Castrol...............Thread
RAJESH DESAI
Castrol India has posted a net profit after tax of Rs 1.22 billion for the quarter ended March 31, 2012 as compared to Rs 1.36 billion for the quarter ended March 31, 2011, representing a decrease of 10.29%.
Total income
has increased from Rs 7.81 billion for the quarter ended March 31, 2011
to Rs 8.15 billion for the quarter ended March 31, 2012, representing
an increase of 4.35%.
Ravi Kirpalani, chief operating officer and Automotive Sales Director, said, ``We continue to operate in a challenging environment. Since the second half of last year, the lubricant market growth has been slower due to the economic slow down and inflationary pressures. This has been compounded by continuing input cost pressure and rupee depreciation which have impacted margins.
Despite the difficult environment, the company continues its investment in its people, technology, brands and marketing activities. During the quarter under review, the company
launched Castrol GTX Modern Engine with sludge busters – developed
specially for new generation petrol engine cars. It also relaunched its
flagship brands Castrol CRB plus and Castrol CRB Turbo with ``Durashield
Boostersâ„¢`` that provide up to two times engine life. The company is
also focusing on driving volume growth through increasing distribution
reach and strengthening advocacy amongst key stakeholders``.
Outlook: In the short term, the rising raw material cost and volatility of the Indian rupee remains a concern. However, we remain optimistic of long term growth potential for Castrol India. (Q,N,C,F)* This is based on both the growth prospects for the automotive and non automotive lubricants in India as well as the strong competitive position that Castrol enjoys based on its technology leadership, strong brands and distribution and the commitment of its people.
Shares of the company gained Rs 1, or 0.19%, to settle at Rs 538.35. The total volume of shares traded was 50,504 at the BSE (Monday).
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CA. Rajesh Desai
RAJESH DESAI
Castrol India surged after the company said its board of directors will consider proposal for bonus share issue on 16 July 2012.
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CA. Rajesh Desai
RAJESH DESAI
Motilal Oswal is bullish on Castrol India and has recommended buy rating on the stock with a target of Rs 629 in its July 30, 2012 research report.
“Castrol India, despite intense competition in the lubricants industry in the last decade, Castrol has been able to successfully create and appropriate value through adept market segmentation. Its primary market is the premium personal mobility automobile segment, where it is able to leverage its trusted brand, product performance track record and unique service attributes. Unlike its competitors that have been making low to negligible investments in their brands, Castrol has consistently been investing 6-7% of its sales (INR2.2b in CY11) in brand-building. It enjoys tremendous pricing power, with most of its products commanding 20-25% premium.”
“During the last decade, the distribution channel for automotive lubricants (lubes) witnessed a major transition from the traditional ‘public sector petrol pumps’ to ‘bazzar trade’, which was positive for private sector players such as Castrol, Shell and Gulf Oil. The distribution channel is now undergoing another transition. With engine technology advancing and maintenance becoming more sophisticated, the workshop channel is gaining traction at the cost of other distribution formats. This is likely to lead to further polarization in the industry and benefit large lube marketers like Castrol that have strong/established relationships with original equipment manufacturers (OEMs)."
"Over CY01-11, Castrol’s sales volumes have de-grown, not only due to increasing drain interval, but also because it has deliberately vacated the price-sensitive volume-driven market. Castrol depends on technology innovation and pathbreaking new product launches to drive growth and ability to organically generate growth through internal initiatives is the most sustainable source of growth. We model Castrol's net sales growth over CY12-21 at 9%. Concerns on account of increasing drain intervals are largely unfounded, as Castrol has historically maintained its margin/unit, which we believe it can sustain. We estimate 2.4% CAGR in Castrol’s volumes over CY12-14. However, revenue would grow at a CAGR of 9%, driven by 6% CAGR in realizations. We expect EBIT margin to expand from 19.5% in CY11 to 22.2% in CY14 and estimate net profit CAGR at 17% over CY12-14.”
“Over CY02-11, Castrol generated FCF of INR27b, with total reinvestment
of negative INR3b. Castrol’s cumulative net capex (capex - depreciation)
over the period was a negative INR408m, while cumulative net working
capital (net of cash) was a negative INR2.5b. It has paid out 87% of its
FCF as dividend. Given its predictable and stable FCFs, low
re-investment requirements and consistent payout ratio, we believe DCF
is the best way to value the company. We initiate coverage with a Buy
rating and a DCF-based target price of INR629, 17% upside,” says Motilal
Oswal research report.
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CA. Rajesh Desai
RAJESH DESAI
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CA. Rajesh Desai