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: Beating the retreat - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 20, 2001

    Castrol: Beating the retreat

    Although, Castrol (India) Ltd. has stated that the lubes industry milieu continues to remain challenging, the company has managed to post impressive results. The company has managed to stem the slide in bottomline after 4 consecutive quarters of YoY drop in profits. This reflects well on the management, as they have been able to come to terms with the challenging industry scenario.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Sales 3,312 3,469 4.7% 6,119 6,501 6.3%
    Other Income 20 20 -2.5% 137 55 -60.2%
    Expenditure 2,850 2,931 2.8% 5,185 5,574 7.5%
    Operating Profit (EBDIT) 462 538 16.5% 933 927 -0.7%
    Operating Profit Margin (%) 13.9% 15.5%   15.3% 14.3%  
    Interest 25 17 -31.9% 36 29 -20.1%
    Depreciation 29 32 11.9% 56 62 11.9%
    Profit before Tax 428 508 18.7% 978 890 -9.0%
    Extraordinary items (25) (12) -50.8% (25) (45) 81.5%
    Tax 73 127 74.2% 172 232 35.1%
    Profit after Tax/(Loss) 331 369 11.8% 782 614 -21.5%
    Net profit margin (%) 10.0% 10.7%   12.8% 9.4%  
    No. of Shares (eoy) 124 124   124 124  
    Diluted Earnings per share* 10.7 12.0   13 10  
    P/E Ratio   18     22  
    * annualised            

    The topline of the company, for 2QFY02 and 1HFY02, has increased by 4.7% and 6.3%. This is quite a notable performance considering the industry registered de-growth of 10% in the past 12 months, as indicated by the company. Over the same period of the previous year, sales had grown by 2.3% and 6.7% respectively. With a shrinking industry scenario and intense competition the registered growth in bottomline seems to have materialised through better realisations, as the company could have leveraged on its brand equity and high product quality to command premium prices.

    Operating profits have registered an impressive jump for the quarter ended June '01. But for 1HFY02 they have declined marginally, which is mainly due to the fall in operating profits by 17.5% in 1QFY02. The improvement in OPM for 2QFY02 by 160 basis points could be driven by better realisations and strict vigil over costs, which is reflected in the moderate increase in total expenditure. However, for the first six months of the current fiscal the OPM stands reduced by 100 basis points (1QFY02 OPM fell by 400 basis points).

    The primary factor contributing towards the company's reduced costs are raw material expenses, which stand reduced by 15.8% YoY. Prices of base oil, the primary feedstock for lubricants, has been a thorny issue over the last 12 months, as feedstock costs increased with the surge in crude oil prices. For 1HFY02, expenses remain high as raw material costs increased by 37.7% in 1QFY02. Over the same quarter of the previous fiscal, this cost head grew by 29.2% with the rally in crude oil gaining steam. We had mentioned the possibility of the company incurring lower feedstock costs in 2QFY02, as crude oil prices softened in the first quarter of calendar year '01 (considering the company enters into forward contracts for procuring base oil and consequently is locked into lower procurement prices for the June '01 quarter). During this period, oil prices declined to $24 - $26 / barrel from above $30 / barrel. However, crude has climbed its way back to $26 - $29 / barrel over the quarter ended, which could push up costs for Castrol in 3QFY02.

    Although, staff costs are higher by 16.1% for the quarter, in 1HFY02 they stand reduced by 2.7%. The higher quarter numbers could indicate a revision in staff salaries. Advertising costs in 2QFY02 have been cut by 33.6%, which has reduced total other expenses by 1.1% and stand lower by 16.6% year to date.

    The interest costs, which increased for five consecutive quarters, have been brought under reign. In FY01, interest costs of the company rose by 175.2%. The lower costs could be due to better working capital efficiency. Thereby, reducing expensive short-term borrowings. Improved operating profits and lower interest costs have driven PBT growth in 2QFY02. However, year to date PBT is lower by 9% mainly due to lower other income for the period. Removing other income (indicating quality of earnings) the PBT shows a marginal drop of 0.6%, which indicates the company has stemmed the bleeding in better quality earnings. The reduced other income for the period is due to a non-recurring gain in 1QFY01 amounting to Rs 79.8 m from sale of investments.

    Extra-ordinary items pertains to voluntary severance package offered by the company to its employees. In 2QFY01, the company stopped operations at the Wadala, Mumbai plant. In the current fiscal (1QFY02), the company terminated operations at the Hosakote, Karnataka plant. All employees at Hosakote are reported to have opted for the VRS. Castrol, however, has not indicated its intentions regarding the future of the Karnataka plant.

    Effective tax of the company has increased substantially in 1HFY02. During the period effective tax has increased by 8.5 percentage points to 26%. This is mainly due to the reduced tax benefits from the Silvassa plant. Tax for FY01 has been reworked to account for the actual tax for the fiscal ended '01. Castrol had provided RS 62.7 m as tax in 2QFY01, which has increased to Rs 72.6 m.

    At Rs 221 the company is trading on a multiple of 18x and 22x 2QFY02 and 1HFY02 annualised earnings. However, the price finds support due to the proposed buyback from parent BP Amoco and Burmah Castrol U.K. The shrinking industry scenario, continuing poor auto sector performance, volatility in crude prices and depreciating rupee could put further pressure on valuations of the company. A favourable re-rating of the stock will depend on the company's ability to sustain 2QFY02 performance through the adverse external environment.

     

     

    Equitymaster requests your view! Post a comment on "Castrol: Beating the retreat". 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

    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.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    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 21, 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