Castrol Results: A Mixed Bag

In Q4CY12, Castrol India had revenues declining by 1.39% to Rs 758 crore, on a yearly basis. However, the margins saw improvements as the EBITDA rose by 9.07% to Rs 175.6 crore and the net profit by 10.39% to Rs 117.9 crore.

Castrol’s performance is under tremendous pressure as the situation in the Indian automobile industry remains highly subdued. Even in this situation, it has managed to gain volumes because of a re-launch of brands, improved distribution and partnerships with leading OEMs (Original Equipment Manufacturers).

Apart from the automotive segment (which contributes to more than 85% of revenues), Castrol also has a presence in other segments like industry, marine and building & construction. These sectors have been hit to a larger extent due to difficult macroeconomic conditions. Overall, a slump in these sectors has offset the gains on the automotive front.

However, the improvement in margins came across due to a better product mix, stable rupee, softening base oil prices, better sales realisation and effective management of costs.

Going ahead, although the prospects of Castrol and the lubricant market look good, short-term pressures are expected to continue. The forthcoming quarters are bound to be challenging as the revival in the automobile industry is likely to take place gradually.

We had recommended investors to buy Castrol in our Volume 27, Issue No. 16 (dated July 16 – July 29, 2012) at a price of Rs 541 per share. After a share split, it is currently trading at Rs 320 per share, translating into gains of 18.50% so far. Considering expectations of a gradual improvement in the automobile industry and thus in Castrol’s performance, we recommend investors to hold the stock for further gains.