Rising costs pose a threat to Castrol India’s margins

Castrol India Ltd.’s performance for the next two quarters is likely to be under pressure because the lubricant maker’s key raw material is crude-based and its prices have already risen to uncomfortable levels. Though Castrol’s operating profit margins have improved by 160 basis points year-on-year (y-o-y) to 22.5%, they fell by about four percentage points sequentially; advertising costs rose, and total raw material costs increased by 21% y-o-y. According to Ravi Kirpalani, director (automotive) and chief operating officer, “Base oil prices for the quarter have averaged at US$1,050 per ton against US$900 per ton for the corresponding period last year. By the end of the year, they had risen to US$1,075 per ton.” For 2010, average base oil prices have risen by 18% y-o-y, he said. (February 23, 2011)