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Geojit maintains BUY on Castrol India

Geojit maintains BUY on Castrol India
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First Published: Tue, Aug 05 2008. 11 44 AM IST
Updated: Tue, Aug 05 2008. 11 44 AM IST
Castrol India Limited (CIL), a subsidiary of Castrol UK (part of BP group) and largest private sector lubricant company, reported impressive performance in Q2CY08, underpinned with shift profitable volume growth.
Net sales rose by 15.1% to Rs621.4 crore on back of higher volumes and improved price realization to recover sharply escalating cost of goods. OPM (%) enhanced to 20.4% with reduction in material cost to 55.9% of sales owing to better procurement.
Further aided by 16.5% higher other income of Rs9.2 crore and 66.7% drop in interest payout, PBT surged 26.4% to Rs128.2 crore and PAT by 25.6% to Rs82.8 crore.
In automotive lubricant segment, company is focusing on hi-tech segments which offer profitable volume growth and move away from unprofitable volumes.
As markets develop and auto industry advances technologically, focus shifts from overall volume to targeted volumes and hi-tech lubricants. This strategy helped company in minimize impact of raw material volatility and to deliver sustained growth in revenue & profit.
CIL has record of liberal bonuses and high dividend payout. In CY07, it recommended dividend of 140% and has also declared interim dividend of 60% for CY08. At CMP, dividend yield works out to be ~ 4.8%.
Going ahead too, CIL will have good dividend payout as company keeps on generating cash surplus and does not have large capex plan (since this business is not capital intensive).
At the current market price, the stock is trading at 11.8 times CY08 expected EPS of Rs24.50 and 9.3 times CY09 expected EPS of Rs31. We recommend a BUY in this counter.
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First Published: Tue, Aug 05 2008. 11 44 AM IST
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