Can Castrol India Survive The Electric Vehicle Revolution?

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Castrol India Limited is 100% debt free subsidiary of 121 years old Castrol Ltd headquartered in Pangbourne, Berkshire, UK.

Castrol is the world-leading manufacturer, distributor and marketer of premium lubricating oils, greases, and related services to automotive, industrial, marine, aviation, oil exploration and production customers across the world.

Company has been a consistent dividend-paying company with more than 90% earnings distributed every year in the form of dividends.

About Castrol India

Castrol India Timeline
A complete history of the company compiled in a single timeline.

 

Incorporated in the year 1979, the Company is a part of Castrol Limited UK (part of BP Group).

BP through its wholly-owned subsidiary, Castrol Limited UK holds 51% stake in Castrol India.

It is engaged in the business of manufacturing & marketing of automotive, non- automotive lubricants and related services. Castrol India provides a high performance range of products and services across automotive, industrial and marine and energy segments.

It is the market leader in the retail automotive lubricant segment, providing iconic, high performance brands like Castrol EDGE, Castrol MAGNATEC and Castrol GTX for passenger cars; Castrol Power1 and Castrol Activ for motorcycles and Castrol CRB, Castrol RX and Castrol VECTON for trucks, amongst various others including specialty products.

The company also offers a complete range of products for industrial applications and is market leader in corrosion preventives and metal cutting fluids segment.

Products of Castrol India

Castrol India Motor Oil Types

Castrol India Motor Oil Brands

Castrol India Engine Oil

Infographics on Castrol India

Castrol India

Castrol India Limited has a large manufacturing and distribution network in India with three manufacturing plants and a distribution network of 350 distributors who sell to consumers and customers through over 100,000 retail outlets.

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Also Watch: Castrol India Stock Analysis

Castrol sub-distributors also reach additional outlets in rural markets whilst Castrol India Limited also directly services over 3,000 key institutional accounts.

Financials of Castrol India

Net Sales at Rs 490.60 crore in June 2020 down 52.81% from Rs. 1,039.60 crore.

Quarterly Net Profit at Rs. 65.40 crore in June 2020 down 64.2% from Rs. 182.70 crore in June 2019.

EBITDA stands at Rs. 110.50 crore in June 2020 down 63.19% from Rs. 300.20 crore in June 2019.

Castrol EPS has decreased to Rs. 0.66 in June 2020 from Rs. 1.85 in June 2019.

Also Watch: A Visit to Castrol India Plant

 

Key Aspects to Consider While Investing in Castrol India

  • The company is 100% debt-free.
  • The company is a consistent dividend paying company.
  • The company has reserves and a surplus of more than 870 cr as of the last reported balance sheet date. (Company follows December end calendar year.)
  • The company has more than Rs 1100cr of cash and equivalents.
  • The operating profit margin of the company is above 27% and the same has been maintained consistently over many years.
  • Average 5 Year ROCE of the company is about 100%.
  • Mutual funds hold almost 18% of the share of the company.
  • Compounded sales growth of the company over a 3 and 5 year period is 5% & 3% respectively.
  • Compounded profit growth of the company over a 3 and 5 year period is 8% & 12% respectively.

Future outlook of Castrol India

  • The company is working on new product launches. However, the launch would depend on the normalization of the current environment.
  • The margins are expected to improve on account of a better product mix.
  • The company is looking at diversification and its recent deal with 3M can be a reflection of the company’s plan to generate new revenue streams on account of uncertainty due to possible onslaught of electric vehicles.
  • The dividend payout at the current levels is expected to continue
  • The company has entered into a strategic alliance with Jio-BP fuel retail JV to exclusively sell its products through its all 1,400 outlets.
  • The company has added ~500 retail outlets during the quarter.
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Sectorial Outlook

  • Demand for automotive lubricants is driven by the expansion of vehicle population as well as the usage of vehicles in the country. 
  • Industrial lubricants demand is observed to have a strong correlation with the IIP, which is largely driven by economic activity. 
  • In the case of marine & energy lubricants, the demand drivers include global and local ship movements, which facilitate the large-scale movement of cargo as well as the installed base of offshore rigs and their uptime.
  • With increasing vehicle numbers of two-wheelers and four-wheelers, this category of engine oils will continue to see an upward trend. With its wide distribution reach and strong brands, they are expected to capitalize on the opportunity. Synthetic oils will continue to lead the growth for passenger cars and are well placed to take advantage of the same with its well-rounded portfolio of synthetic products.
  • Commercial vehicles: Despite short-term challenges in the lubricant demand for commercial vehicles, this segment is expected to grow once economic activities pick up with strong and growing vehicle numbers. 
  • Growth in construction and off-highway sectors due to investment in infrastructure is likely to lead to lubricants demand growth in this category. They are also investing in plant capacity expansion to cater to increasing demand. 
  • The long term industrial lubricants demand is likely to grow with economic reforms gaining momentum as India’s long-term prospects for growth remain optimistic. As global OEMs continue their focus in India, growth prospects are likely to get bolstered further. Marine & energy lubricants.
  • With cargo traffic in ports of India continuing to see an increase and with distributors for all segments of customers (including spot market), new product introduction, and better availability, they have increased its outreach and intends to leverage its brand equity to penetrate untapped markets.
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Conclusion

With a consistent track record of performance or in other words, maintaining normalized earnings with operating margins of above 25% castor India is worth exploring for the long term.

Additionally, the company is completely debt-free with huge cash reserves of more than 1100 crores and the ROCE of the company is about 100% avg for the last 5 years.

If not growth company will pay in the form of dividends however we may expect this stock to perform but in a steady manner and not unlike some other companies which give multifold returns.

Thus this is the kind of stock which can provide overall stability to the portfolio in the cyclical market cycles.

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