High raw material and sales promotion costs weighed on Castrol India’s results for the June 2012 quarter, but strong growth in volumes and market share has kept the company in good stead. The share price was supported by the bonus issue announcement. The company should benefit from the recent fall in raw material costs in the coming quarter, but it remains cautious due to the rupee’s fall. Castrol’s net profit for the quarter dipped 15% to . 120.9 crore despite an 8% growth in revenues to . 851.3 crore. This was mainly due to higher costs. Raw material costs rose 13.6% to . 497.4 crore and were 58.4% of net sales during the quarter, compared with 55.4% a year ago. In the December quarter raw material costs were 60.5% of sales.
Advertisement and sales promotion spending was up 23.4% at . 65.9 crore. Other manufacturing expenses and carriage and insurance costs were up 15.2% at . 84.7 crore. On the positive side, the company saw a 5% growth in volumes during the quarter, a healthy achievement in the lubricants industry. Castrol’s market share in the retail automotive segment has now risen to above 20%.
It introduced the ‘Durashield boosters’ technology in its flagship brands, Castrol CRB Plus and Castrol CRB Turbo, during the quarter and marketed it through an extensive campaign. “We hope to improve our market share in the next couple of quarters,” said Ravi Kirpalani, COO, Castrol India.
Although crude oil prices had weakened in the June quarter, Castrol didn’t benefit much due to the 3-month lag in prices of base oil and crude. The company’s base oil cost was $1,317 per tonne in the first half of 2012, which is 2.6% higher than last year. This should come down; but the rupee’s depreciation could play spoilsport.
The scrip is currently trading around 30.5 times its trailing 12-month earnings. Its performance should improve in the second half of 2012.
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