Thursday, 30 July 2015

'Castrol India – The MNC midcap stock for your portfolio'

Castrol India is a subsidiary of British Petroleum and one of the largest players in the automotive and industrial lubrications business. In India, the company derives more than 85% business from the automotive business and commands a market share of 25%. The company has three manufacturing plants along with 400 distributors servicing more than a lac retail outlet. The company imports its raw materials which are called base oils from imports and the rest from Indian oil companies. The size of the automotive and industrial lubricant market is estimated to be around 30,000 crores which amount to 2.5 billion liters of oils and lubricants. Castrol volumes and revenues were subdued due to slow industrial and automotive sales growth. However, India is now witnessing an improvement of automotive growth and this revival in auto sales will increase the top line for the company. See Chart below.

Recent sharp declines in oil prices (see chart below) will help in reviving the profitability of the company. Castrol’s strong brand positioning and superior distribution network allows it to command higher pricing power and premium for its products over its competitors in spite of decline in base oil prices. LM Securities believes that Castrol, which is the price maker in the Indian automotive lubricant market, will maintain stable realizations, going forward.

The stock price fell from 550 to a low of 415 and has recovered since then. The stock was also recently added in the Futures and Options segment, so the trader’s interest has also come into the stock. The stock has now formed a major bottom at 415 and is now poised for higher levels. One can keep longs with a Stop loss of 477 INR for targets of 550/600. CMP is 505. See Price Chart below.

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Disclaimer: This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein and may sell them to or buy them from customers on a principal basis.
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