Mumbai. July 25: Helped by a buoyant performance in the second quarter, Castrol India has posted excellent results for first half of calendar 1999.An impressive 29 per cent jump in sales in the second quarter of the current year over the corresponding period of 1998 saw the half yearly sales grow by a decent 8.5 per cent. Interestingly, the effect of two price increases done after the first half of 1998 on sales turnover is only two and half per cent. The remaining6 per cent rise in sales is due to volume growth growth, achieved by the company. This is against the volume growth of 3-4 per cent achieved by the industry, indicating that the market share of the company in India has risen above last year's level of 19 per cent. Importantly the rise in sales turnover in the second quarter is against the background of criticism faced by the company after it had revamped its distribution system in December 1998.Industry observers had commented after the first quarter results, that the change in distributionsystem resulted in a lot of unsold stocks. But this time the problem appears to be sorted out with very high growth of 29 per cent in sales in the second quarter over the first.
High sales growth has not been the only good feature of the first half results. In spite of a 100 per cent jump in crude oil prices, lube base oil, which is the raw material for making lubricants, has not seen an increase in prices. These have remained stable at $ 180 to $ 190 per tonne over the last three months. This price is lower than the prevailing price of lube-base oil at $ 220 per tonne in the corresponding period last year.
Obviously the operating margins have improved but not to the extent one may have wished for. Operating margins have improved only marginally to 21 per cent in the first half of current fiscal from 19.5 per cent in the corresponding period last year. Analysts believe that much higher advertising and marketing expenditure was responsible. Higher volumes did not translate into a big jump in bottomline.Higher depreciation charges and slightly higher tax rate saw the bottomline jump of 10 per cent in the first half over the corresponding period last year. According to analysts, the higher book depreciation and higher tax rate is due to tax shields available for new plants getting over. However, absence of tax shields would not significantly affect the earnings for the company as income from Silvassa is exempt from tax and the company still has scope for increasing volume production from the Silvassa Unit,- income from which would be exempt from income tax.
The future also looks bright as the signs of revival in the economy have an affect on pushing up lubricant sales. According to analysts in a leading FII research outfit, the sales of lubricants have a high correlation to diesel sales. Till May 1999, volume growth in diesel was over 6 per cent over the corresponding period last year. For 2000, diesel consumption is expected to rise by 10 per cent. This should have a spill over effect on sale oflubricants. The management has also given a positive assessment for the coming fiscal by declaring an interim dividend of Rs 5 per share, resulting in dividend payout of 64 per cent. All these factors are bound to improve the valuations of the stock which is presently traded at Rs 443.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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