Where Castrol India Limited's (NSE:CASTROLIND) Earnings Growth Stands Against Its Industry

When Castrol India Limited (NSE:CASTROLIND) released its most recent earnings update (31 March 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Castrol India's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not CASTROLIND actually performed well. Below is a quick commentary on how I see CASTROLIND has performed.

Check out our latest analysis for Castrol India

Did CASTROLIND's recent earnings growth beat the long-term trend and the industry?

CASTROLIND's trailing twelve-month earnings (from 31 March 2018) of ₹6.95b has increased by 1.92% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 7.70%, indicating the rate at which CASTROLIND is growing has slowed down. Why could this be happening? Well, let's examine what's transpiring with margins and whether the entire industry is feeling the heat.

In the last few years, revenue growth has failed to keep up which indicates that Castrol India’s bottom line has been driven by unmaintainable cost-reductions. Looking at growth from a sector-level, the IN chemicals industry has been growing its average earnings by double-digit 13.26% over the prior year, and 14.66% over the previous five years. This growth is a median of profitable companies of 25 Chemicals companies in IN including Chromatic India, Chromatic India and Pentokey Organy (India). This means any uplift the industry is deriving benefit from, Castrol India has not been able to realize the gains unlike its industry peers.

In terms of returns from investment, Castrol India has invested its equity funds well leading to a 68.09% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 32.90% exceeds the IN Chemicals industry of 8.83%, indicating Castrol India has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Castrol India’s debt level, has declined over the past 3 years from 143.74% to 103.04%.

What does this mean?

Though Castrol India's past data is helpful, it is only one aspect of my investment thesis. While Castrol India has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research Castrol India to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for CASTROLIND’s future growth? Take a look at our free research report of analyst consensus for CASTROLIND’s outlook.
2. Financial Health: Is CASTROLIND’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.