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Shares of Castrol India hit seven-year high at Rs 226.80, as they surged 9 per cent on the BSE in Tuesday's intra-day trade amid heavy volumes on hopes of sustained demand growth across segments by the company. In past five months, the stock of the lubricant company has zoomed 66 per cent.
At 01:44 pm; Castrol India was trading 7 per cent higher at Rs 223, as compared to 0.04 per cent gain in the S&P BSE Sensex. The average trading volumes at the counter jumped over four-fold. A combined 22.21 million equity shares representing 2.2 per cent of total equity of Castrol India changed hands on the NSE and BSE.
The company has guided margins to be in the range of 23-26 per cent and volume growth of 5 per cent during the calendar year 2024 (CY24).
Castrol India Limited is one of India’s leading lubricant companies with brands such as Castrol CRB, Castrol GTX, Castrol Activ, Castrol MAGNATEC and Castrol VECTON, which are the brands of choice for millions of consumers and customers across the country. The company also operates in select segments like High Performance Lubricants and metalworking fluids used in a wide variety of industries such as automotive manufacturing, mining, machinery, and wind energy.
In the realm of personal mobility, Castrol India is strategically positioned to capitalise on trends such as the surge in SUVs and CNG-powered vehicles, the demand for thinner viscometric premium lubricants, and the growing influence of e-commerce-driven and business-in-service activities such as delivery and ride-hailing, the company said in its CY23 annual report.
Lubricant demand is driven by its Industrial and Automotive applications. Industrial lubricants cater to various industries, such as automotive, wind, power, steel, cement, general engineering, and manufacturing, which are linked to increased economic activity.
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India’s oil demand is expected to rise significantly, driven by a positive outlook in the offshore oil and gas market due to supply security concerns and elevated oil prices. The offshore rig market is experiencing a high utilisation of 85 per cent, reaching these levels for the first time since 2015.
The demand for commercial vehicles is influenced by rising factory and farm output, infrastructure development, and mechanisation of agriculture. In contrast, for personal mobility vehicles, the demand is driven by a growing aspirational middle class, easy access to finance, and a lack of robust public transport infrastructure. Additionally, technological developments in hardware design are pushing the shift to more efficient fluids, the company said.
Strong free cash flow generation, minimal capital requirements, high ROEs and strong payouts make Castrol an attractive franchise. However, the recent rise in stock price caps the potential upside. Hence, we await a better entry point in the stock, an analyst at IDBI Capital had said in the Q4CY23 result update.
