Castrol India A Consistent Outperfomer

Posted on July 2, 2011 by admin

We at investment-mantra.in will bring to our readers every month a company (not stock) which have created enormous wealth for investors over the years. We will only

highlight companies which have stro financial performance over years and good growth outlook.

ngmanagement , solid

We wont be giving any Buy-Sell ratings for the company but will put forth to our readers companys profile in brief , financial performance , growth over the years , bonus and dividend history and ofcourse its future prospects. Castrol India features as the first company as part of our new initiative. Happy Investing! About Castrol India Castrol India Limited (Castrol India) is a lubricant company. It is engaged in the manufacturing and marketing of automotive and industrial lubricants. Its automotive sector includes petroleum products (under the Castrol and BP brands) used in off-road vehicles, motorcycles (both two-and four-stroke engines), and diesel engines. The company has global partnership with leading manufacturers namely BMW, Jaguar, Volvo, Land Rover and Komatsu. The company has five manufacturing plants and a network of 270 distributors, which in turn serve more than 70,000 retail outlets. Additionally, the company is also providing multiband motorcycle service through its 119 BikeZone network. It is headquartered in Maharashtra, India. The history of Castrol in India dates back to 1910 when certain automotive lubricants from C C Wakefield & Company made an entry in the Indian market. In 1919, C C Wakefield & Company set up its first overseas branch office in India and commenced

operations as a trading unit. Today, Castrol India Limited is the second largest player in the Indian lubricant industry and is the market leader in the retail automotive lubricant segment. Castrol India is part of the BP Group worldwide. Castrol India Limited is a Public Limited Company with 70.92% of the equity held by Castrol Limited UK (part of BP Group). In 2003 the companys turnover was Rs.1360.51 crores and Profit After Tax was Rs. 137.38 crores. From a minor oil company, with a share of about 6% in 1991, Castrol India has grown to become the second largest lubricant company in India with a market share of around 22%. Castrol India manufactures and markets a range of automotive and industrial lubricants. It markets its automotive lubricants under two brands Castrol and BP. The company has leadership positions in most of the segments in which it operates including passenger car engine oils, premium 2-stroke and 4-stroke oils and multigrade diesel engine oils. Castrol India has the largest manufacturing and marketing network amongst the lubricant companies in India. The company has 5 manufacturing Plants across the country, including a state-of-the-art plant in Silvassa. Castrol India has clearly demonstrated its commitment to Indian consumers for over 80 years, by offering its international range of high performance products backed by the highest level of customer service. The company has managed to gain sustainable competitive advantage through:
  

Distinctiveness driven by continuous innovation in all areas of business Winning culture and a desire to excel Strong meaningful relationships with all stakeholders

Financial Performance Castrol India, manufacturer and marketer of automotive and industrial lubricants, has delivered as much for its shareholders as for its customers. A look at price chart of companys stock reveals that nothing has really bothered its shareholders, not even the global economic crises of 2008 and early 2009. In the last five years, the value of the companys stock has multiplied five times, from around INR 100 to around INR

500.The rise isnt an anomaly it has come on the back of the companys stellar performance during this period. Between 2004-05 and 2009-10, profit increased at a compounded annual growth rate (CAGR) of 27 percent, from INR 147 crore to INR 490 crore. During this period, there was a remarkable fluctuation in global crude oil prices, leading to volatility in input costs for the company. This is the companys biggest concern, even now. However, its figures show that whenever the cost of material rose, it was able to pass on the price to the consumers, which allowed it to maintain margins. Technological innovations, supported by its parent company Castrol UK (part of BP group) and improvement efficiency has also helped it maintain and even improve margins. In fact, over FY06-FY10, its operating margin has almost doubled, from 14.49 per cent to 27.59 per cent. The companys strategies for future growth instill confidence that this performance will continue. In India, Castrol has the largest distribution network among all lubricant manufacturers and it plans to penetrate deeper. A significant portion of its expenses is on advertisements (6 per cent) and it undertakes several marketing initiatives (sponsorship agreement with International Cricket Council for example) to improve its brand visibility and strengthen its relationships with dealers and customers. Castrol India Ltd. announced unaudited financial results for the quarter ended March 31, 2011. The company reported a growth of 17.1% in net profit to INR 1.37 billion for the quarter ended Mar. 31, 2011 from INR 1.17 billion over the quarter ended Mar. 31, 2010. Meanwhile, total income has increased from INR 6.64 billion for the quarter ended Mar. 31, 2010 to INR 7.81 billion for the quarter ended Mar. 31, 2011, registering a rise of 9.62%. For the quarter, profit from operations before other income & interest was INR 1,756 million, profit from ordinary activities before tax was INR 2,030 million and earnings per basic and diluted share was INR 5.53 against profit from operations before other income & interest of INR 1,742 million, profit from ordinary activities before tax of INR 1,818 million and earnings per basic and diluted share of INR 4.74 for the same period a year ago. Net sales of the company increased to INR 7,507 million in the January-March quarter as against INR 6,540 million in the same period last year. Earnings Overview:

DEC-08

DEC-09

DEC-10

Net Sales (in crores)

2,216.80

2328.00

2742.90

Net Profit (in crores)

262.30

381.10

490.30

Op. Profit Margin (%)

19.57

25.97

27.59

Bonus Summary: The last bonus that Castrol India had announced was in 2010 in the ratio of 1:1.The share has been quoting ex-bonus from April 9, 2010.
Announcement Date Bonus Ratio Record Date Ex-Bonus Date

18-02-2010

1:1

12-04-2010

09-04-2010

09-04-1999

1:1

01-06-1999

17-05-1999

13-02-1995

3:5

30-05-1995

05-05-1995

29-01-1994

1:1

16-04-1994

18-02-1994

30-09-1992

3:5

23-06-1992

22-05-1992

25-02-1992

3:5

23-06-1992

22-05-1992

07-10-1991

3:5

15-02-1991

15-12-1990

3:5

15-12-1990

21-11-1990

15-08-1990

3:5

15-12-1990

21-11-1990

Dividend Declared:
Announcement Date Effective Date Dividend Type Dividend (%) Remarks

21-02-11

13-06-11

Final

80.00

08-07-10

20-07-10

Interim

70.00

10-02-10

22-02-10

Final

150.00

Final Dividend of Rs. 5/- per Equity Share + Special Dividend of Rs. 10/- per Equity Share)

20-07-09

31-07-09

Interim

100.00

19-01-09

06-04-09

Final

90.00

24-07-08

08-08-08

Interim

60.00

29-01-08

07-04-08

Final

95.00

10-07-07

07-08-07

Interim

45.00

19-01-07

05-04-07

Final

50.00

10-07-06

27-07-06

Interim

40.00

10-01-06

31-03-06

Final

42.50

AGM

Historic Prices of Castrol (NSE)

3 month 6 Month 9 Month 1 Year

Price

438.90

459.65

505.05

432.95

Gain / Loss

23.83%

18.24%

7.61%

25.53%

3 Year Returns Assuming that you bought this stock at the closing price on 01-072008 on the BSE, your gain today is 327.65%. If you had bought on the NSE, your gain would be 329.71%. Conclusion: Castrol India is a zero debt company , has been consistently posting solid financials, and has a very high dividend-paying track record.Premium product mix, and a formidable brand bode well for the prospects of Castrol India, a leading player in the lubricants market in the country. Over the years, Castrol India, a BP subsidiary, has strengthened its position, and enjoys more than 20 per cent market share in the automotive lubricants market, from which it derives more than 85 per cent of sales and profits. It has been able to hold its own in a highly competitive market, which is catered to by the PSU oil marketing companies, major multinationals, including Shell and Mobil, local players such as Tide Water Oil and Gulf Oil Corp, and a large unorganised sector. A broad-basing of its distribution network beyond the traditional fuel sale outlets to the bazaar route and OEM dealerships and workshops has helped Castrol expand its reach significantly. Customer outreach initiatives such as Pit Stops, Bike Zones and Sanjeevani have helped reinforce the brand. Strong brand presence built over the years, and shifts in its product mix to cater to premium categories, has helped the company deliver robust performance.

Castrol has also been active on the product innovation front. It has leveraged technology to offer a range of products, including high-performance synthetic lubricants, giving it an edge over competition. Strong pricing power has enabled the company, for the most part, to pass significant cost increases in base oil, its main raw material. Historically, Castrol has adopted a strategy of effecting price hikes ahead of the cost curve, helping ring-fence its margins. This along with a tight leash on costs has enabled the company maintain strong profitability, with operating margins in excess of 25 per cent and net margin around 18 per cent. Strong cash flows, zero debt, return on equity in excess of 75 per cent, and dividend payout ratios consistently above 70 per cent (translating into a yield of between 4 to 5 per cent) also make the company a solid franchise. Risks: With crude oil price trending upwards, increase in cost of base oil (a key raw material), is a major risk. This could put pressure on margins; yet, with the companys pricing power, we expect margins to remain healthy. With improving technology, drain intervals (recommended distance after which oil should be changed) for many vehicle types are on the rise. This could moderate replacement demand for lubricants. Competition in the lubes market may intensify, with PSUs getting aggressive on the distribution front. Castrols positioning and brand, though, should help. Present Valuation : Presently at share price of INR 543, the company stock is trading at 26 times its FY10 earnings per share. This might look expensive in isolation but considering the variables that go into valuation Castrols ROE is 94 per cent and there has been little volatility in its share price in last few years it can be concluded that the stock rightly commands a premium valuation.

In spite of volatile crude prices, the company has been able to maintain its margins and has delivered sustainable returns to its shareholders. A high ROE supports the present valuation. Definitely a company worth a look