In conversation with Deepesh Baxi, CFO and Wholetime Director, Castrol India Limited

With a spike in commodity inflation and input cost surging, Castrol India while investing to grow the core business, is also preparing for the long-term future by exploring, developing and testing new business models. Here's our conversation with Deepesh Baxi, CFO and Wholetime Director, Castrol India Limited. 

What is your outlook on the automotive and industrial lubricants sector?

As per internal estimates, the short term view for automotive and industrial lubricants consumption is flattish as compared to 2019. But as the economy slowly moves to normalcy post the pandemic, we are confident of an exciting phase for the lubricants industry in India in the mid to long term. With demand for lubricants expected to grow driven by vehicles sales, technology advancement in the segment will lead to a reduction in consumption per vehicle and higher quality lubricants to meet new emission norms, which we are currently providing to consumers, including BS-VI compliant engine oils.

According to internal estimates, the global car parc stands at 1.2 bn today which are primarily ICE (Internal Combustible Engines) vehicles which will come down to 0.9 bn by 2040. This will certainly present a large car parc which needs maintenance and servicing in the days to come. Also, in India given the very low car penetration which is 22 per 1000 compared to 900 per 1000 in the Western developed markets, there is ample headroom for the growth of ICE vehicles. So, we are confident that there is enough material business as a leading lubricants player in the country to grow the value pool in India for the next two decades.

Castrol India reported an 81.33 per cent rise in consolidated total sales revenues for Q1FY22 and net profit stood at Rs 140 crore, growing by 114.1 per cent on a YoY basis. What factors have contributed the most to help you outperform?  

The strong revenue growth was due to higher volumes across our mobility and industrial segments with an overall increase in market share. In line with our strategy, we continued to invest in our products and brands. Additionally, 1Q FY’21 was a lower base as sales were impacted due to national lockdown compared to 1Q FY’22 wherein impact was less adverse due to partial and localised lockdowns.

With the spike in commodity inflation, input costs are surging for companies across the board. Are you implementing any cost rationalization measures to safeguard profit margins?

We take a strategic view in responding to cost increases. In the last two quarters, we have taken price increases in the market to counter the unprecedented effect of rising inflation, input costs and adverse forex. We have taken actions to prepare the business for future growth including adjusting our pricing to drive growth where relevant. We also continuously benchmark our costs externally and internally (within the BP group) and take appropriate actions. 

Our investment in digital technology, cost efficiency programmes and inventory reduction for distributors towards judicious working capital management efforts have led to consistent healthy cash from operations.

 What are your growth levers?

We have a clear strategy focused on growth in personal mobility and participate selectively in commercial vehicles and industrial lubricants. We are a premium brand company that continues to invest in our brands to drive topline growth while innovating to provide a better customer experience through digital initiatives.

Keeping in mind the shift in the auto industry towards hybrids and EVs, Castrol as a company has developed a range of e-fluids, transmission fluids, coolants and greases and is collaborating with a significant part of the world’s major vehicle manufacturers who already use Castrol’s e-Fluids as part of their factory fill for EVs. Being a part of a global business, we have access to cutting edge technology and the range of products developed as part of global R&D efforts.

We possess the largest distribution network in the country and industry and will continue expanding on this with strategic alliances like with Jio-bp and Ki Mobility.

 Castrol also continues to explore new opportunities and expand to areas beyond lubricants in adjacencies like vehicle car care and as a service and maintenance brand offering more than lubricants to help it increase its participation in the automotive landscape in India. In collaboration with Jio-bp at the retail sites, we recently launched a new concept of Castrol Express Oil change outlets which offer quick oil change service for consumers on the go.

 Our focus is on the fundamental building blocks including our people, brands, distribution network, digital, customer acquisition and advocacy efforts along with an eye on future trends of mobility to achieve sustainable growth and profitability for the company and bring value to shareholders. 

 What are your top three strategic objectives?

Given the current context of the pandemic which is still ongoing, our response is focused on three strategic priorities – protecting our people, supporting communities, and safeguarding the financial health of our business. Our plants continue to operate in line with the government and local Covid-19 guidelines; with offices beginning to reopen in a phased manner with limited staff, after most non-plant employees having worked from home for the last 18 months since March 2020. Our investment in digital technologies has helped us build seamless connectivity with employees, customers and consumers to ensure business continuity and deliver a robust performance in FY’20 and continue the momentum in the first half of FY’21 also.

Through this period, we directed our CSR efforts towards Covid relief activities covering various sections of society including government hospitals, mechanics, truckers, and migrant labourers who were impacted, along with our Corona warriors - essential service workers. This year, we have continued with actions like the supply of critical medical equipment i.e. oxygen concentrators and ventilators to government hospitals, setting up a 500 litres per minute oxygen plant at the 1000-bed Base hospital in Delhi, awareness sessions on the government’s vaccination drive encouraging communities to get vaccinated while helping them register online.

While we invest to grow our core business, we are also preparing the business for the longer-term future by exploring, developing and testing new business models in advanced mobility and digitization.