Castrol India Ltd’s financial performance for the September quarter was hit by declining volumes as well as higher raw material costs.
Total raw material costs as a percentage of revenue increased by 620 basis points on a year-on-year (y-o-y) basis because of higher base oil prices. Staff costs, too, were a bit higher. Collectively, they affected Castrol’s operating profit margins, which declined by as much as 670 basis points to 19.7%, leading to a 22% drop in operating profit. One basis point is one-hundredth of a percentage point.
In fact, the operating margin was far lower than the June quarter margin of 25% as well. Note that margins had fallen on a y-o-y basis even in the June quarter. Castrol pointed out in its press statement, “During the July–September 2011 quarter, the unit cost of goods increased by almost 30% over the previous year. To partly offset the cost of goods increase, the company has increased selling prices by 15%.”
Total revenue grew 4.8% y-o-y to Rs 674 crore, while net profit declined by 18.6% to Rs 95 crore. Revenue had increased at a higher rate of 6.3% in the June quarter.
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According to the company, its competition took longer than usual to increase prices, as a result of which volumes in the retail segment have been under pressure. Sumit Pokharna of Kotak Securities Ltd writes in his post-results update that Castrol’s net realization was up by 15.04% y-o-y due to price hikes the company effected in the June quarter. Evidently, sales volumes have fallen, given that revenue rose by less than 5%.
The automotive segment accounted for 84% of the total revenue in the September quarter and the segment’s revenue increased by a meagre 3%. The non-automotive segment fared relatively better, posting 15% revenue growth. The earnings before interest and tax of the automotive business declined sharply by 25%, while that of the non-automotive one increased by 4.5%.
While the September quarter performance was weak, the outlook is not too rosy either. The weakness of the rupee against the dollar may put further pressure on input costs and in turn hit profit margins.
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