The equity market comes with its fair share of risks—a disclaimer every investor is familiar with. Rightly so, because while it can be brutal in the short term, it tends to reward those who stay invested for the long term, primarily over five years. This makes it difficult for investors—especially those who rely on it for regular income.
At worst, what if someone’s retirement savings are invested in the market, but it shows extreme volatility in the short term, like today? It undoubtedly makes it challenging to generate passive income. That said, strong companies with a track record of consistently paying dividends can provide some stability.
In this article, we have covered two companies with strong fundamentals, brand recall, and consistent dividend payments–to help investors looking for passive income.
#1 Castrol India
Castrol India is a multinational company, a subsidiary of Castrol Limited, and part of the oil and gas giant British Petroleum Group. It has strong brand recall and primarily manufactures and markets automotive and industrial lubricants.
It caters to 12 industries through 45 brands and about 600 brand variants. It sells 7 litres of Castrol every second– testimony to its hold in the lubricant market. It holds a leading position across segments, with a 38.7% market share in four-wheelers, 26% in two-wheelers, and 21.3% in commercial vehicles. It follows a January-to-December fiscal year.
Castrol India is known for rewarding shareholders and increasing its dividends periodically over the past several years. Its dividend per share has increased from ₹5.5 in FY20 to ₹13 in FY24. At its current price of ₹200, its FY24 dividend yield is 6.5%.
The company’s financial figures have seen steady growth as it operates in an industry with a constant demand trend. Its revenue has grown at a compound annual growth rate of 16% to ₹53.6 billion during FY20-FY24. Meanwhile, its profit after tax has grown at a CAGR of 12% to ₹9.3 billion, driven by a substantial margin of over 20%.
In FY24, its revenue increased 6%, while net profit rose 7%, driven by increasing volumes and a strong margin of 24%. Its volume growth was attributed to strengthening mechanic advocacy, expanding distribution base in rural areas, and launching products aligned with original equipment manufacturers.
Looking ahead, management is focused on brand building, broadening the distribution network, and launching new products, which are expected to contribute to volume growth and market share expansion. The company remains optimistic and expects strong lubricant demand to persist until the late 2030s and early 2040s due to the low penetration of cars.
The threat from electric vehicles (EVs) is real, but their adoption is expected to be gradual. Castrol maintained its guidance to grow at the industry average rate of 4-5% while targeting a 22-25% EBITDA margin for CY25.
Sectorally, India remains the world’s third-largest lubricant market, accounting for 10% of global and 21% of Asia-Pacific demand. The industry spans the automotive, industrial, and marine sectors, with the automotive (45%) and industrial (54%) segments driving overall demand.
Castrol India is well positioned to tap into emerging high-growth sectors such as wind, aerospace, defence, and electronics manufacturing. In addition, data centres are also emerging as key growth drivers. With the growing demand for high-performance cooling and lubrication solutions, Castrol is well-equipped to support energy efficiency.
However, continued volatility in crude oil prices and high inflation, which may pose a risk to the frequency of servicing, including electrification, remain key concerns. Castrol trades at a price-to-equity multiple of 21.4, in line with its 10-year median of 21.6.
Castrol India Share Price
#2 Indian Oil Corporation
A Maharatna Public Sector Undertaking, Indian Oil is India’s largest oil-refining and marketing company. It is present across the hydrocarbon value chain, ranging from exploration and production, refining, and pipeline transportation to the marketing of petroleum products and petrochemicals.
Indian Oil refining capacity is a substantial part of India’s total capacity, with 11 refineries under its management. Collectively, they contribute about 31% of the country’s total refining capacity.
Its total refining capacity is 80.75 million metric tonnes per annum, including the 10.5 million metric tonnes per annum refining capacity of its subsidiary, Chennai Petroleum Corporation. It has a pipeline network of 20,000 km, 39,000 retail outlets, and 12,908 liquefied petroleum gas distributors.
Being a government-owned company, Indian Oil has a rich legacy of consistent dividend payment records. The company paid a dividend of ₹8.4 per share in FY22, which recorded a yield of 6.4%. The next year, it paid a dividend of ₹3. In FY24, the dividend increased to ₹12, which translates to a yield of 9% as per the current price of ₹133.
Indian Oil’s capacity utilisation remained high, above 95% in the last three financial years and 100% over the previous two years ending FY24, indicating strong operational efficiency. Consequently, its revenue has grown at 11% CAGR to ₹8.67 trillion, while its net profit rose at 134% CAGR to ₹396 billion.
However, note that Oil India’s profit growth has been positively impacted by unusual events, such as its net profit falling to ₹13 billion in FY20 due to the price of crude oil. It then fell to ₹83 billion in FY23 due to suppressed marketing margins from a high of ₹242 billion in FY22.
In Q9 FY25, its revenue fell 3% to ₹6.38 trillion compared to the previous year due to a drop in demand. However, despite this, net profit fell 85% to ₹54 billion due to a decline in the gross refining margin to $3.7 per barrel, albeit from a high base of $12.1 per barrel.
This was mainly due to a lower discount in the Russian crude oil basket. However, the reduction in crude oil prices will bode well for its marketing margins in retail operations in Q4. The company’s operations remain exposed to crude oil price and foreign exchange volatility.
Looking ahead, it is executing various projects with a cumulative project cost of about ₹1.5 trillion in the next 5 years. In addition, the company expects to incur a capital expenditure of ₹300-350 billion annually at a consolidated level over the next 2-3 years.
Most of this Capex will likely be used to add refinery capacity and expand petrochemical and renewable power capacity.
Indian Oil trades at a PE of 19, significantly higher than the 10-year median multiple of 9. Relatively, it trades at a premium to Hindustan Petroleum (13.5) but a discount to Bharat Petroleum (9).
Indian Oil Share price
Conclusion
For investors seeking steady income, Castrol India and Indian Oil stand out with their consistent dividend payouts and strong operational profiles. While market volatility remains a risk, both companies have demonstrated resilience and commitment to rewarding shareholders, making them suitable considerations for a dividend-focused portfolio.
However, keep in mind that dividend payouts depend on stable equity markets and the financial performance of companies. Thus, any adverse impact could impact payouts. Also, stocks should not be considered an alternative to fixed-income products like debt instruments and fixed deposits.
Disclaimer
Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The articles’ content and data interpretation are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.