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Castrol - Profits dip with increased competition - Views on News from Equitymaster
 
 
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  • Jul 19, 2000

    Castrol - Profits dip with increased competition

    Castrol has posted a marginal growth in topline of 2.4%. In FY00 Castrol was able to record a 10.8% growth in topline, which may not be achievable in FY01. The decline in growth rates is due to a slowdown in the road transportation sector. Freight rates for road transport have increased on the back of a rise in diesel costs, resulting in a shift to alternative transportation mediums. For 1HFY01 topline growth has been 6.7%.

    (Rs m) 2QFY00 2QFY01 Change
    Sales 3,236 3,312 2.4%
    Other Income 48 20 -57.9%
    Expenditure 2,583 2,875 11.3%
    Operating Profit (EBDIT) 652 437 -33.0%
    Operating Profit Margin (%) 20.2% 13.2%  
    Interest 6 25 296.9%
    Depreciation 24 29 21.2%
    Profit before Tax 670 403 -39.9%
    Tax 135 63 -53.7%
    Profit after Tax/(Loss) 535 340 -36.4%
    Net profit margin (%) 16.5% 10.3%  
    No. of Shares (eoy) 62 124  
    Diluted Earnings per share* 17.3 11.0  
    *(annualised)      

    Castrol's problems do not end there. Its operating profits and OPM have declined. The margins have been hit largely due to the increase in base oil prices, which is their key ingredient for lubricant production. The increased costs have not been passed on as the company faces increasing competition from the oil PSU's whose products are positioned at lower price points.

    Castrol debt exposure is primarily for meeting working capital needs. Interest expense has increased substantially indicating increased borrowings for working capital. Net profit has consequently declined due to the culmination of the all these factors.

    Castrol is trading at Rs 304 at a multiple of 27.6 on 2QFY01 annualised eps. Historically, it has traded at a three year average multiple of 36.9.

     

     

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