Home >Markets >Mark To Market >Castrol India’s March quarter subdued, outlook slippery for Q2

Castrol India Ltd was not immune to covid-19’s adverse impact during the March quarter. The lubricant maker’s revenue dropped by 30% year-on-year to 688 crore. That is far worse than the marginal 0.7% revenue decline seen in 2019.

“While the covid-19 lockdown commenced in March, Castrol’s results also show the impact of the economic slowdown seen in the first two months of the quarter. The upshot: The company’s quarterly volumes are the worst seen in a decade," said Nidhi Doshi, analyst, Dolat Capital Pvt. Ltd.

Castrol follows a January-December financial year and, accordingly, the March quarter is its first one.

Graphic: Satish Kumar/Mint
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Graphic: Satish Kumar/Mint

Castrol said the quarter was characterized by the economic slowdown, liquidity crunch, as well as covid-19-led severe demand and supply disruptions, which impacted the Indian lubricant industry.

True, raw material costs fell at a faster pace for the company. However, higher employee costs and a relatively slower pace of decline in other expenses did not offer comfort. As a result, earnings before interest, tax, depreciation and amortization (Ebitda) declined by almost 39% year-on-year. Ebitda margins contracted by 384 basis points to 25.1%. One basis point is one-hundredth of a percentage point. For perspective, Castrol’s Ebitda margins in 2019 was at 29.7%.

Overall, March quarter net profit of 125 crore fell short of analysts’ expectations.

Due to the lockdown, the outlook for the June quarter is dull as well. Castrol’s plants have resumed operations at partial capacity. In an update, the company said post partial relaxation in the lockdown, it has started witnessing demand pickup for products in the two-wheeler segment.

Even as the stock recovered from its lows, Castrol shares are about 28% lower than its 52-week high seen on 14 February on the NSE. Valuations are not demanding. The stock trades at about 13 times estimated 2021 earnings, based on Bloomberg data. But further expansion in valuations would require a meaningful revival in the fortunes of the auto sector. Additionally, a pickup in economic activity would help demand for industrial lubricants. These factors may take a while to pan out.

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