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Castrol: Still in the woods - Views on News from Equitymaster
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  • Oct 29, 2001

    Castrol: Still in the woods

    The difficulty in the lubricants industry is evident with topline of the company registering marginal growth for the quarter ended September '01. This is significantly lower than the 6.3% topline growth posted for the first half of the current financial year. In the previous fiscal the lubricants industry reported a de-growth of 10%. Castrol (India) Ltd. expects the automotive lubes segment to grow by 2.5% p.a.

    (Rs m) 3QFY01 3QFY02 Change
    Sales 2,380 2,417 1.6%
    Other Income 24 21 -11.1%
    Expenditure 1,989 2,023 1.7%
    Operating Profit (EBDIT) 391 394 0.9%
    Operating Profit Margin (%) 16.4% 16.3%  
    Interest 15 12 -20.5%
    Depreciation 29 32 9.4%
    Profit before Tax 370 372 0.3%
    Extraordinary items (27) (27) 0.7%
    Tax 62 122 96.8%
    Profit after Tax/(Loss) 281 222 -21.0%
    Net profit margin (%) 11.8% 9.2%  
    No. of Shares (eoy) 124 124  
    Diluted Earnings per share* 9.1 7.2  
    P/E Ratio   35.8  
    * annualised      

    Despite pressure on the topline primarily due to weaker sale volumes the company has been able to maintain its margins. This could be due to improved realisations and lower over operating costs. In the April - June '01 quarter, oil prices climbed higher compared to the preceding quarter. With the company known to enter into forward contracts this could have put pressure on the margins earned QoQ. However, YoY, lower crude oil prices could have led to softening in base oil prices, the key raw material for lubricants.

    In 3QFY02, raw material expenses declined by 13.1% YoY, which led to an overall decline of 5% in operating expenses not adjusted for inventory. The company has carried out a voluntary retirement scheme (VRS) at its Wadala blending plant last year. Despite the lower workforce, staff costs have increased by 13.7%. With a shrinking market and increased competition Castrol seems to have relied on advertising to life sales. Advertising costs of the company increased by 43.8% for the quarter ended September '01.

    This is the second consecutive quarter the company has reported reduced interest expense compared to the previous year. Lower base oil prices could have led to reduced working capital requirement. The bottomline has primarily been hit by higher tax provisioning. The effective tax rate of the company, YoY, has doubled to 32.9%. The higher tax rate is primarily due to reduced benefits from the Silvassa plant.

    At Rs 258 the scrip is trading at an expensive valuation of 36x 3QFY02 earnings. The premium valuations are due to the ongoing buyback offer by BP Amoco and Burmah Castrol U.K, which has run into litigation. The company's topline has come in as per expectations.



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    Aug 23, 2017 03:19 PM


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