Castrol India Ltd’s stock slipped 3.5% on Friday to Rs 521 in reaction to its June quarter financial results, announced on Thursday after market hours.
The numbers were affected mainly due to higher raw material costs. Castrol’s key input is a derivative of crude oil. Total raw material costs as a percentage of sales increased sharply by 664 basis points, against a year ago, to 55.2%. One basis point is one-hundredth of a percentage point. Higher input costs along with higher staff, and advertisement and sales promotion expenses took a toll on the operating performance of the company.
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The operating profit margin, thus, fell to 25% from 30% in the June quarter last year. That was despite the fact that other components of costs (other expenditure and carriage, insurance and freight) declined. However, the operating margin is about a percentage point higher than in the March quarter.
At the net level, though, operating profit fell 12%; net profit declined at a much slower pace of 5% to Rs 142.5 crore, helped by higher other income, slower pace of depreciation costs and a decline in tax outgo. Profit margins of both the non-automotive (or industrial segment) and the automotive business segments fell. The net profit decline happened on a revenue growth of 6% to Rs 793 crore.
“Castrol’s net realization was up by 18.16% y-o-y (year-on-year) and 8.7% q-o-q (quarter-on-quarter) to Rs 146.03/ltr, mainly due to price hike the company has taken in the quarter. However, sales volume was significantly lower y-o-y,” Sumit Pokharna of Kotak Securities Ltd wrote to clients last week.
The company’s June quarter performance looks disappointing against its March quarter showing, when revenue and net profit rose about 15%. For both quarters, though, a sharp spike in other income greatly helped the net level performance. Castrol’s stock has outperformed the BSE-200 Index of BSE since the beginning of the year.
Castrol maintains that demand for lubricants may soften, given the global economic situation. On the brighter side, however, crude prices are easing. A sharper-than-expected decline in crude prices will offer the firm some respite.
Graphics by: Ahmed Raza Khan/Mint
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