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1QCY11 EBITDA was 5% below est. due to delayed implementation of price hikes in the B2B
businesses. However, PAT was 4% above est. largely due to one- offs. The operating
environment remains tough as base oil price remain high and comptt price action hasn't yet
materialized, but outlook is likely to improve in 2H.
Net sales at Rs7.5bn (up 15% yoy) was 4% below estimates due to lower realizations.
Though prices were raised by 7% in December 2010, this price hike was implemented only
for the retail trade. The wholesale trade (B2B segment) price hike got implemented only in
March 2011. Castrol has implemented another 9-10% price hike at end of March 2011, again
only for the retail trade.
The lower than expected revenues translated into lower profits as EBITDA (Rs1.8bn up 1%
yoy) came in 5% below estimates. There would have been additional promotional costs
during the quarter on account of the ICC World Cup event all of which would not have
necessarily been captured under "Adspend".
The operating environment during 1Q and even 2Q is likely to remain tough. Base oil prices
have moved up from US$1000/tonne from end of CY10 to around US$1400/tonne earlier
(average US$1200/tonne for 1Q). Refining margins on base oil are estimated at
US$500/tonne compared to a normalized level of US$200-250/tonne. Hence there is potential
for base oil prices to soften just on margin normalization, though it would be very difficult to
predict timing. The other factor impacting demand is that competitors have not yet taken a
price hike in CY11. This price hike, which could be due in a couple of months, would be
necessarily to improve the operating environment.
Reported net profit (Rs1.4bn, up 17% yoy) was 4% above estimates due to a non-recurring
item included in other income - Rs130m on account of reversal of provision for bike zone
which was made in CY10, as the company managed to pay lower compensation to the
franchisees.
Current quarter would be critical in terms of determining current year outlook as historically it
enjoys the highest volumes and profits.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QCY11 EBITDA was 5% below est. due to delayed implementation of price hikes in the B2B
businesses. However, PAT was 4% above est. largely due to one- offs. The operating
environment remains tough as base oil price remain high and comptt price action hasn't yet
materialized, but outlook is likely to improve in 2H.
Net sales at Rs7.5bn (up 15% yoy) was 4% below estimates due to lower realizations.
Though prices were raised by 7% in December 2010, this price hike was implemented only
for the retail trade. The wholesale trade (B2B segment) price hike got implemented only in
March 2011. Castrol has implemented another 9-10% price hike at end of March 2011, again
only for the retail trade.
The lower than expected revenues translated into lower profits as EBITDA (Rs1.8bn up 1%
yoy) came in 5% below estimates. There would have been additional promotional costs
during the quarter on account of the ICC World Cup event all of which would not have
necessarily been captured under "Adspend".
The operating environment during 1Q and even 2Q is likely to remain tough. Base oil prices
have moved up from US$1000/tonne from end of CY10 to around US$1400/tonne earlier
(average US$1200/tonne for 1Q). Refining margins on base oil are estimated at
US$500/tonne compared to a normalized level of US$200-250/tonne. Hence there is potential
for base oil prices to soften just on margin normalization, though it would be very difficult to
predict timing. The other factor impacting demand is that competitors have not yet taken a
price hike in CY11. This price hike, which could be due in a couple of months, would be
necessarily to improve the operating environment.
Reported net profit (Rs1.4bn, up 17% yoy) was 4% above estimates due to a non-recurring
item included in other income - Rs130m on account of reversal of provision for bike zone
which was made in CY10, as the company managed to pay lower compensation to the
franchisees.
Current quarter would be critical in terms of determining current year outlook as historically it
enjoys the highest volumes and profits.
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