Castrol India investors wait for a smoother journey1 min read . Updated: 01 Aug 2019, 10:43 AM IST
- June quarter results declared on Monday are far from encouraging
- The company is hopeful of a pickup in demand this quarter onwards
Investors of lubricant maker, Castrol India Ltd, have been on a rocky road. Muted demand from the automobile sector and subdued economic activity has weighed on the company for a while now. Not surprisingly, Castrol India shares have underperformed the Nifty 200 index in the past one year.
What’s more, June quarter results declared on Monday are far from encouraging. Revenues increased by a paltry 2% on a year-on-year basis to about ₹1040 crore. This is influenced by a combination of 2.8% decline in volumes and 5.2% increase in price realisations.
The company follows January to December financial year, which means the June quarter is the second one for Castrol.
Post results, Kotak Institutional Equities cut earnings per share estimates by 5-6% for CY2019 and CY2020, factoring in slower growth in volumes and modestly lower unit margins amid a challenging economic environment. “Unit realizations declined 3% quarter on quarter to ₹187.7 per liter reflecting higher channel discounts," wrote Kotak analysts in a report on 30 July.
Sure, overall earnings before interest, tax, depreciation and amortization (Ebitda) margins expanded by 260 basis points year-on-year to 27.35%. Still, the measure is lower by 164 basis points compared to the March quarter. One basis points is one-hundredth of a percentage point.
To be sure, the personal mobility segment is performing well for the company. However, the commercial vehicles and industrial segment are the laggards. The company is hopeful of a pickup in demand this quarter onwards. This, in turn, should boost volumes. Needless to say, investors must closely watch how that pans out.
‘Volume growth with spreads performance will be the key monitorable," said analysts from Dolat Capital Market Pvt. Ltd in a report on 30 July. The broker adds, “Given significant under performance of the stock price for a prolonged period, Castrol’s business performance in the next two quarters will be crucial for the long-term stock outlook."
On Wednesday, Castrol India shares traded at a new 52 week low.