castrol India Ltd. (CIL) revolutionised the way lubricants are bought in India. The company successfully transformed lube-buying behaviour from petrol pumps to a more effective parallel channel including garages, service stations and auto spare part shops.

    With private manufactures denied access to fuel retail outlets, the development of the above strategy enabled the company to race ahead of industry, recording strong growth rates in the nineties. To get a perceptive of performance over this period, bearing in mind that industry volumes for most part of the decade were flat, CIL registered compounded growth (CAGR) in top and bottomline of 21% and 20% respectively, which also suggests that margins were not compromised. Over a ten-year period the company announced 5 bonus issues. An investor having purchased 10 shares at the start of 1991 for Rs 500 would today have 164 shares in the company valued at Rs 31,800. With such performance and sold to a branding story, stock markets could not but view the scrip as a FMCG, which explains the current P/E rating in the range of 18x-22x earnings.

    However, as said and sadly, all good things must come to an end, or so it seems. Over the past two years, the company has recorded low single digit topline growth with slide in post-tax earnings. More so, the company was hit by a double whammy, as heated crude oil markets led to rise in basic feedstock -- base oil -- prices. Being an importer of the raw material, a depreciating rupee further ate into margins. Imports constitute an estimated 90% of base oil consumption and 29% of sales. As a result 1% depreciation in the rupee could cut pre-tax profits by an estimated 2%.

    We reckon, the break in performance is likely due to downturn in the auto and capital goods industry, increase in refill times and threateningly near-saturation in 'bazaar' penetration. Since deregulation, 'bazaar' segment has steadily captured market share from petrol pumps in lube sales. CIL, pioneering the effort, saw market share increase from an estimated 6% to 20%. As per reports, current market share of CIL is an estimated 25%.

    Recognising the challenges, the company, over the past two years, has taken initiatives to counter industry developments. With topline under pressure and operating costs escalating, CIL seems to have reviewed operations. In the two years, the company shut blending operations at Wadala, Mumbai and Hosakote, Karnataka. However, CIL has not indicated its intentions regarding the future of the Karnataka plant. These are likely to have been older plants incurring higher operational costs.

    Gains in the nineties was led by better consumer understanding, brand positioning, communication and other marketing tools. CIL continues to enjoy this competitive advantage. Identifying innovative strategies for extending distribution reach, a key competitive force, the company has entered into strategic alliances with vehicle manufacturers for getting its products endorsed. This is expected to give the company access to the manufacturers sales & service network and possibly first fill opportunities. Currently, the company has an understanding with Telco and LML. With poor consumer awareness of lubricants among passenger vehicles, this could be an effective strategy to ensure consumer loyalty.

    The commercial vehicle (CV) segment is the cream of the lubes business accounting for an estimated 70% of the lubricants market. However, one does not see a lot of media commercials, especially television, targeting this segment. One explanation could be the low T.V penetration among the target market. But more likely, companies directly market lubes to fleet and individual CV owners. CIL is adopting a similar endorsement strategy for the above segment.

    For the industrial segment, the company has started offering value added services under the 'Castrol Plus' programme. Under this initiative the company will offer Chemical Management Services and Lube Management Services, which will manage the customer's entire chemical requirements. The service is aimed at facilitating increased productivity and reduced costs for customers. Some of the clients include Maruti Udyog Ltd., Cummins India and Delphi Automotive.

    The management has provided investors with exemplary returns and also issues sizeable dividends. Nevertheless, efforts are constrained as the company operates in a slow-growth industry. That said the company could benefit from the current upturn in the auto industry. Also, over the medium-term, with deregulation in petroleum marketing lube manufacturers could gain access to fuel retail outlets. Global lubricant majors tend to be classified as automotive consumer product companies, as they offer a range of car care and accessory products. Presence in these segments, which more closely resemble FMCG buying behaviour, could help ease stress on valuations.



    Equitymaster requests your view! Post a comment on "Castrol: It's the industry ". 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...

    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


    Aug 16, 2017 (Close)


    • 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


    Compare Company With Charts