Castrol India reported its second quarter and half yearly results for 2016 yesterday. The results look like this:

Castrol India Q2 – 2016 Q1 – 2016 Q2 – 2015 % change Q-Q % change Y-Y 1H – 2016 1H – 2015 % change
Total Income 970.80 855.70 923.60 13.45% 5.11% 1826.50 1722.8 6.02%
EBIT 319.70 265.3 282 20.51% 13.37% 585 505.1 15.82%
EBIT Margin 32.93% 31% 30.53% 1.93 Bpt 2.4 Bpt 32.03% 29.32% 2.71 Bpt
Net Profits 206.90 172.40 184.5 20.01% 12.14% 379.3 331.2 14.52%


Looking at the above table, Castrol India is seeing a momentum of growth in its total income of 13.45% on quarter on quarter basis and so far had seen a growth of 6% in its first half. They are also seeing expansion in its margin as cost of material consumed by the company is falling down (Crude Oil). This had resulted into strong profit growth of 20% on Q-Q basis and also 14.52% in the first half compare to last year first half.

The consensus of analyst are expecting its profits for 2016 to be in range of Rs 638 – Rs 719 crore. We think that there is a very good chance that Castrol India might beat those expectations and exceed those profits. We do not expect ‘oil’ prices to go up sharply in the second half of this year. The recent fall in oil prices from US$ 51 per barrel to US$ 42 per barrel is giving us the clear idea about a gap in its supply- demand. This gap will take another good 4 -6 quarters to fill, resulting more volatility in its price. But we expect that price will still stay below US$ 50 per barrel.

Especially, the second quarter has seen lot of volatility in crude oil and Castrol had still managed to outperform and display good numbers. We expect less volatility in crude oil in coming future two quarter which should help Castrol to boost its margin and profitability.

If we punch in the analyst earnings expectation in our calculation, then its intrinsic value band comes in range of Rs 339 – Rs 434 per share. But remember, we expect them to beat those estimates.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.