NH Securities says that trends in the international lubricants market have shown that not more than 8-10 players survive in the market place. The Indian market boasts of as many as 28 players. With the industrial slowdown and the automobile industry in recession, the offtake of lubes has been affected.Moreover, with improved technology, superior quality oils which have a longer life are now being produced which in turn will lead to lower consumption of lubricants and drive down demand. The growth rate in the industry should be 3-4 per cent. By the year 2000, the size of the industry is expected to be 1.26 million kilo litres, valued at Rs 7,000 crore.
Castrol being in the Indian market for eight decades with a 17.8 per cent market share is better placed than the other companies. The other major companies are the integrated oil companies which have lubricants as one of their divisions. Moreover, the joint ventures (JVs) of the public sector units (PSUs) and the international giants have not been assuccessful as expected due to conflicting interests of the partners marketing products for the same segment.
Castrol is the fastest growing lubricant company in the country, manufacturing and marketing 400 different products covering automotive, industrial and marine lubricants, and is a pioneer in multigrade long-lasting lube oils. But Castrol is not shielded against adverse industry trends and the sluggish economy will restrict volume growth to 10-12 per cent against 30 per cent in the earlier years.
For December 1997 we expect the income from operations to be Rs 1,086.94 crore, recording a growth of 14.9 per cent. The PBIDT margins will improve from 19.2 per cent (December 1996) to 22 per cent. A fall in the international prices of base oil (import content - 80 per cent) will help the company reduce its raw material costs substantially. The price of SN150 grade and SN500 grade of oil fell by 9.1 per cent and 12.8 per cent respectively during the year.
Further, due to lower corporate tax rates and taxconcessions on account of the commissioning of the Silvassa plant, the company's tax/profit before tax (PBT) ratio will be 26.5 per cent as against 36 per cent. This will lead to a profit after tax (PAT) of Rs 150.11 crore, a rise of 58.8 per cent over the previous year's figure of Rs 94.53 crore.
For December 1998, income from operations is expected to increase by 11.9 per cent to Rs 1,142.7 crore. The PBIDT margins will fall to 20.3 per cent as the recent rupee depreciation will render the imports expensive. Also, the international base oil prices have hardened. Since the company has no major capex planned, its investment income will increase. Its PAT will increase to Rs 160.97 crore, an increase by 7.2 per cent.
Castrol, the Indian subsidiary of the Burmah Castrol group, has emerged as the second most profitable company in the group (next only to the US company), accounting for 7.8 per cent of the turnover and 13 per cent of the total operating profits. It is also the second largest group company interms of volume. It has seven manufacturing plants with an aggregate capacity of 3 lakh kilo litres.
(The views expressed here are those of NH Securities, and have nothing to do with the views of The Financial Express)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
