Speaking to CNBC-TV18, Ravi Kirpalani, MD, Castrol India says the base oil price decline has been half that of crude price. The company plans to pass on some of the benefits of reduced base oil prices to consumers.
Base oil price, which is the key raw material for Castrol India costs nearly 50 percent of the revenue but the global fall in crude prices, has helped the company reduce costs.
Speaking to CNBC-TV18, Ravi Kirpalani, MD, Castrol India says the base oil price decline has been half that of crude price. The company plans to pass on some of the benefits of reduced base oil prices to consumers.
The benefit of reduction in raw material cost will be seen with a lag of two-three months, adds Kirpalani.
The company expects a personal mobility vehicle volume growth of around 6-7 percent. It is also hopeful of commercial vehicle volumes stabilising in second half of 2015.
Below is verbatim transcript of the interview:
Q: Very significant decline in crude prices will benefit the company. In Q1 your margins were about 21.9 percent. Now as the full impact of the crude prices decline kicks in how much could your margins rise from the current 22 percent? Can they hit the 25 percent mark in the next two to three quarters?
A: It is true that crude has come off very sharply and from the June highs we have seen Brent now trading above USD 60-62 per barrel. This is a substantive decrease from the price over the last few months.
Our cost of goods is based on cost of base oil which is a derivative of crude and normally over the longer-term tends to follow the same direction as crude.
However, in short-terms it does not exactly lead to a one-to-one correlation and what we have seen is that the dropped that has been announced in base oil prices so far have not been anywhere sharp as we have seen in the price of crude.
Our expectation though is that if the crude remains at these levels and if the rupee remains stable then we should see a similar drop in base oil prices over next two to three quarter reflect on the price of base oil as well.
Castrol stock price
On December 18, 2014, at 14:12 hrs Castrol India was quoting at Rs 486.55, up Rs 7.15, or 1.49 percent. The 52-week high of the share was Rs 544.00 and the 52-week low was Rs 282.00.
The company's trailing 12-month (TTM) EPS was at Rs 9.48 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 51.32. The latest book value of the company is Rs 10.19 per share. At current value, the price-to-book value of the company is 47.75.
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