Stocks
Earnings preview: Castrol India, Exide Industries

Here are the earnings that can be expected from these companies

CASTROL INDIA (Q3)

Net sales: Rs6.4 billion-Rs7.2 billion
Net profit: Rs1.1 billion-Rs1.5 billion

Operating margins are expected to be about 500bps lower due to higher raw material prices and a weaker rupee. The quarter is also seasonally weaker for Castrol so q-o-q volumes may also dip.

In the September quarter, its FII shareholding went up to 6.3% from 5.8% in June and 5.2% y-o-y. However, the DII share came down to 7.3% from 7.8% in June and 8% y-o-y. Promoter share was steady at 71%.

In the June quarter Castrol earned a net profit of Rs1.5 billion vs. Rs1.3 billion y-o-y. Its net sales were Rs7.5 billion vs. Rs6.4 billion y-o-y. In the September 2009 quarter, Castrol earned a net profit of Rs956 million and net sales of Rs5.7 billion. The share price hit a new all-time high of about Rs558 late August. However, since then it has oscillated in the
Rs480-Rs540 range.

EXIDE INDUSTRIES (Q2)

Net sales: Rs11.4 billion-Rs12.3 billion
Net profit: Rs1.8 billion

Watch out for statements about its battery sales to Tata Motor's Nano model since the automobile manufacturer was planning to ramp up capacity at its Sanand plant in Gujarat. Exide is one of the largest battery suppliers for the Nano. The company had announced last quarter that it is planning to spend Rs4 billion in FY11 on capacity expansions.

The telecom segment continues to be a laggard for this company. However in the previous quarter, UPS, especially the home inverter segment, had done very well - however, the commercial UPS segment had not done so well.

Watch out for statements about lead recycling as well. This is supposed to be a major money saver for Exide. About three years ago, in October 2007, Exide entered into lead smelting and recycling to reduce its dependence on lead imports. Currently, its tie-ups in this direction are providing about 45% of its lead requirements, which are expected to inch up to 50% by the end of FY11. The company's target is 100%.

In the June quarter Exide earned a net profit of Rs1.6 billion vs. Rs1.2 billion y-o-y. Its net sales were Rs11.5 billion vs. Rs9 billion y-o-y. In the September 2009 quarter, Exide earned a net profit of Rs1.5 billion and net sales of Rs9.5 billion.

The stock hit a new all-time high of Rs179 today at 11:15 AM on the BSE. FII shareholding in the stock has almost doubled from a year ago to 15% while DII share has come off a bit to 16.5%.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).
 

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COMMENTS

Dr Rajeev Peeka

7 years ago

Dear Munira

Your Pre Result estimates for Castrol are way off the Mark , if I am not wrong.

Regards

Rajeev

Dr Rajeev Peeka

7 years ago

Dear Munira

Your Pre Result estimates for Castrol are way off the Mark , if I am not wrong.

Regards

Rajeev

REPLY

Munira

In Reply to Dr Rajeev Peeka 7 years ago

Dear Dr Peeka... A few points:
1. These are not my estimates. They are brokerage estimates which i present in a band -- from the lower end of the scale to the upper end
2. Castrol's results came in at the lower end of the band. So they were not really way off the mark
3. In the specific case of Castrol, I happen to know that their management interacts regularly with the investor community (institutional investors) on a quarterly basis, through brokers who track the stock. While they might not give out specific estimates to their investors, I happen to believe that with such widespread interaction, where brokers receive direct feedback about business growth on such a regular basis, estimates should ideally be in a much more narrow range. But, as you can see, they are not.

som

In Reply to Munira 7 years ago

Let me understand. Doesn't this mean that Castrol underperformed or that its management misled the analysts who they "interact" with regularly? Was the street led to believe that performance would be better than it has turned out to be? Must look at the price trend in that case... I dont follow the stock so I have no clue.

Munira

In Reply to som 7 years ago

Dear Som, A few things. Despite the management's extensive interaction with institutional investors, Castrol remains a thinly tracked stock, i.e, very few brokers track it. To my knowledge, Castrol does not make direct earnings projections. Analysts do tend to make their assumptions based on their interaction with the company management. But please note that not all analysts were wrong -- obviously the broker at the lower end of the spectrum did get it right. It would be safe to assume that Castrol has disappointed on the earnings front. Regards, Munira

Will Hindalco benefit from aluminium production cuts in China?

Reports of production cuts in aluminium in China may tempt investors into thinking that aluminium prices are set for a rise again and that Hindalco might make a good bet at this level. This may not be the case

While aluminium prices are down today (in line with the global correction in commodities on a stronger dollar) they have been rising for the past two months. They have also recovered most of their losses in the last one year. In terms of inventories, over a one-year period, they have been falling. But if you look at five-year levels, there has barely been a dent, and inventories are still pretty high.

Leading futures and commodities research firm MF Global believes that aluminium production will see an 800,000-tonne surplus this year with global stocks at 7 million tonnes (MT), and another 600,000 tonne surplus next year. Despite this, aluminium prices are holding high because most of the stocks (inventories) are tied up in finance deals - this artificially tightens supply. However, a lot of data from around the world is saying that these financing deals may now come to and end, albeit gradually. This may be mainly because the premium between forward contracts and spot prices is gradually coming down, making it less attractive for financiers.

Industry watchers are expecting production cuts in China due to the high price of producing aluminium there, mainly due to rising power costs. However, keep in mind that it would take roughly 2-3MT capacity shutdowns to make a dent in the demand-supply scenario (total aluminium production in 2009 was about 37MT). Nobody seems to know whether these production cuts will actually come through since this means job losses, a very sensitive issue in China. Although there has been some cutback in output in August, it is nowhere close to the run rate needed to make a meaningful difference. August aluminium production in China was at 1.388MT, just a little off May's monthly record of 1.418MT.

Hindalco's stock price is inching towards its lifetime high of Rs228 (current market price at Rs212). This could probably be a strong resistance level for the stock according to market watchers.

In its June quarter, it earned a revenue of Rs52 billion (standalone) and a net profit of Rs5.3 billion and in the September 2009 quarter it earned a revenue of Rs49 billion and a net profit of Rs3.4 billion. In the September 2010 quarter, Hindalco is expected to be one of the top contributors to Sensex earnings. Its net sales are expected to rise on better realisations even when volumes are expected to fall. Hindalco will be affected by the outage at its Hirakud smelter. Novelis has been a major turnaround for the company after a lot of its fixed contracts (in which it was stuck) came to an end and it managed to renegotiate 60%-70% of them. The company seems on track with its expansion plans. Net sales expectations range from Rs49.6 billion to Rs58 billion. Net profit expectations range from Rs4.2 billion to Rs5.8 billion. Risks to expectations are higher power and fuel costs.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).
 

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Tuesday’s Market Preview: Cautious opening likely

The Indian market is likely to open on a cautious note today. The US markets closed with marginal gains amid low volumes on Monday on worries of the third quarter corporate earnings. The Asian pack was trading lower on a decline in oil and commodity prices and on concerns about the global economy. The SGX Nifty was down 12.50 points at 6,142.50 against 6,155 on Monday.

The local market ended in the positive zone for the second day in a row. Although the indices got an early boost from the global markets this morning, the gains could not be sustained and the jittery market ended a tad higher, pulled down by profit booking. The Sensex ended at 20,340, up 89.63 points (0.44%). The Nifty gained 32.40 points (0.53%) to settle at 6,136.

The government is expected release the industrial numbers, which may provide some direction to the Indian market later in the day.

Wall Street closed a tad higher amid low volumes on concerns about earning reports from corporates. Investors chose to book profits after the recent rally in stocks. Besides, expectations of the Federal Reserve’s move to prop up the economy, has already been factored in.

The Dow gained 3.86 points (0.04%) at 11,010. The S&P 500 added 0.17 points (0.01%) to 1,165.32. The Nasdaq rose 0.42 points (0.02%) 2,402.

Markets in Asia were trading lower on a decline in oil and commodity prices. Concerns about the global economy also weighed on the investors. Stocks in Japan were trading lower as a stronger yen made exporters cautious.

The Shanghai Composite was down 0.46%, Hang Seng was down 0.32%, KLSE Composite was down 0.04%, Nikkei 225 was down 0.90%, Straits Times was down 0.11%, Seoul Composite was down 1.06% and Taiwan Weighted was down 0.32%. The SGX Nifty was down 12.50 points at 6,142.50 against 6,155 on Monday.

After showing a robust growth of 13.8 per cent in July, the Index of Industrial Production (IIP) for August is likely to slip to around 10%, say experts.

A day before the IIP for August is to be made public, senior economists on Monday said that segments like capital goods — which witnessed a production growth of 63% in July against just 1.7% a year ago — will hopefully maintain the momentum.

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