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.
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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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