Castrol India Ltd’s share price jumped 8.8% on Tuesday, a day when the benchmark Sensex declined 0.4%.
Castrol Ltd, a wholly-owned subsidiary of BP Plc., sold 8.5% stake in Castrol India through a bulk deal. 42 million shares were sold at an average price of Rs.432.5 apiece on Tuesday.
While it represents a premium of 2.4% to Monday’s closing price, it’s worth noting that the Castrol India stock had declined 4.5% on Monday. The stock decline on Monday is probably owing to fears that a deal may happen at a discount to market price. Compared to Friday’s closing price, the deal happened at a discount of 2.2%. However, much to the relief of investors, the discount was lower than expected.
On 19 May, Castrol had sold about 11.5% in Castrol India and reduced its stake from 71%. That deal had happened at a 5% discount to the previous day’s closing price.
Further, analysts say it helps that the reason for stake sale is not on account of issues related to Castrol but seems to be in keeping with BP’s own plans.
According to a Bloomberg report in May 2016, BP plans to sell $3 billion to $5 billion of assets this year as it seeks to pay down debt, maintain dividends and cover the cost of the 2010 Gulf of Mexico spill.
Even as the Castrol India stock jumped on Tuesday, stake sale news flow has weighed on the stock, feel analysts. Its shares have underperformed the benchmark Sensex since the beginning of this calendar year. That is at a time when the company has delivered stellar results for two quarters in a row.
In fact, the June quarter net profit was its highest ever quarterly profit.
Over the last six months, Castrol India witnessed 7% volume growth as against a volume decline of 1.7% in CY05-15, wrote Harshad Borawake and Abhinil Dahiwale of Motilal Oswal Securities Ltd in a report last week. Growth in H1CY16 has been broad-based, with continued high single-digit growth in the personal mobility segment and recovery in the commercial vehicle segment, said Motilal Oswal analysts.
Within the personal mobility segment—passenger cars and two-wheelers—are expected to continue to drive growth in the days to come.
Currently, one Castrol India share trades at 32 times estimated earnings for this financial year. The company’s fiscal year is from January to December. Increase in crude price poses a risk for the stock, as key inputs are crude derivatives. With the stake sale news flow behind it, the stock should now be driven by its fundamentals.