Castrol India – good long term returns + dividends + bonus


(BSE code :500870    NSE code :CASTROL)
Current market price : rs. 439.20
2009-10 dividend yield – 5.6% (that’s almost equal to the yield on a fixed deposit)
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BUSINESS:
Castrol India is the Indian subsidiary of UK-based Burma Castrol and is engaged in manufacturing and marketing of automotive and industrial lubricants and specialty products. It operates in the automotive as well as non-automotive segments. The former includes oils for heavy-duty vehicles, cars, motorcycles and bikes, while the latter includes industrial lubricants, marine and energy lubricants and the services segment.
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Public sector players like IndianOil, Bharat Petroleum (BPCL) and Castrol account for around 70% of the domestic lubricants market. Several other players, including global majors, account for the balance share, resulting in a highly competitive market. Besides having technologically superior products, Castrol also has strong distribution network and brand recall. The company is the market leader in the retail segment with a share of around 21% in the total automotive lubricants market.
Some plus points :
1. A robust balance sheet
2. Sound business model
3. Strong brand equity of its products
4.  Has been churning profits year after year even during the economic downturn
5.  having a look at it share price graph one would never believe that there had been a recession !
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In the past five years, there has been a dramatic increase in the number of cars and commercial vehicles on India’s roads. This aftermath is likely to be a big growth driver for the lubricant industry in general and Castrol in particular for its brand equity and innovation, over the next few years.
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PAST PERFORMANCE :
Castrol has been giving dividends to the tune of 125 – 250% on a face value of Rs. 10 per share consistently since 2003. The company also rewarded shareholders with a 1:1 bonus share issue. The share price has been increasing slowly and very steadily for the last two years. It was not beaten down by the economic downturn one bit! <– you can check this here –> http://www.moneycontrol.com/india/stockpricequote/lubricants/castrolindia/CI01
Financially the company is sound. Here are some highlights :
1. It boasts of quite a strong balance sheet
2. ZERO debt status
3. a constantly increasing turnover and NPM (net profit margin)
4. RoCE (Return On Capital Employed ) ratio stands at an impressive 122%
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GROWTH STRATEGY:
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Castrol has gained market share in a declining lubricants market. The entry of new original equipment manufacturers (OEMs) offering new technology vehicles will provide additional opportunities for the company’s products. Lube consumption is projected to grow strongly in cars, fourstroke bikes, as well as building and construction equipment segments.
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Gradual growth in personal mobility, as well as corresponding growth in demand for automotive services, are positive factors for the company in the long term. Castrol seeks revenue and value growth through higher dependence on superior technology products relevant to new generation of vehicles, as well as focus on volume growth in the key growth sectors which it has identified. Rather than a broad volume growth strategy, the company is looking at building on profitability.
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CONCERNS :
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Rising crude oil prices have been a concern for the company since the past two years as oil and it by products is a critical raw material for production of lubricants. However, the company is expected to benefit from the recent crash in crude prices.
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The growth in use of longer drain lubricants, especially in the commercial vehicle segment, is expected to significantly reduce consumption of lubricant per vehicle. This is expected to reduce volume growth significantly over the next 2 – 3 years.
Price undercutting by low-cost competitors in an attempt to gain volume share is another threat for this premium-category lubricant manufacturer. A long-drawn slump in the automobile segment may hamper future volume growth of the company’s products. Curtail in infrastructure spend due to the general economic slowdown is also likely to curb the market for lubricants. With an industrial slowdown, the company’s business in the non-automotive segment may also take a hit.
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THE ABOVE HAS BEEN COLLECTED AND INTERPRETED FROM THE COMPANY’S AND ITS PARENT COMPANY’S WEBSITE AND LAST 5 YEARS ANNUAL REPORTS
For any queries feel free to contact me at anuragbhatia2210@gmail.com
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Minance is a private investment firm
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