Castrol India: Recommendation Review

With a market share of 22 per cent, Castrol is one of the strongest players in the Indian lubricants industry. This fundamentally strong company has been a consistent outperformer and has maintained profitability even in difficult market conditions.

During the 2008 financial crisis, Castrol was largely unaffected and displayed profitability and buoyancy. Operational efficiency, a healthy current ratio and a debt-free status have all contributed to this resilience. Moreover, Castrol has been actively investing in and launching technologically superior products to cater to the increasing demand and to sync with changing trends. This is what led us to recommend Castrol at a price of Rs 541 per share (DSIJ Vol. 27 Issue # 16, dated July 29, 2012).

On September 4, 2013, the company issued bonus shares in the ratio 1:1. The share prices of Castrol are currently trading at Rs 326.60 per share, and thus, the effective returns on the stock stand at 20.74 per cent. Considering the high returns, we recommend that investors book partial profits in the counter regardless of lethargic market conditions and the performance of the benchmark indices.

The outlook of the automobile industry is likely to improve by the second half of FY14 due to the likelihood of the secular conditions getting better, including easing of interest rates. Since 85 per cent of Castrol’s revenues come from this sector, we can expect the stock to perform better at that point.