Castrol India: In the midst of challenging times

MUMBAI: Castrol India's results for the September quarter underlined the challenges it is facing as economic slowdown hampered demand and depreciated rupee increased costs. The company posted a 10% drop in its net profit for the quarter. The immediate future doesn't appear much exciting unless the country's economic growth as well as rupee recovers.

"The cost of goods continued to grow significantly despite softening of base oil prices due to continuing rupee depreciation, putting margin under pressure. The adverse impact of the Rupee depreciation was Rs. 58 crores during the quarter under review," mentioned Ravi Kirpalani, COO and Automotive Director with Castrol India. The company acknowledges that next few quarters are likely to be challenging.

The company faced a flattish volume growth in spite of around 3% growth in automotive lubricants due to a double-digit fall in non-automotive segment, which includes industrial as well as off-road vehicles.

Although there is not much to cheer about in the near future, Castrol continues to invest in its brand and distribution network.

The scrip is trading at a price-to-earnings multiple of 36.6 times in line with its FMCG image. However, if the things continue to remain dampened it may witness an erosion in the valuation multiple.