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Castrol: Personal mobility segment supports growth
Nov 6, 2014

Castrol India Ltd has announced results for the quarter ending September 2014. The company has reported a net sales growth of 10.9% year on year (YoY) while net profits for the quarter grew by 12.8% YoY.

Performance summary
  • Revenues for the quarter registered a growth of 10.9% on a year on year (YoY) basis. For the nine months ending September 2014 (9mCY14), the net sales were up 6.9% YoY.
  • Operating profits for the quarter grew by 17.5% YoY (with margins at 21.9% as compared to 20.7% in 3QCY13). For 9mCY14, the operating profits were down 1.1%, with operating margins at 20.1%, down from 21.7% in 9mCY13.
  • Net profits for the quarter grew by 12.8% YoY with net profit margins at 14.7% versus 14.4% in 3QCY13. For 9mCY14, the net profits declined by 10.4% YoY, with net profit margins at 13.5%, down from 16.1%

Standalone financial summary
Rs m 3QCY13 3QCY14 Change (%) 9mCY13 9mCY14 Change (%)
Net sales 7,234 8,023 10.9% 23,701 25,330 6.9%
Expenditure 5735 6262 9.2% 18,547 20,233 9.1%
Operating profit (EBDITA) 1,499 1,761 17.5% 5,154 5,097 -1.1%
EBDITA margin (%) 20.7% 21.9%   21.7% 20.1%  
Other income 159 115 -27.7% 565 373 -34.0%
Interest 1 10 900.0% 9 18 100.0%
Depreciation 79 84 6.3% 223 252 13.0%
Profit before tax before exceptional items 1,578 1,782 12.9% 5,487 5,200 -5.2%
Exceptional items 30 0 nm 228 0 -100.0%
Reported PBT 1,608 1,782 10.8% 5,715 5,200 -9.0%
Reported PBT margin (%) 22.2% 22.2%   24.1% 20.5%  
Tax 563 603 7.1% 1891 1775 -6.1%
Profit after tax/(loss)  1,045 1,179 12.8% 3,824 3,425.0 -10.4%
Net profit margin (%) 14.4% 14.7%   16.1% 13.5%  
No. of shares (m)         495  
Diluted earnings per share (Rs)*         9.5  
P/E ratio(x)*         43.6  
*On a trailing 12 months basis

What has driven growth in 3QCY14?

    Cost breakup
    Rs m 3QCY13 3QCY14 Change (%) 9mCY13 9mCY14 Change (%)
    Raw materials 4,091 4,505 10.1% 13,158 14,608 11.0%
    as a % of sales 56.6% 56.2%   55.5% 57.7%  
    Advertisement and Sales promotion expenses 427 486 13.8% 1655 1821 10.0%
    as a % of sales 5.9% 6.1%   7.0% 7.2%  
    Staff expenses 432 419 -3.0% 1152 1243 7.9%
    as a % of sales 6.0% 5.2%   4.9% 4.9%  
    Other expenses 785 852 8.5% 2582 2561 -0.8%
    as a % of sales 10.9% 10.6%   10.9% 10.1%  
    Total expenses 5,735 6,262 9.2% 18,547 20,233 9.1%
    as a % of sales 79.3% 78.1%   78.3% 79.9%  

  • The growth in the revenues was mainly on account of better realizations along with improvement in the volumes. The company witnessed strong momentum in personal mobility segment, primarily driven by key brands - Castrol Activ in the two-wheeler segment and Castrol MAGNATEC in the passenger car segment. As per the management, the Industrial business for the quarter showed a positive trend.

  • The operating profit margins for the quarter expanded to 21.9% from 20.7% in the corresponding quarter last year. Despite easing crude prices, raw material costs as a % of sales did not show much decline. A decline in the employee expenses more than offset the increase in advertisement and other expenses.

  • The net profit for the quarter grew 12.8% YoY with net profit margins at 14.7%, up 0.3% YoY. It is noteworthy that in 3QCY14, company had booked exceptional income of Rs 30m. A decline in the other income and increase in interest expenses limited the growth in the bottomline.

    Segmental Summary
    Rs m 3QCY13 3QCY14 Change (%) 9mCY13 9mCY14 Change (%)
    Automotive Segment
    Revenues 6247 6907 10.6% 20883 22151 6.1%
    EBIT 1297 1538 18.6% 4774 4420 -7.4%
    EBIT % 20.8% 22.3%        
    Non Automotive Segment
    Revenues 987 1116 13.1% 2818 3179 12.8%
    EBIT 190 195 2.6% 574 526 -8.4%
    EBIT % 19.3% 17.5%   20.4% 16.5%  
What to expect?
The company has launched new products during the quarter and has opened a Liquid Engineering Centre at the Maruti Suzuki India Limited (MSIL) Plant in Gurgaon. It also worked with Maruti to co-engineer and launch a fuel efficient lubricant for diesel engines and partnered with Tata Motors Ltd to co-engineer a fuel efficient engine oil for Tata Motors' new Zest car with the Revotron engine. Further in the Industrial segment, the company has acquired new business with several customers in the Wind Energy sector,

While easing crude prices are positive, rupee volatility is a matter of concern. The management expects a more stable cost of goods environment in the future. The management has suggested that outlook for commercial vehicle business remains challenging. At current price, the stock is trading at trailing 12 months Price to earnings multiple of 44 times which we believe is expensive. As such, we suggest investors not to buy the stock at current levels.

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