1HFY00 annualised results do not portend a very good story for Castrol. The company is expected to report a de-growth in earnings as compared to the last two years when it reported an earnings growth of 14%. The growth engine seems to have sputtered but can it relubricate its growth engine?
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy)
Diluted Earnings per share
Castrol's major raw material input is base oil and it imports 90% of its requirements. Based on the annualised results Castrol is expected to take a hit on its operating and after tax profits as margins come under pressure. This pressure is largely from two counters.
In FY99, although, crude oil prices started their upward journey, downstream products (base oil) followed suit with a lag effect. Castrol, however, had already entered into forward contracts and locked in its procurements at lower prices. Consequently, it was able to report a healthy performance for FY99.
However, in the current year the situation has changed. The rise in crude prices has percolated into downstream products. Further, the company no more has the comfort of low priced forward contracts as the rise in price is already factored into the contract.
The agony does not end there. Castrol's import bill is in the range of Rs 2 bn and is expected to be even higher for the current year with high base oil prices. As mentioned earlier the company imports 90% of its base oil requirement and its procurement price will be hit by the depreciation in the rupee. Therefore its operating and net profit will take a double whammy. This is probably the reasson for the stock being battered to its 52 week low on the bourses.
Castrol historically has traded at an earnings multiple of 26.7. At the current price of 257 it still trades at a multiple of 20 on 1HFY00 annualised earnings.
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.
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407