Prefer Castrol: Parag Thakkar

Parag Thakkar of HDFC Securities told CNBC-TV18, "Basically amongst all the crude oil beneficiaries which are very good strong brands and have a very large B2C business there are a lot of myths going on in the market that all companies which use crude oil derivatives will benefit. But there are so many businesses which are B2B businesses where you have to pass on you benefits because the buyer customer is a large customer. For example auto component companies supplying to Tata Motors and Maruti Suzuki.""In companies like Castrol India or Pidilite Industries or say paint companies, you have some possibilities of margin retention and in Castrol kind of stocks where the oil they use is a direct derivative of crude oil which will just follow the crude oil price with a month or two month lag effect. They have a very strong presence in two wheeler lubricants which is a brand conscious segment where the margin retention is possible as well as in passenger cars. As the gross domestic product (GDP) improves, as we build more roads and the mines open the use of lubricants will also increase," he said."At 33 times CY15 earnings it appears very attractive plus if you see the return ratio if you analyse the balance sheet of Castrol, their net worth is actually totally held in cash and they have a negative working cap ital. So, it is a zero capital employed in the business itself and they will do a profit after tax (PAT) of around Rs 650-700 crore this year and 75 percent multinational owned company plus the biggest lever is that 55 percent of the lubricant is used by commercial vehicle (CV) industry and CV cycle is also turning around and if we build roads and mining opens up travelling of trucks will increase which will ultimately increase the use of lubricants. So, although it is becoming a competitive industry there are many players in the industry now but in my view Castrol has its own positioning and if you compare with Asian Paints or same kind of strong brands and who are beneficiaries of crude oil Castrol is relatively attractively priced now."