Castrol Research report
Castrol india ltd
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. The Company caters to the automotive, industrial and marine & energy segments.
The company derives 40-45% of its volume from personal mobility, industrial segment contributed 12% to volumes while remaining comes from CVO and heavy-duty vehicles. The company is market leader with 22% share in Bazaar segment.
Castrol operates 3 manufacturing plants in India and has the largest distribution network of 380 distributors and servicing customers through 110,000 retail sites.
Castrol’s raw materials cost (base oil) are dependent on the movement of crude oil prices and rupee against US dollar.
Castrol’s recent alliance with the Jio-BP retail network provides long-term volume growth opportunity and management’s renewed focus to gain share could result in better volume growth in coming years despite overall muted outlook for lubricant demand (given higher drain interval to change lubricants). Strong FCF generation, healthy dividend yield and robust RoE of 56-60% lends comfort to investors. Castrol is trading at steep discount to historical valuations.
Although Castrol has been successful in signing agreements with many automobile and oil & gas players in the industry, its strategy to defend potential disruptions like higher drain interval, electric cars will be the key monitor able for long term volume growth, going ahead. In the near term, Castrol will report strong volume growth YoY in CY21E mainly due to low base effect. The focus on maintaining balance between margins & volumes along with growth in the personal mobility segment (~45% of total volume) will be a key factor directing the company ahead.
|Key management personnel|
|Sandeep Sangwan||Managing Director|
|Deepesh Baxi||Chief Financial Officer|
|Shareholding pattern (%) as on Mar 2021|
|Promoters||51.00%||[CASTROL LIMITED 51%]|
|FIIs||11.63%||[Murray International Trust Plc 1.42%]|
|DIIs||16.69%||[ Life Insurance Corporation of India -11.32%][ Aditya Birla Sun Life Trustee Private Ltd-1.26%]|
- Company is almost debt free.
- Company has a good return on equity (ROE) track record: 3 Years ROE 56.52%.
- Company has been maintaining a healthy dividend payout of 76.30%.
- Debtor days have improved from 34.66 to 21.98 days.
- Company with Zero Promoter Pledge.
- Strong cash generating ability from core business – Improving Cash Flow from operation for last 2 years.
- Market Cap -₹12,888 Cr.
- Industry PE – 26.9
- Stock P/E -18.4
- ROCE – 56.8 %
- Qtr Sales Var 65.5 %
- Current price is less than the intrinsic value
- As the stock is not in overbought, good time to consider in your portfolio.
Key Risks:-Lower-than-expected lubricant volume in case of prolonged economic slowdown due to COVID-19. Likely impact on margin in case of a sharp rise in crude oil prices.