E-Investing India - Online Community for Investors and Traders  

Go Back   E-Investing India - Online Community for Investors and Traders > Stock Markets > Individual Stocks
Read All Rules Contact Site Administrator

Individual Stocks Discussion Forum for Individual Stocks. If you have query/suggestion on more than one stock, which are UNRELATED TO EACH OTHER, USE SEPARATE THREADS.

Reply
 
Thread Tools Display Modes
  #1  
Old 15th November 2010, 11:48 AM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default Castrol India



I would like to suggest Castrol India as an excellent long time investment.

Quantitative Analysis:
[Note: Company's fiancial year is Jan-Dec]

1. Return On Capital Employed (ROCE) for Dec 09 = 122%. ROCE for the past 5 years is consistently greater than 50%. This means Company is making efficient use of capital resources.
2. Debt is zero.
3. Debtors turnover ratio is high and shows consistent improvement over the past 5 years. This means Company is very efficient in collecting its dues. In fact Debtors Turnover Ratio is greater than Inventory Turnover Ratio.
4. Net Current Assets (= Working Capital) for Dec 09 was 357.03 Cr and the Net profit was 381.06 Cr. For the past 5 years the net profit generated compares very favorably with the working capital. This means company makes efficient use of its working capital.
5. From Dec 05 to Dec 09, company has grown at a CAGR of 26.9%. EPS shows steady increase and did not fall during the "Economic Recession".

Qualitative analysis:

The Automotive sector has shown phenomenal growth in the past year. All the old and new vehicles on the road need regular oil change. So Castrol's business segment will have steady demand even if the auto sector (or the economy at large) goes through a bad phase. No sensible vehicle owner delays oil change beyond a reasonable limit.

Cheap Chinese tyres are available and the amount of competition in the car battery segment is also increasing. But in the Vehicle Oils, Castrol brand seems to be strong enough that people demand Castrol oils by name. Only Mobil One seems to have a comparable brand value.

Company also has a long history of caring for its shareholders by paying good dividend.

Technical Analysis (price movements):

If you compare gains in Castrol price over gains in Nifty over the past 6 months, 1 year, 2 year or 5 year period, Castrol has consistent beaten the Nifty.

Last edited by sudhashbahu : 15th November 2010 at 12:16 PM. Reason: Corrected grammar
Reply With Quote
  #2  
Old 15th November 2010, 12:18 PM
Administrator
 
Join Date: Sep 2006
Posts: 11,063
Rep Power: 7498
Alchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond repute
Default

Quote:
Originally Posted by sudhashbahu View Post
1. Return On Capital Employed (ROCE) for Dec 09 = 122%. ROCE for the past 5 years is consistently greater than 50%. Company is making efficient use of capital resources.
Yes, but what does this tell you?

For years calender years 2005 to 2009.

All figures in crore.

Reported Net Profit 146.81 154.49 218.43 262.37 381.06

Equity Dividend 102.01 111.28 173.10 185.46 309.10
Reply With Quote
  #3  
Old 15th November 2010, 12:23 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Quote:
Originally Posted by Alchemist View Post
Yes, but what does this tell you?

For years calender years 2005 to 2009.

All figures in crore.

Reported Net Profit 146.81 154.49 218.43 262.37 381.06

Equity Dividend 102.01 111.28 173.10 185.46 309.10
I did not get the point you are trying to make. Can you please elaborate?
Reply With Quote
  #4  
Old 15th November 2010, 01:01 PM
Administrator
 
Join Date: Sep 2006
Posts: 11,063
Rep Power: 7498
Alchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond repute
Default

Quote:
Originally Posted by sudhashbahu View Post
I did not get the point you are trying to make. Can you please elaborate?
The company has a great return ratios (Return on Equity, Return on Capital Employed etc).

Instead of reinvesting the profit, the company distributes most of the profits as dividends.

What could be the reason?

I mean if I had a business which had an ROE of 30% in the long-term, I would keep reinvesting my profits and make even more money.

Castrol doesn't do that.

The reason is that Castrol is a company that is constrained by its market.

Castrol already has a big market share in a market that is growing slowly.

From 2005 to 2009, revenues have grown from 1708 crore to 2767 crore.

That's around 12% annually.

Sooner or later, Castrol's profit growth rate will slow down and come to those levels.

No doubt Castrol is a great business, but one shouldn't take growth for granted.

Castrol is not a stock that one can buy at any price and expect to get a good return in the long-term because of high growth rate.

Currently, Castrol is trading at 25 times its TTML earnings.

I would prefer to buy it around 18-19 times.

I came across a September 2010 report by Kotak Securities.

Here are Kotak's estimates for Castrol's PAT:

CY 2010 - Rs 511 crore.
CY 2011 - Rs 523 crore.
CY 2012 - Rs 536 crore.

Almost zero growth.
Reply With Quote
  #5  
Old 15th November 2010, 01:59 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Great points Alchemist. As usual you have tempered down my enthusiasm by bringing in the voice of caution. And by past record your caution has always turned out to be true

However could you clarify some points.

Quote:
Originally Posted by Alchemist View Post

The reason is that Castrol is a company that is constrained by its market.

Castrol already has a big market share in a market that is growing slowly.
Shouldn't that reflect in a slowing down of EPS growth?

For years calender years 2005 to 2009.(All figures in crores)

Reported Net Profit 146.81 154.49 218.43 262.37 381.06

The corresponding growth rates over previous years are respectively:5.23%, 41.39%,20.12% and 45.24%

However the quarterly results for Sep 10 and June 10 quarters do indicate some slowing down.

Quote:
Originally Posted by Alchemist View Post

I came across a September 2010 report by Kotak Securities.

Here are Kotak's estimates for Castrol's PAT:

CY 2010 - Rs 511 crore.
CY 2011 - Rs 523 crore.
CY 2012 - Rs 536 crore.

Almost zero growth.
Is this realistic considering that the auto sector has recently boomed with both cars and bikes showing record sales?
Reply With Quote
  #6  
Old 15th November 2010, 05:20 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Threats to business as listed in the 2009 Annual Report - Management Discussion and Analysis:

a. Continued increase in drain intervals in the commercial vehicle segment.
b. High levels of employee attrition as the economy revives.
c. Reviving economy leading to an inflationary pressure that could result in a sharp increase of input costs.
d. Price under-cutting by low-cost as well as international competitors in an attempt to gain volume share.
e. Hardening interest rates which could lead to slowdown in sale of commercial and personal mobility vehicles.

Note: Drain interval = Kilometers after which manufacturers suggest oil change.
Reply With Quote
  #7  
Old 15th November 2010, 10:47 PM
Administrator
 
Join Date: Sep 2006
Posts: 11,063
Rep Power: 7498
Alchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond repute
Default

Quote:
Originally Posted by sudhashbahu View Post
Shouldn't that reflect in a slowing down of EPS growth?
I looked at Castrol's income statement.

In the last few years, PAT has increased at a faster rate compared to the revenues because cost of materials has increased at a slower rate compared to the revenues.

Other major costs have kept pace with the revenues.

I need to look at the annual report and brokerage reports to understand why this has happened.
Reply With Quote
  #8  
Old 16th November 2010, 07:00 AM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Quote:
Originally Posted by Alchemist View Post
I need to look at the annual report and brokerage reports to understand why this has happened.
Thanks. Do post your analysis soon.
Reply With Quote
  #9  
Old 30th November 2010, 03:28 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Quote:
Originally Posted by sudhashbahu View Post
Thanks. Do post your analysis soon.
Alchemist, still waiting for your analysis

Castrol has fallen below its 200 SMA.
Reply With Quote
  #10  
Old 30th December 2010, 07:09 PM
Administrator
 
Join Date: Sep 2006
Posts: 11,063
Rep Power: 7498
Alchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond repute
Default

Well, I did go through Castrol's 2009 annual report.

My view doesn't change much.

Here are some excerpts from the 2009 annual report. (Castrol uses calender year as the financial year).

As I had said earlier, Castrol isn't really able to grow its volumes.

The growth is basically coming from price increases and selling better (more expensive) products.

Quote:
On the back of this strong revival in the second half of the year, the lubricant industry is estimated to have grown by 1- 2% in 2009.
Quote:
Overall, the lube market is projected to grow at around 2-3% in volume terms in 2010.


As seen from the chart on the right, 2009 was an exceptional year, where sales value went up but costs came down.

This partially explains it:

Quote:
However, effective control of the inventories and effective buying decisions in highly volatile markets helped your Company to procure at the best rates and release cash in a timely manner.
They had bought raw materials when the prices were sharply down. This is unlikely to be repeated in the future.



If oil prices stay high for a long period, Castrol may be negatively affected.

Quote:
With crude oil prices pushing up cost of base oils, additives and packaging, margins are expected to be impacted during the year and potentially impact demand as the lube industry passes a portion of the increased costs to customers.
There is one more reason why cost of materials have been going down in percentage terms.

They are selling more premium products.

Quote:
Unit sales realization in 2009 grew by 11% due to judicious pricing decisions and better sales mix. The total costs of materials have reduced by 14% due to lower volumes and reduction in base oil prices. Margin improvement has been achieved through a combination of premium product mix, better sales realization and favorable cost of materials.
Even though premium products have improved margins in the recent quarters, they cannot be key to long-term growth of the company.

For sustainable long-term growth, either the market for lubricants has to grow or Castrol has to increase its market share.

Both don't seem to happening.

Actually, the sales volume for Castrol has been going down in the last few years (as seen from the first chart).

This can be partially explained by increasing drain intervals and increasing competition.

Quote:
Longer oil drain intervals: This can significantly impact lubricant volume growth in the market, especially in the commercial vehicle segment.
Quote:
Price under-cutting by low-cost as well as international competitors in an attempt to gain
volume share
In the first 3 quarters of 2010, Castrol has reported a PAT of 385 crore.

I guess the full year PAT will be 500-510 crore.

That means an eps of 20.00-20.50.

Most of the growth in profits has been coming for decreasing raw material prices and better product mix. As I stated earlier, these factors cannot bring long-term growth for the company.

2010's revenues will surely be lower than 2009's revenues.

Thus, I don't feel Castrol can be called a growth stock.

However, that doesn't mean it shouldn't be given a high PE multiple.

The fact is that Castrol is a great business and a great company.

It generates a lot of "free cash flow". This is evident from the high dividend payout ratio.

This free cash flow will ensure that Castrol will always trade at a premium to the market.

At current price of 453, the stock is trading at around 22 times CY 2010 earnings and maybe at 20 times CY 2011 earnings.

I think it would become a good buy between 15 and 18 times current year's earnings.

That means a price between 308 and 370.

An investor can buy if the price falls to around 372 and then average if the price falls to 310.
Reply With Quote
  #11  
Old 30th December 2010, 07:41 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Thank you Alchemist for the clear analysis and target buy points.
Reply With Quote
  #12  
Old 26th February 2014, 03:22 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default Reduction in Capital

Castrol has announced reduction in capital.

Any idea what that means?
Reply With Quote
  #13  
Old 25th March 2014, 11:37 AM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

Market zooming and Castrol near 52 week lows.

Are we in for more pain or is this a buying opportunity?
Reply With Quote
  #14  
Old 25th March 2014, 11:59 AM
Senior Member
 
Join Date: Jul 2010
Posts: 1,867
Rep Power: 4706
magnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond reputemagnet has a reputation beyond repute
Default

This report says to accumulate.I am no way related to it.Just sharing as I found it while checking some other share.

Lubricant space can generate good cash flows: Dolat Capital
Reply With Quote
  #15  
Old 24th August 2015, 05:25 PM
Senior Member
 
Join Date: Nov 2007
Posts: 1,065
Rep Power: 759
sudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond reputesudhashbahu has a reputation beyond repute
Default

With Crude Oil at multi-year lows, is it a good time to get in to Castrol?
Reply With Quote
  #16  
Old 26th August 2015, 08:01 AM
Administrator
 
Join Date: Sep 2006
Posts: 11,063
Rep Power: 7498
Alchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond reputeAlchemist has a reputation beyond repute
Default

Quote:
Originally Posted by sudhashbahu View Post
With Crude Oil at multi-year lows, is it a good time to get in to Castrol?
Yes, but buy partially.

Castrol is a really good long-term investment, but still is a bit expensive.

The problem with high quality stocks is that they are never cheap.

Even in panic phases, at most, they fall to fair valuations. Usually they trade in the "bit expensive - very expensive" zone.
Reply With Quote
Reply


Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are On
Refbacks are Off


All times are GMT +5.5. The time now is 08:15 PM.


Powered by vBulletin® Version 3.6.8
Copyright ©2000 - 2017, Jelsoft Enterprises Ltd.
SEO by vBSEO 3.6.0
Ad Management plugin by RedTyger