X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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: Margins under pressure - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Castrol: Margins under pressure
Oct 23, 2012

Castrol India Ltd. has announced results for third quarter of the calendar year 2012 (3QCY12). The company has reported a 7% year on year (YoY) increase in the topline and a 10% YoY decline in the bottomline for the quarter.

Performance summary
  • Revenues grew by 7.0% YoY during the quarter. For the first nine months, sales were up 6.3% YoY.
  • Operating profits declined by 8.5% YoY during the quarter (with margins at 16.8% as compared to 19.7% in the 3QCY12). For the first 9 months, the operating profits were down by 11.7% YoY with operating margins at 19.2% versus 23.1% in 9mCY11.
  • Net profits for the quarter declined by 9.9% YoY with net profit margins at 11.7% versus 13.8% last year .For the first nine months, the bottomline declined by 11.9% YoY and net profit margins stood at 13.6% as compared to 16.4% in 9mCY11

Standalone performance summary
Rs m 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Net sales 6,741 7,213 7.0% 22,205 23,600 6.3%
Expenditure 5,413 5,998 10.8% 17,070 19,066 11.7%
Operating profit (EBDITA) 1,328 1,215 -8.5% 5,135 4,534 -11.7%
EBDITA margin (%) 19.7% 16.8%   23.1% 19.2%  
Other income 145 130 -10.3% 617 570 -7.6%
Interest 9 1 -88.9% 15 11 -26.7%
Depreciation 62 66 6.5% 188 186 -1.1%
Profit before tax before exceptional items 1,402 1,278 -8.8% 5,549 4,907 -11.6%
Profit before tax margin (%) 20.4% 17.4%   24.3% 20.3%  
Tax 451 421 -6.7% 1,807 1,612 -10.8%
Profit after tax/(loss) 951 857 -9.9% 3,742 3,295 -11.9%
Net profit margin (%) 13.8% 11.7%   16.4% 13.6%  
No. of shares (m)         495  
Diluted earnings per share (Rs)*         8.8  
P/E ratio(x)*         36.6  
*On the basis of trailing 12 months earnings

What has driven performance in 3QCY12?
  • The sales growth in the quarter came at 7.0% YoY. As per the management, a 3% increase in automotive volumes was offset by decline in industrial and marine volume on account of an overall industrial slowdown. As a result, the total volumes were almost at the same level as in 3QCY11.

  • The operating profits and margins also declined due to higher cost of goods. A weakening of the base oil prices was offset by rupee depreciation thus impacting the margins. The company was adversely impacted to the extent of around Rs 0.6 bn due to a weaker rupee. Castrol undertook some pricing actions and better sales mix to recover the cost increase to some extent. The advertisement and sales promotion expenses for the quarter were up by 41% YoY. The cost of raw materials was up by 9.8% YoY.

  • The net profits for the quarter registered 9.9% YoY degrowth with margins at 11.7% as compared to 13.8% in 3QCY11.

    Cost breakup
    Rs m  3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
    Raw materials  3,948 4,334 9.8% 12,291 13,898 13.1%
    as a % of sales  58.6% 60.1%   55.4% 58.9%  
    Advertisement and Sales promotion expenses  433 610 40.9% 1,685 1,860 10.4%
    as a % of sales  6.4% 8.5%   7.6% 7.9%  
    Staff expenses  318 310 -2.5% 874 914 4.6%
    as a % of sales  4.7% 4.3%   3.9% 3.9%  
    Other expenses  714 744 4.2% 2,220 2,394 7.8%
    as a % of sales  10.6% 10.3%   10.0% 10.1%  
    Total expenses  5,413 5,998 10.8% 17,070 19,066 11.7%
    as a % of sales  80.3% 83.2%   76.9% 80.8%  

What to expect?
As per the management, the margins for the next few quarters are likely to be under pressure due to higher crude prices. The volatility in the exchange rates will add to the challenges of a slowing economy and a likely slowdown in the demand growth for lubricants. At current stock prices, Castrol is trading at a trailing 12 months Price to earnings ratio of around 37 which happens to be the highest in the decade. We recommend our subscribers to Sell the stock.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

CASTROL INDIA SHARE PRICE


Feb 21, 2018 03:35 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 - MRPL COMPARISON

COMPARE CASTROL INDIA WITH

MARKET STATS