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Sunday, June 21, 2009

Castrol India Ltd - Stable Mid Cap Stock To Buy

Castrol India is the Indian subsidiary of UK-based Burma Castrol and is engaged in manufacturing and marketing of automotive and industrial lubricants and specialty products.

It operates in the automotive as well as non-automotive segments. The former includes oils for heavy-duty vehicles, cars, motorcycles and bikes, while the latter includes industrial lubricants, marine and energy lubricants and the services segment.Public sector players like IndianOil, Bharat Petroleum (BPCL) and Castrol account for around 70% of the domestic lubricants market.

Several other players, including global majors, account for the balance share, resulting in a highly competitive market. Besides having technologically superior products, Castrol also has strong distribution network and brand recall. The company is the market leader in the retail segment with a share of around 21% in the total automotive lubricants market.Castrol has gained market share in a declining lubricants market.

The entry of new original equipment manufacturers (OEMs) offering new technology vehicles will provide additional opportunities for the company's products. Lube consumption is projected to grow strongly in cars, four-stroke bikes, as well as building and construction equipment segments. Gradual growth in personal mobility, as well as corresponding growth in demand for automotive services, are positive factors for the company in the long term.

Castrol seeks revenue and value growth through higher dependence on superior technology products relevant to new generation of vehicles, as well as focus on volume growth in the key growth sectors which it has identified. Rather than a broad volume growth strategy, the company is looking at building on profitability. In the past five years, there has been a dramatic increase in the number of cars and commercial vehicles on India's roads. This aftermarket is likely to be a big growth driver for the lubricant industry in general and Castrol in particular, over the next few years.Even amidst a slump in the automobile sector, the company's lubricants will still have a large potential market to tap.

Market Cap 4,647.02
EPS (TTM) 21.49
P/E 17.49
P/C 15.95
* Book Value 38.46
Price/Book 9.77
Div(%) 150.00
Div Yield(%) 3.99
Market Lot 1.00
Face Value 10.00
Industry P/E 16.93

A ROBUST balance sheet, sound business model and strong brand equity of its products is enabling Castrol India to churn out good cash flows year after year. The stock is fairly valued at current multiples. Besides, a high stock dividend yield, stable business and sound financials make the stock an attractive pick for the long term investing.

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